<PAGE>


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

                                   FORM 10-Q

          [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
                   For quarterly period ended August 31, 1997
                                       or
          [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
            For the transition period from __________ to __________

                         Commission File Number 0-19393


                          MANAGED CARE SOLUTIONS, INC.
             (Exact name of registrant as specified in its charter)


            Delaware                                        36-3338328
 (State or other jurisdiction of incorporation or organization)(I.R.S. Employer
Identification No.)


                             7600 North 16th Street
                                   Suite 150
                             Phoenix, Arizona 85020
                    (Address of principal executive offices)
                                   (Zip Code)

                                  602-331-5100
              (Registrant's telephone number, including area code)

Indicate  by check  mark  whether  the  registrant  (1) has  filed  all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant  was  required  to file such  reports),  and (2) has been  subject to
such filing requirements for the past 90 days.
Yes   X    No  _______
    -----

There were  4,389,855  shares of common  stock  outstanding  as of  October  15,
1997.
<PAGE>

                               TABLE OF CONTENTS

                                                                            Page


Part I      FINANCIAL INFORMATION


     Item 1.Financial Statements


           Consolidated Balance Sheets........................................3


           Consolidated Statements of Operations..............................4


           Consolidated Statements of Cash Flows..............................5


           Notes to Unaudited Consolidated Financial Statements...............6


     Item 2.Management's Discussion and Analysis of Financial Condition
            and Results of Operations......................................7-10


Part II     OTHER INFORMATION


     Item 1.Legal Proceedings................................................10


     Item 4.Submission of Matters to a Vote of Security Holders..............10


     Item 6.Exhibits and Reports on Form 8-K.................................10

                                       2
<PAGE>
PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS
<TABLE>
                                              MANAGED CARE SOLUTIONS, INC.
                                              CONSOLIDATED BALANCE SHEETS
 

<CAPTION>
                                                                                          August 31,      May 31,
                                                                                             1997          1997
                                                                                         ------------   ------------
<S>                                                                                      <C>            <C>
                                                                                         (Unaudited)
ASSETS

Current Assets:
  Cash and cash equivalents, including restricted cash of $ 6,234,000 and $ 5,304,000    $  7,293,000   $  7,212,000
  Short-term investments                                                                    1,502,000      1,503,000
  Accounts and notes receivable and unbilled services, net                                  4,773,000      3,998,000
  Related party accounts and notes receivable                                                  15,000         26,000
  Prepaid expenses and other current assets                                                 1,488,000      1,735,000
  Deferred income taxes, net                                                                  933,000        971,000
                                                                                         ------------   ------------
     Total current assets                                                                  16,004,000     15,445,000

Notes receivable                                                                              255,000        315,000
Related party notes receivable                                                                712,000        941,000
Property and equipment, net                                                                 4,067,000      3,723,000
Performance bonds                                                                           3,738,000      3,737,000
Goodwill, net                                                                               3,100,000      3,191,000
Other assets                                                                                  618,000        665,000
                                                                                         ------------   ------------
                                                                                         $ 28,494,000   $ 28,017,000
                                                                                         ============   ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
  Accounts payable                                                                       $    443,000   $    350,000
  Accrued medical claims                                                                    6,622,000      7,080,000
  Risk pool payable                                                                         2,253,000      2,035,000
  Related party risk pool payable                                                             291,000        301,000
  Accrued expenses                                                                          3,084,000      2,668,000
  Current portion of long-term debt                                                           200,000        200,000
                                                                                         ------------   ------------
     Total current liabilities                                                             12,893,000     12,634,000

Long-term debt                                                                                 17,000         67,000
Related party long-term debt                                                                3,723,000      3,643,000
Deferred income taxes, net                                                                    203,000        203,000
                                                                                         ------------   ------------
     Total liabilities                                                                     16,836,000     16,547,000
                                                                                         ------------   ------------

Commitments                                                                                         -              -

Stockholders' Equity:
  Voting preferred stock, $1,000 par value
   Authorized, issued and outstanding - 6.85 shares                                             7,000          7,000
  Common stock, $0.01 par value
   Authorized - 10,000,000 shares
   Issued and outstanding - 4,390,000 shares                                                   44,000         44,000
  Capital in excess of par value                                                           14,497,000     14,497,000
  Accumulated deficit                                                                      (2,890,000)    (3,078,000)
                                                                                         ------------   ------------
     Total stockholders' equity                                                            11,658,000     11,470,000
                                                                                         ------------   ------------
                                                                                         $ 28,494,000   $ 28,017,000
                                                                                         ============   ============

                                                        3

                          The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
                         MANAGED CARE SOLUTIONS, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (Unaudited)

<TABLE>
 
<CAPTION>
                                                    Three Months Ended
                                             ----------------------------------
                                              August 31,           August 31,
                                                 1997                 1996
                                             -------------        -------------
<S>                                          <C>                   <C>
 
Revenues                                     $  14,742,000        $  17,535,000
                                             -------------        -------------

Direct cost of operations                       11,780,000           14,078,000
Marketing, sales and administrative              2,757,000            4,532,000
                                             -------------        -------------

  Total costs and expenses                      14,537,000           18,610,000
                                             -------------        -------------

Operating income (loss)                            205,000           (1,075,000)
                                             -------------        -------------

Interest income                                    191,000               69,000
Interest expense                                   (91,000)             (36,000)
                                             -------------        -------------

  Net interest income                              100,000               33,000
                                             -------------        -------------

Income (loss) before income taxes                  305,000           (1,042,000)

Provision (benefit) for income taxes               117,000              (50,000)
                                             -------------        -------------

Net income (loss)                            $     188,000        $    (992,000)
                                             =============        =============

Net Income (loss) per share                  $        0.04        $       (0.23)
                                             =============        =============
 
Weighted Average Common and Common
  Equivalent Shares Outstanding                  4,502,000            4,365,000
                                             =============        =============
</TABLE>
                                       4

        The accompanying notes are an integral part of these statements.
<PAGE>
<TABLE>
                                 MANAGED CARE SOLUTIONS, INC.
                            CONSOLIDATED STATEMENTS OF CASH FLOWS
                                        (Unaudited)
 
<CAPTION>
                                                                Three Months Ended
                                                           ----------------------------
                                                            August 31,     August 31,
                                                               1997           1996
                                                           -------------   ------------
<S>                                                        <C>             <C>
 
Cash flows from operating activities:
  Net income (loss)                                        $     188,000   $   (992,000)
  Adjustments to reconcile net income (loss) to net cash
   provided by operating activities:
   Bad debt expense                                                    -        567,000
   Depreciation and amortization                                 422,000        422,000
   Loss on sale of property and equipment                          4,000              -
   Deferred income taxes                                          38,000              -
   Changes in assets and liabilities:
     Accounts receivable and unbilled services                  (775,000)    (1,778,000)
     Prepaid expenses and other current assets                   247,000       (162,000)
     Accounts payable                                             93,000      2,146,000
     Accrued medical claims                                     (458,000)     1,139,000
     Risk pool payable                                           218,000        261,000
     Related party risk pool payable                             (10,000)        18,000
     Accrued expenses                                            416,000        543,000
     Loss contract reserve                                             -       (400,000)
     Other changes in assets and liabilities                      47,000              -
                                                           -------------   ------------
Net cash provided by operating activities                        430,000      1,764,000
                                                           -------------   ------------
 
Cash flows from investing activities:
  Purchase of property and equipment                            (680,000)      (933,000)
  Proceeds from sale of property and equipment                     1,000              -
  Purchase of short-term investments                                   -       (500,000)
  Proceeds from maturity/sale of short-term investments            1,000      1,369,000
  Net payments of notes receivable                               300,000              -
  Increases in assets securing performance bond                   (1,000)      (112,000)
                                                           -------------   ------------
Net cash used in investing activities                           (379,000)      (176,000)
                                                           -------------   ------------

Cash flows from financing activities:
  Due to Medicus Systems Corporation                                   -       (145,000)
  Net increase (decrease) in long-term debt                       30,000     (1,250,000)
                                                           -------------   ------------
Net cash provided by (used in) financing activities               30,000     (1,395,000)
                                                           -------------   ------------

Net increase in cash and cash equivalents                         81,000        193,000
Cash and cash equivalents, beginning of period                 7,212,000      3,804,000
                                                           -------------   ------------
Cash and cash equivalents, end of period                   $   7,293,000   $  3,997,000
                                                           =============   ============
</TABLE>
                                              5

               The accompanying notes are an integral part of these statements.
<PAGE>

                          MANAGED CARE SOLUTIONS, INC.
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 1 - NATURE OF BUSINESS
---------------------------

In management's  opinion,  the  accompanying  unaudited  consolidated  financial
statements  contain  all  adjustments   (consisting  of  only  normal  recurring
adjustments)  considered  necessary for a fair  statement of the results for the
interim  periods  presented.  The  results of  operations  for the period  ended
August 31,  1997 are not  necessarily  indicative  of the results to be expected
for the full year.  The  interim  consolidated  financial  statements  should be
read in  conjunction  with Managed Care  Solutions,  Inc.  ("MCS" or  "Company")
consolidated  financial  statements and notes thereto  included in the Company's
Form 10-K for the year ended May 31, 1997.

NOTE 2 - NET INCOME PER SHARE
-----------------------------

Net  income (loss)  per common share  has been computed by  dividing  net income
(loss) by  the weighted average common equivalent shares outstanding during  the
period.  Common stock  equivalents  include  shares  issuable on the exercise of
stock options and warrants when  dilutive,  using the treasury stock method from
date of grant.

The following is the  computation  of the  reconciliation  of the numerators and
denominators  of net income per common  share and  net income per common  share,
assuming   dilution  in  accordance  with  Statement  of  Financial   Accounting
Standards No. 128,  "Earnings  Per Share"  ("SFAS 128").  SFAS 128 was issued in
February  1997 and is effective for  financial  statements  for both interim and
annual periods ending after December 15, 1997.
<TABLE>

Supplemental earnings per share:
<CAPTION>

                                                                           Three Months Ended
                                             -----------------------------------------------------------------------------

                                                         August 31, 1997                       August 31, 1996
                                             -------------------------------------  --------------------------------------

                                                Income         Shares     Per Share   Income          Shares     Per Share
                                             (Numerator)   (Denominator)   Amount   (Numerator)   (Denominator)   Amount
<S>                                          <C>           <C>             <C>      <C>           <C>             <C>

Net income per common share:
  Income available to common stockholders     $188,000       4,390,000      $0.04    $(992,000)      4,365,000     $(0.23)
Effect of dilutive securities:
  Stock options and warrants                         -         112,000                       -               -
                                              --------       ---------               ---------      ----------
                             
Net income per common share, assuming
  dilution:
  Income available to common stockholders
    and assumed conversions                   $188,000       4,502,000      $0.04    $(992,000)      4,365,000     $(0.23)
                                              ========       =========      =====    =========       =========     ======
</TABLE>

NOTE 3 - RESTRICTIONS ON FUND TRANSFERS
---------------------------------------

Certain  of  the  Company's   operating   subsidiaries   are  subject  to  state
regulations,  which  require  compliance  with  certain  net worth,  reserve and
deposit  requirements.  To the extent the  operating  subsidiaries  must  comply
with  these  regulations,  they  may  not  have  the  financial  flexibility  to
transfer  funds to the parent  organization,  MCS.  Net  assets of  subsidiaries
(after  inter-company  eliminations)  which,  at  August  31,  1997,  may not be
transferred  to MCS by  subsidiaries  in the  form of  loans,  advances  or cash
dividends  without the  consent of a third  party is referred to as  "Restricted
Net Assets".  Total Restricted Net Assets of these operating  subsidiaries  were
$8,575,000   at  August  31,  1997,  with   deposit  and   reserve  requirements
(performance bonds) representing $3,738,000 of the Restricted Net Assets and net
worth requirements, in excess of deposit and reserve  requirements, representing
the remaining $4,837,000.

                                       6
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

Introduction

Managed Care  Solutions,  Inc. ("MCS" or the "Company") is involved in a variety
of  health  care   programs,   many  of  which  serve   indigent   and  Medicaid
populations.  The Company's  operations  include a long-term  care Arizona based
health  maintenance  organization  ("HMO")  subsidiary,  Ventana  Health Systems
("Ventana");  an Arizona  based primary and acute care HMO  subsidiary,  Arizona
Health  Concepts  ("AHC");  management  contracts  pursuant to which the Company
administers  privately owned HMOs located in Hawaii,  Michigan,  New Mexico, and
Texas;  the  management of healthcare  services for an indigent  population  for
the County of San Diego;  a  contractual  arrangement  with the State of Indiana
Medicaid  Agency;  a subsidiary  providing home healthcare and community  worker
services  to  Ventana;   and  an  Ancillary   Services  Division  which  manages
arrangements in which hospitals  deliver  clinical  services  on-site at nursing
homes.

Results of Operations

Revenues  decreased   to  $14,742,000   for   the   three-month   period   ended
August 31, 1997 from  $17,535,000 for the comparable period in fiscal year 1997.
For the three-month  periods ended August 31, 1997 and 1996, revenues  consisted
of $5,435,000 and  $5,283,000,  respectively,  from fees received for management
of health  plans  not  owned  by  the  Company  and  $9,307,000 and $12,252,000,
respectively,  from capitation  revenue received by Ventana and AHC.  Management
fee  revenue  from  non-owned  plans  increased  3% for the three  months  ended
August 31, 1997 over the comparable  period in the prior year,  while capitation
revenue from Ventana and AHC decreased 24%.

AHC revenues  decreased by  $2,638,000  primarily as a result of  transition  of
members   in  Maricopa  County to a different plan on December 1, 1996.  For the
three-month periods ended August 31, 1997 and 1996 average member months for AHC
were approximately 6,720 and 11,760, respectively.  Ventana  revenues  decreased
by  $307,000 primarily due to a  decrease  in  membership.  For the  three-month
period ended  August 31, 1997 average  member months  were  approximately  1,050
versus  1,150 for the  comparable  period in fiscal year 1997.  

Direct cost of operations  decreased to $11,780,000 for the  three-month  period
ended   August  31,   1997  from  $14,078,000  for   the  comparable  period  in
fiscal year 1997.  For the  three-month  periods  ended August 31, 1997 and 1996
direct cost of operations consisted of $3,937,000 and $2,914,000,  respectively,
related  to fees  generated  from  management  of health  plans not owned by the
Company and $7,843,000 and $11,164,000,  respectively,  from operating  expenses
of  Ventana  and  AHC.  The  direct  cost of  operations  to  manage  plans as a
percentage  of related  revenue  decreased  to 72% during the three-month period
ended August 31,  1997,  from 82% for the  comparable  period in the prior year.
The decrease was  primarily due to the  termination  of  unprofitable  contracts
during the second  quarter of fiscal  year 1997,  termination  of  approximately
10% of  employees  in  July  1996  as part of a  workforce  reduction  plan  and
efforts to minimize  operating  costs.  Direct costs as a percentage  of related
revenue for the three-month  period  ended August 31, 1997 and 1996 were 84% and
83%,  respectively,  for  Ventana  and  85% and 91%, respectively, for AHC.  The
decrease in direct cost of operations for  Ventana and  AHC reflect the decrease
in average  member months from the  three-month  period ended August 31, 1996 to
the comparable period in fiscal year 1998.

In conjunction  with the acquisition of AHC in March 1996, the Company  recorded
a loss contract reserve of $542,000,  including  anticipated  contract losses of
$440,000  for the  period  June 1,  1996 to  September  30,  1996.  The  Company
charged operating losses incurred  totaling $330,000 for the three-month  period
ended August 31, 1996, against this reserve.  As a result, these contract losses
are not fully  reflected in the Company's operating results for the  three-month
period ended August 31, 1996.

 
                                      7
<PAGE>

Marketing,  sales and administrative  expenses decreased from $4,532,000 for the
three-month period ended August 31,  1996  to  $2,757,000  for  the  three-month
period  ended  August 31, 1997.   This decrease is primarily the result  of  the
termination   of   unprofitable   contracts   during   the  second  quarter   of
fiscal  year 1997,  the workforce  reduction  plan implemented  in July 1996 and
efforts  to  minimize operating costs.

Net  interest  income for the three-month  period  ended  August  31,  1997  was
$100,000  which is  primarily  related to  investments  held by Ventana  and AHC
partially  offset by interest expense on the Company's  outstanding  convertible
debt.  For the  three-month  period ended August 31, 1996,  net interest  income
was $33,000  related to  short-term  investments  of the  Company.  Net interest
income has increased during the three-month period ended August 31, 1997  versus
the  comparable  period in  the prior fiscal year as  a result of  the growth in
cash and cash equivalents and short-term investments.

Income  tax   rate   was  38%   and  5%  for  the   three-month   period   ended
August  31, 1997 and  1996,  respectively.  The  variance  between the  rates is
primarily caused by a need to provide a  valuation  allowance  on  deferred  tax
assets of the Company for the three-month period ended August 31, 1996.

Net income  was  $188,000  for the  three-month  period  ended  August 31,  1997
versus  a  net loss  of  $992,000  for  the   comparable  period  in  the  prior
fiscal year.  The primary reasons for the change in profitability  were costs in
the 1996 period related  to  terminated  contracts  in  Colorado,  Illinois  and
Missouri  and  costs  associated  with  employees  terminated  as  part  of  the
workforce reduction effort in July 1996.

In March 1997, the Company  entered into an  administrative  services  agreement
with Rio  Grande  HMO,  Inc.,  a  subsidiary  of Blue  Cross and Blue  Shield of
Texas,  Inc.  ("BCBSTX"),  to participate in the STAR+Plus  Program of the Texas
Department  of  Human  Services.   The  STAR+Plus  Program  is  a  demonstration
project in Harris County, Texas that will provide  comprehensive  managed health
care  services to aged,  blind and disabled  Medicaid  beneficiaries,  including
those  needing  long-term  care  services.  Rio Grande HMO, Inc. is one of three
contractors  selected  to  participate  in this $300  million  per year  program
covering   over  60,000   individuals.   This  program  is  scheduled  to  begin
enrollment in December 1997.

In June 1997,  AHC was  selected  as one of the prepaid  health  plans to manage
the  delivery of health care  services in Arizona's  Medicaid  program for three
years with two additional  one-year  extensions.  The contract became  effective
on October 1, 1997 and covers two  counties in  northwest  Arizona.  The current
enrollment of AHC is approximately 7,000 members.

In June 1997,  the Company  entered into an  administrative  services  agreement
with Lovelace  Health  Systems  ("Lovelace"),  a New Mexico  subsidiary of CIGNA
Healthcare  Corporation.  The Company provides  management  services to Lovelace
to support its  Medicaid  managed care  contract  with the State of New Mexico's
Human Services  Department.  Lovelace was one of three  organizations  awarded a
two-year  contract with the state to provide  comprehensive  managed health care
services  to  an  aggregate  of  over  245,000  Medicaid   eligible   recipients
statewide.  Effective  October 1, 1997,  Lovelace  enrolled over 25,000  members
during two of four enrollment phases, which continue through May 1998.

                                       8
<PAGE>

Liquidity and Capital Resources

During the  three-month  period ended August 31, 1997,  the  Company's  cash and
cash equivalents  increased $81,000 to $7,293,000 on August 31, 1997,  including
an  increase in  restricted  cash of  $930,000.  Operating  activities  provided
$430,000 for the  three-month  period ended August 31, 1997,  versus  $1,764,000
for the same  period in the prior  fiscal  year.  The  primary  sources  of cash
during  the  three-month   period  ended  August  31,  1997   were  income  from
operations,  growth in risk pool payables and prepaid expenses  partially offset
by  increase  in  accounts   receivable  and  unbilled   services.   During  the
comparable  period  in the  prior  year,  cash was  provided  by the  growth  in
current  liabilities,  partially  offset by the loss from  operations and growth
in prepaid expenses and accounts receivable.

Investing   activities  used   $379,000   for   the   three-month  period  ended
August 31, 1997  versus  $176,000  for  the  comparable  period  of  the   prior
fiscal  year.  During the three-month period  ended  August 31, 1997,  cash  was
used  to  purchase  $680,000  of  property  and  equipment  primarily   for  the
Albuquerque,  Houston  and Phoenix   offices   which  included  computer  system
upgrades.  During the same period $300,000 was provided by net payments on notes
receivable.

Financing   activities   provided  $30,000  for  the  three-month  period  ended
August 31, 1997 versus using  $1,395,000 for the comparable  period of the prior
fiscal year  during the first quarter of fiscal  year 1997.  Principal  payments
on long-term  debt as well as  payments  to  Medicus  Systems  Corporation  were
the primary uses of funds.

Certain  of  the  Company's   operating   subsidiaries   are  subject  to  state
regulations  which  require  compliance  with  certain  net worth,  reserve  and
deposit  requirements.  To the extent the  operating  subsidiaries  must  comply
with  these  regulations,  they  may  not  have  the  financial  flexibility  to
transfer  funds  to  MCS.  Net  assets  of  subsidiaries  (after   inter-company
eliminations)  which,  at August  31,  1997,  may not be  transferred  to MCS by
subsidiaries  in the form of  loans,  advances  or cash  dividends  without  the
consent of a third  party are  referred to as  "Restricted  Net  Assets".  Total
Restricted  Net  Assets  of   these  operating  subsidiaries  was $8,575,000  at
August 31,  1997,   with  deposit and reserve requirements (performance   bonds)
representing   $3,738,000   of  the   Restricted   Net   Assets  and  net  worth
requirements,  in excess of deposit and reserve  requirements,  representing the
remaining  $4,837,000.  Funds  provided by Ventana to MCS under loan  agreements
totaled  $743,000 at August 31,  1997.  VHS  provided  these loans in the normal
course of  operations.  All such  agreements  were  pre-approved  as required by
Arizona Health Care Cost Containment System Administration.

Based  on  its  current  projections  of  existing   contracts,   which  include
substantial  capital  expenditures  in  connection  with its Rio  Grande HMO and
Lovelace  Health  Systems  contracts,  the  Company  believes  that its cash and
capital  resources  should be sufficient to meet its financial  requirements  in
fiscal  1998.  The  Company  is  currently  pursuing  new  contracts  to provide
management  services in new and existing  markets.  If the Company is successful
in securing any of these  opportunities it may require  additional  financing to
cover start-up costs and capital  equipment.  MCS is actively  negotiating  with
two  corporations  engaged in related health care  businesses who have expressed
a desire to invest in MCS  common  stock  and/or  enter into  credit  agreements
with MCS.  While the Company  believes  one or both of these  transactions  will
be  completed  during the  quarter  ending  November 30,  1997,  there can be no
assurance that either will be successful.  If neither of these  transactions  is
completed,  the Company  will be required to seek  alternative  financing  while
continuing its efforts to increase revenues and minimize operating costs.

                                       9
<PAGE>

Forward-Looking Information

This report  contains  statements that may be considered  forward-looking,  such
as the  discussion  of the  Company's  strategic  goals,  new contracts and cash
flow.  These  statements  speak of the Company's  plans,  goals or expectations,
refer  to  estimates,   or  use  similar  terms.  Actual  results  could  differ
materially  from  the  results   indicated  by  these  statements   because  the
realization of those results is subject to many uncertainties.

Some of these  uncertainties  that may affect  future  results are  discussed in
more detail  above.  All  forward-looking  statements  included in this document
are based upon  information  presently  available,  and the  Company  assumes no
obligation to update any forward-looking statement.

PART II - OTHER INFORMATION

Item 1.   Legal Proceedings

Redpath  Computer   Services,   Inc.  and  Isotech   Marketing,   Inc.,  Arizona
corporations  that had filed for  protection  under Chapter 11 of the Bankruptcy
Code,  had  filed an  action  against  the  Company  and  Ventana,  among  other
defendants,   seeking  substantial  damages  for  alleged  breach  of  contract,
copyright  infringement,  and conversion  of software  and  unfair  competition.
During  September 1997,  Redpath  and  Isotech  abandoned  their  claim  against
Ventana, released the Company and its affiliates from  liability and  agreed  to
voluntarily dismiss their claims in federal court.  Ventana  made no payments to
Redpath or Isotech to induce this dismissal.

Item 4.   Submission of Matters to a Vote of Security Holders

The following  matters were  submitted to a vote of security  holders during the
Company's Annual Meeting of Stockholders held October 10, 1997:

                              Votes Cast        Authority
Description of Matter            For            Withheld
---------------------         ----------        ---------

Election of Directors:

   Richard C. Jelinek         4,193,932           2,209
   William G. Brown           4,193,870           2,271
   Risa Lavizzo-Mourey        4,193,932           2,209
   Henry Kaldenbaugh          4,193,932           2,209
   John Lingenfelter          4,193,791           2,350
   James A. Burns             4,193,932           2,209

Item 6.   Exhibits and Reports on Form 8-K

          (a)  Exhibits
               (10.1)  Fourth Amendment to  contract   between   registrant  and
                       AlohaCare
               (10.2)  Sixteenth  Amendment  to contract  between the registrant
                       and San Diego County, California
               (10.3)  Amendment to registrant's Employee Stock Purchase Plan
               (27)    Financial data schedule

          (b)  Reports on Form 8-K
                       None

                                       10
<PAGE>

SIGNATURES


Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.


                    MANAGED CARE SOLUTIONS, INC.

                    By:    /s/ James A. Burns  
                           -----------------------------------------------------
                           James A. Burns, President and Chief Executive Officer

                    By:    /s/ Michael J. Kennedy                          
                           -----------------------------------------------------
                           Michael J. Kennedy, Chief Financial Officer

                    Dated: October 15, 1997

                                       11

<PAGE>
                                                                    Exhibit 10.1
                           
                                FOURTH AMENDMENT

This amendment amends the  Administrative  Services  Agreement between AlohaCare
and Managed Care Solutions of Delaware  ("MCS") dated April 25, 1994, as amended
on August 25, 1995, September 25, 1995, and October 22, 1996, as follows:

   The first sentence of Section  III.C.1.a,  as amended by the October 22, 1996
   amendment,  which reads:  "AlohaCare shall pay MCS an  administrative  fee of
   [***************],"  is  deleted in its  entirety  and is  replaced  with the
   following:

      a. Effective July 1, 1997 AlohaCare  shall pay MCS an  administrative  fee
         based on the total number of enrolled QUEST and QUEST-Net  members,  in
         accordance with the following schedule:

           ENROLLED MEMBERS            PER MEMBER MONTHLY ADMINISTRATIVE FEE
           ----------------            -------------------------------------

            [************]                            [******]
            [******]                                  [********]
            [******]                                  [********]
            [******]                                  [********]
            [******]                                  [********]
            [******]                                  [********]
            [******]                                  [********]
            [******]                                  [********]
            [******]                                  [********]
            [******]                                  [********]
            [******]                                  [********]
            [******]                                  [********]
            [******]                                  [********]
            [******]                                  [********]
            [******]                                  [********]
            [******]                                  [********]
            [******]                                  [********]
            [******]                                  [********]
            [******]                                  [********]
            [******]                                  [********]
            [******]                                  [********]
            [******]                                  [********]

The  administrative fee schedule set forth above shall be applied each and every
month, as illustrated by the following hypothetical example:

   If in July AlohaCare's  QUEST and QUEST-Net  enrolled  membership is [******]
   member months,  then the administrative fee payable to MCS by AlohaCare shall
   be [*******] (the product of [*******************]). If in August AlohaCare's
   QUEST and QUEST-Net enrolled  membership is [*********]  member months,  then
   the  administrative fee payable to MCS by AlohaCare shall be [*********] (the
   product of [****************]).

*Confidential treatment is requested.

<PAGE>

Page Two
Amendment Four
June 24, 1997

The  Administrative  Fee set forth above shall apply to administrative  services
for the Acute Care and Behavioral  Health Care QUEST and QUEST-Net  pro-grams of
AlohaCare, but shall not apply to Dental program administration, Aged, Blind and
Disabled   (ABD)   program   administration,   Long  Term  Care  (LTC)   program
administration, or any other program not currently operational within AlohaCare.
An agreement  concerning  administrative  fees for such new Dental,  ABD, LTC or
other  currently  non-operational  programs  of  AlohaCare  shall be  negotiated
between AlohaCare and MCS and be made an amendment to this Agreement.

The Administrative Fee  structure  as set  forth  above shall  be effective from
July 1, 1997  until  June 30, 1999.  The  Administrative Fee  shall be  adjusted
upward on each  anniversary  of the  effective  date of this  Amendment  by  the
following formula: The applicable per member-per month figure will be multiplied
by a fraction  the  numerator of which being the consumer price index figure for
Honolulu,  Hawaii most  recently  published by the United  States  Department of
Labor,  Bureau of Labor Statistics and the denominator being such consumer price
index figure for the same month of the immediately preceding year.

Profit or Loss (as defined below) incurred by MCS in an AlohaCare  contract year
pursuant to this Agreement shall not exceed [***********].  Profit or Loss shall
be allocated between MCS and AlohaCare as follows:

      PROFIT/LOSS                   PERCENT TO MCS               MCS PROFIT/LOSS
      -----------                   --------------               ---------------

      [************]                      [******]                [********]

      [************]                      [****]                  [*******]

      [************]                      [****]                  [*******]

      [************]                      [***]                   [*]

Within 60 days after the end of the AlohaCare contract year, MCS or AlohaCare as
the case may be,  shall pay to the other  party any amount due  pursuant to this
amendment.

"Costs"  shall  mean  all  out-of-pocket  expenses  paid or  incurred  by MCS in
providing  administrative services to AlohaCare in an AlohaCare contract year in
accordance with generally accepted accounting principles (GAAP).

"Fees"  shall  mean  all  administrative  fees  paid to MCS by  AlohaCare  in an
AlohaCare contract year pursuant to this Agreement.

*Confidential treatment is requested.
<PAGE>

Page Three
Amendment Four
June 24, 1997

"Profit"   and   "Loss"   shall   mean  an  amount  resulting  from  subtracting
[********************* *********************].

MCS shall not be at risk for losses of AlohaCare or any  AlohaCare  risk pool or
participate in profits of AlohaCare or of any AlohaCare risk pool.

MCS shall be paid an Incentive  Payment at the end of each  contract  year in an
amount  up to  [****]  of the Fees.  The  terms  and  conditions  governing  the
Incentive Payment shall be determined by MCS and AlohaCare and made an amendment
to this Agreement.

The Profit and the  Incentive  Payment in an AlohaCare  contract  year shall not
exceed an amount equal to [***] times the number of member  months  sustained by
AlohaCare for such contract year.

The remaining  provisions of Section  III.C.1.a and unamended  provisions of the
Agreement, as amended on August 25, 1995 and September 25, 1995, shall remain in
full force and effect.

This amendment shall be effective as of July 1, 1997.

ALOHACARE                           MANAGED CARE SOLUTIONS
---------                           ----------------------


By    /s/ Jory Watland                    By    /s/ James Burns

Its   President                           Its   President & CEO

Date  June 27, 197                        Date  June 26, 1997

*Confidential treatment is requested.
<PAGE>
                                                                   Exhibit 10.2

                                                   COUNTY CONTRACT NUMBER #43497

                                   AGREEMENT

AGREEMENT between the COUNTY OF SAN DIEGO hereinafter called COUNTY and

                          MANAGED CARE SOLUTIONS, INC.
                          8840 Complex Drive Suite 300
                               San Diego CA 92123
                       (619) 492-4422 FAX (619) 565-4091

hereinafter  referred  to  as CONTRACTOR for County of San  Diego, Department of
Health Services, Community Health Services, Perinatal Care Network.
--------------------------------------------------------------------------------

                                  WITNESSETH:

WHEREAS   CONTRACTOR   is  specially  trained  and  possesses  certain   skills,
experience, education and compentency to  perform certain  special services, and
COUNTY desires to  engage CONTRACTOR for  such  special  services upon the terms
provided and,

WEHREAS, pursuant to the provisions  of the  California Government  Code Section
26227, The Board of Supervisors  of COUNTY is authorized to enter a contract for
such services.

WHEREAS, the County, by San  Diego County Charter, Section 705 has  authority to
obtain bids or quotations and  award  a contract for software systems and  other
services and  has  by  Article V or  the San Diego County  Administrative  Code,
Section 93.1 (a) authorized the Purchasing and Contracting  Director to  award a
contract for

OPERATION AND ADMINISTRATION OF THE PERINATAL CARE TOLL-FREE TELEPHONE SERVICES

NOW THEREFORE the parties hereto do mutually agree to the  terms and  conditions
as attached and set forth in:

SECTION             TITLE
A                   Special Terms and Conditions
B                   Standard Terms and Conditions
C                   Statement of Work
D                   Budget
E                   CHC proposal dated October 17, 1996 as modified by CHC Best
                    and Final Offer dated December 16, 1996
                    CHC Revised Best and Final Offer dated December 17, 1996

IN WITNESS THEREOF COUNTY AND CONTRACTOR  have  executed  this AGREEMENT  to  be
effective:

                                January 1, 1997
<TABLE>
<CAPTION>

CONTRACTOR:                                 COUNTY:
<S>                                         <C>

BY:    /s/ Michael Tweedell  Date: 12/17/96  BY:     /s/ William L. Napier  Date:  12/18/96
       --------------------                          ---------------------

NAME:  Michael D. Tweedell                   NAME:   William L. Napier
-------------------------------------------------------------------------------------------

TITLE: Senior Vice President                 TITLE:  Purchasing and Contracting Director

--------------------------------------------------------------------------------
County Counsel Approval:  N/A             Auditor-Controller  Approval:  N/A
--------------------------------------------------------------------------------
CH43497.AGR  December 17, 1996
--------------------------------------------------------------------------------
</TABLE>
<PAGE>

                      SIXTEENTH AMENDMENT TO THE AGREEMENT
                        TO PROVIDE ADMINISTRATION OF THE
                               COUNTY OF SAN DIEGO
                         COUNTY MEDICAL SERVICES PROGRAM
                  COUNTY OF SAN DIEGO CONTRACT NUMBER 41217


THIS  SIXTEENTH  AMENDMENT  is to the  Agreement  made between the COUNTY of San
Diego (hereinafter referred to as "COUNTY") and MANAGED CARE SOLUTIONS, FORMERLY
MEDICUS Systems  Corporation  located at 8840 Complex Drive, San Diego, CA 92123
(hereinafter  referred to as "Contractor") for the  administration of the COUNTY
of San Diego, COUNTY Medical Services Program.

                                   WITNESSETH

WHEREAS,   Contractor  possesses  certain  skills,  experience,   education  and
competency to perform  certain  special  services,  and COUNTY desires to engage
Contractor for such special services upon the terms provided; and

WHEREAS,  the COUNTY Director of Purchasing and Contracting,  pursuant to action
of the Board of Supervisors, Item 22 on February 21, 1989, awarded a contract to
the Contractor to provide  administration  of the COUNTY Medical  Services (CMS)
Program,  for an initial term through June 30, 1992 with an option to extend for
two additional two-year terms; and

WHEREAS, the  COUNTY,  by  action  of  the  Board  of  Supervisors,  Item 56  on
February 13, 1990,  authorized  the Director of Purchasing  and  Contracting  to
approve, authorize,  and  execute a sole source amendment to the COUNTY Contract
with MEDICUS Systems Corporation for day-to-day operations  and  claims  payment
related to AB75 and SB12/612; and

WHEREAS, the  COUNTY,  by  action  of  the  Board  of  Supervisors,  Item  12 on
June 12, 1990, authorized the extension of CMS Program contracts  for the three-
month period, July 1, 1990 through September 30, 1990; and

WHEREAS,  the  COUNTY  by  action  of  the  Board  of  Supervisors,  Item  5  on
September 12, 1990,  authorized  the  extension of CMS Program contracts for the
9 month period, October 1, 1990 through June 30, 1991; and

WHEREAS, the COUNTY  by  action  of  the  Board  of  Supervisors,  Item  39A  on
February 26, 1991, directed the  Chief Administrative  Officer to  terminate the
CMS Program by close of business March 5, 1991, effective March 16, 1991, unless
adequate funds were made available from the State; and

<PAGE>

                      SIXTEENTH AMENDMENT TO THE AGREEMENT
                        TO PROVIDE ADMINISTRATION OF THE
                               COUNTY OF SAN DIEGO
                         COUNTY MEDICAL SERVICES PROGRAM

WHEREAS,  the  COUNTY  by  action  of  the  Board  of  Supervisors,  Item  31 on
March 5, 1991,  set aside action taken on February 26, 1991 to terminate the CMS
Program by  March 5, 1991, and instructed  the Chief  Administrative  Officer to
send out notices to terminate  the  CMS  contracts  by  the  end of  the day  on
March 8, 1991, effective March 19,  1991, unless the State  provided  the COUNTY
with binding assurances  that it would  provide the COUNTY with  revenues in the
amount of at least $16,000,000 to pay for the  CMS program for the  remaining of
FY 90-91; and

WHEREAS, the Superior Court in San Diego COUNTY on March 18, 1991 ordered a stay
of the Notices of Termination; and

WHEREAS,  the State  reduced its  allocation to the San Diego COUNTY CMS Program
for Fiscal Years 1990-91 and 1991-92; and

WHEREAS,  a  variety  of   functions  are  required   to  be  performed  by  the
CONTRACTOR to close out the CMS Program; and

WHEREAS,  the  COUNTY  by  action  of  the  Board  of  Supervisors,  Item  6  on
June 24, 1991,  authorized the extension  of CMS Program  contracts  for the two
month period, July 1, 1991 through August 31, 1991; and

WHEREAS,  the  COUNTY  by  action  of  the  Board  of  Supervisors,  Item  39 on
July  23,  1991  authorized  extension  of   CMS   Program   contracts   through
June 30, 1992; and

WHEREAS,  the  COUNTY  by  action  of  the  Board  of  Supervisors,  Item  38 on
June  2,  1992   authorized   extension   of   CMS  Program  contracts   through
June 30, 1993; and

WHEREAS,  the  COUNTY  by  action  of  the  Board  of  Supervisors,  Item  2, on
October 6, 1992,  authorized  provision  of  clinic  services  to HIV+  patients
through CMS community clinics; and

WHEREAS,  the COUNTY by action of the Board of  Supervisors,  Minute Order #6 on
February 2, 1993,  authorized  expansion of the  Perinatal  Care  Network  (PCN)
Referral Services; and

WHEREAS,  the  COUNTY by action of the Board of  Supervisors  on June 29,  1993,
authorized  extension of CMS Program  contracts through June 30, 1994 (Items #63
and #17),  as well as extension  of the  Perinatal  Care Network  (Items #17 and
#13), and clinic services for HIV+ patients (Item #20);

WHEREAS,  the  COUNTY by action of the Board of  Supervisors  on June 21,  1994,
authorized  extension of the CMS Program  contracts  through June 30, 1995 (Item
#28),  extension of the contract  with  MEDICUS for the  Perinatal  Care Network
Program (Item #17), and extension of the CARE ACT contracts with the clinics and
with MEDICUS for clinic services for HIV+ patients (Item #34);

<PAGE>

WHEREAS,  the  COUNTY by action of the Board of  Supervisors  on June 27,  1995,
authorized  extension of the CMS Program contracts through June 30, 1996 (Item #
9),  extension  of the  contract  with  MEDICUS for the  Perinatal  Care Network
Program (Item # 6), and extension of the CARE ACT contracts with the clinics and
with MEDICUS for clinic services for HIV+ patients (Item # 9);

WHEREAS,  the COUNTY by action of the Board of  Supervisors  on March 19,  1996,
authorized extension of the CARE ACT contracts with the clinics and with MEDICUS
for clinic services for HIV+ patients (Item # 20);

WHEREAS,  THE COUNTY BY ACTION OF THE BOARD OF  SUPERVISORS ON DECEMBER 3, 1996,
AUTHORIZED  EXTENSION OF THE COUNTY MEDICAL  SERVICES'  ADMINISTRATIVE  CONTRACT
WITH MANAGED CARE SOLUTIONS (ITEM # 20);

NOW, THEREFORE, the parties hereto do mutually agree to the terms and conditions
as attached and set forth in this SIXTEENTH Amendment to the agreement.

1.    SECTION  2  WORK  TO BE  PERFORMED  BY  CONTRACTOR  is  amended  as to the
      following sections under RFP 90231 Statement of Work. These are amended to
      reflect   mutually   agreed  upon   operational   changes  to  performance
      requirements; and are hereby amended as follows:

      6.    SYSTEM OVERVIEW

            6.8   CONTRACT CLOSE-OUT
                  ------------------

                  COUNTY AND CONTRACTOR  HAVE  NEGOTIATED A FIRM FIXED PRICE FOR
                  MONTH-TO-MONTH  SERVICES  BEYOND JUNE 30,  1997,  AS WELL AS A
                  THREE  MONTH  CLOSE  OUT  PERIOD  BEYOND  JUNE  30,  1997.  IF
                  EXERCISED BY THE COUNTY,  COUNTY SHALL  NOTIFY  CONTRACTOR  AT
                  LEAST 45  CALENDAR  DAYS IN ADVANCE OF ITS INTENT TO  EXERCISE
                  ANY OPTION TO EXTEND THIS AGREEMENT.  CONTRACTOR SHALL PROVIDE
                  THE  COUNTY  WITH AT LEAST 120  CALENDAR  DAYS  PRIOR  NOTICE,
                  SHOULD CONTRACTOR DESIRE TO TERMINATE THIS AGREEMENT.

            8.1   OVERALL SYSTEM MANAGEMENT

<PAGE>

               8.1.2 ADMINISTRATIVE CONTRACTOR RESPONSIBILITIES
                     ------------------------------------------

                  d.    THE  PROVISION TO  PROVIDE  200 HOURS OF  NON-MANAGEMENT
                        COUNTY REPORT ASSISTANCE IS DELETED; HOWEVER, CONTRACTOR
                        SHALL PARTICIPATE AS REASONABLY  REQUESTED BY THE COUNTY
                        IN  RESEARCH AND EVALUATIVE STUDIES DESIGNED TO SHOW THE
                        EFFECTIVENESS  AND/OR EFFICIENCY OF THE  COUNTY  MEDICAL
                        SERVICES PROGRAM.  Institutionalized reports  related to
                        the program  are  operational  and  are  not  considered
                        non-management reports.  (e.g.  AB8,  Legislation, Board
                        inquiries, etc.)

            8.7   CLAIMS PROCESSING

               8.7.2 ADMINISTRATIVE CONTRACTOR RESPONSIBILITIES
                     ------------------------------------------

                  c.    Provide a settlement  and  distribution  of the funds in
                        each pool  within the  following  days of the end of the
                        fiscal   year:   Hospital   Pool   =   ON   OR    BEFORE
                        SEPTEMBER  30TH;   Primary  Care  Pool  =  ON  OR BEFORE
                        SEPTEMBER   30th;  Specialty   Pool   =  ON  OR   BEFORE
                        SEPTEMBER 30TH. This is to be done according to the pre-
                        determined formula specified in the provider contracts.

2.    SECTION 5 CONTRACT  TYPE AND PAYMENT is hereby  amended in its entirety as
      follows:

      This Agreement shall be of two types, a cost reimbursement for all capital
      equipment  acquisitions  and a fixed  price with  redetermination  for all
      other Contractor cost.

      All capital  equipment,  equipment that has a value of $1000.00 or greater
      and a life of three years or greater, shall be pre-approved by the COUNTY,
      shall be competitively acquired, and invoiced within 30 days after receipt
      and acceptance.  All capital equipment shall be kept in good working order
      and maintained by the  Contractor.  It shall be properly  tagged as COUNTY
      fixed assets,  and returned or disposed of in accordance with COUNTY fixed
      assets procedures. COUNTY shall reimburse the CONTRACTOR the cost provided
      the item does not exceed the funds  available  in the agreed upon  capital
      acquisition  amount for the period.  The agreed upon  capital  acquisition
      amount for the  transition  period and first year through June 30, 1990 is
      $101,760.00.  The agreed upon  capital  acquisition  amount for the period
      July  1,  1990  through  June 30,  1991  is  $15,000.00;  the  amount  for
      July 1,  1991  through  June 30,  1992 is   $15,000.00;   the  amount  for
      July 1,  1992  through  June  30,  1993  is  $15,000.00;  the  amount  for
      July 1, 1993 through June 30, 1994 is $15,000; the amount for July 1, 1994
      through  June 30, 1995 is  $15,000;  the amount  for July 1, 1995  through
      June  30,  1996  is   $15,000;  the   amount  for  July  1,  1996  through
      JUNE 30, 1997  IS  $33,000.  The COUNTY shall  reimburse  100  percent  of
      capital  equipment  invoices.  All other terms of Section B, Item 29, page
      B-7 of RFP 90231  remain in effect.  For  AB75 and SB12/612  Related Work,
      the COUNTY and CONTRACTOR agree to an  additional  $25,000.00 for  capital
      acquisition from April 1, 1990 through June 30, 1990.

<PAGE>

      All other  cost  such as labor,  material,  rents and  leases,  consultant
      services, etc. for providing the specified services shall be reimbursed at
      firm fixed price prorated for monthly  payments.  The firm fixed price for
      the  transition  period is  $210,040.00.  This price is to be  prorated as
      follows:  through May 31,  1989,  $60,040.00  and through  June 30,  1989,
      $150,000.00.  The firm fixed price with redetermination for the first year
      is $2,661,600.00. This price is to be prorated at one twelfth of the total
      for each of the  twelve  months  from  July 1 to June 30 in the  amount of
      $221,800.00 per month. The firm price for the work specified in "Statement
      of Work for AB75 and  SB12/612  Related  Programs"  (attached to the First
      Amendment)   is   $334,063.00   for   the   period  March  1, 1990 through
      June 30, 1990.  This price is  prorated  for each of the four  months from
      March 1,  1990 to June 30,  1990 in the amount of  $83,515.75  per  month.
      The firm fixed price for all specified  services in Section 2, as amended,
      for the first year is  $2,661,600 plus $334,063 for a total of $2,995,663.
      This  amount  is   to  be   prorated   as  follows:   July  1989   through
      February  1990, $221,800 per month; March 1990 through June 1990, $221,800
      plus $83,515.75 for a total of $305,315.75 per month.

      The firm fixed price for  administration of the CMS Program for the period
      July 1, 1990 through  September 30, 1990 is $723,821 (25% of  $2,895,287);
      this price is to be  prorated  at  one-third  of the total for each of the
      three months from July 1 to September  30, 1990, in the amount of $241,274
      per month.

      The firm fixed price for  administration of the CMS Program for the period
      October 1, 1990 through June 30, 1991 is  $2,171,465  (the 9 month portion
      of $2,895,287); this price is to be prorated for each of the 9 months from
      October 1 to June 30, in the amount of $241,274  per month;  except in the
      event the CMS Program is terminated prior to the end of FY 1990-91,  where
      upon 10 days written  notification,  the firm fixed price will be prorated
      on a daily rate in the amount of $7906 through June 30, 1991.

<PAGE>

      The firm fixed price for  administration of the CMS Program for the period
      July 1, 1991 through  August 31, 1991 is $482,548  (the 2 month portion of
      $2,895,287);  this price is to be  prorated  for each of the 2 months from
      July 1, to August 31, 1991 in the amount of $241,274 per month.

      The firm fixed price for  administration of the CMS Program for the period
      September  1, 1991  through  June 30,  1992 is  $2,412,739  (the  10-month
      portion of  $2,895,287);  this price is to be prorated for each of the ten
      months from  September  1, 1991 to June 30, 1992 in the amount of $241,274
      per month. In the event the CMS Program is terminated  prior to the end of
      FY 1991-92,  upon 10 days written  notification  by the Director of Health
      Services,  Contractor will be paid an additional  three months at $241,274
      per month for closeout activities pending further negotiations.

      The firm fixed price for  administration of the CMS Program for the period
      July 1, 1992  through  June 30,  1993 is  $2,895,287;  this price is to be
      prorated  for each of the  twelve  months in the  amount of  $241,274  per
      month.

      The firm fixed price for  administration of the CMS Program for the period
      July 1, 1993  through  June 30,  1994 is  $2,895,287;  this price is to be
      prorated  for each of the  twelve  months in the  amount of  $241,274  per
      month.

      The firm fixed price for  administration of the CMS Program for the period
      July 1, 1994  through  June 30,  1995 is  $2,895,287;  this price is to be
      prorated  for each of the  twelve  months in the  amount of  $241,274  per
      month.

      The firm fixed price for  administration of the CMS Program for the period
      July 1, 1995  through  June 30,  1996 is  $2,895,287;  this price is to be
      prorated  for each of the  twelve  months in the  amount of  $241,274  per
      month.

      The firm fixed price for  administration of the CMS Program for the period
      July 1, 1996 through December 31, 1996 is $1,447,644;  this price is to be
      prorated for each of the six months in the amount of $241,274 per month.

      THE FIRM FIXED PRICE FOR  ADMINISTRATION OF THE CMS PROGRAM FOR THE PERIOD
      JANUARY 1, 1997 THROUGH JUNE 30, 1997 IS  $1,214,814;  THIS PRICE IS TO BE
      PRORATED FOR EACH OF THE SIX MONTHS IN THE AMOUNT OF $202,469 PER MONTH.

      IF  EXERCISED  AT  THE  COUNTY'S  OPTION,  THE  COUNTY  MAY  CONTRACT  FOR
      MONTH-TO-MONTH  ADMINISTRATION  OF THE CMS PROGRAM  AFTER JUNE 30, 1997 AT
      THE FIRM FIXED PRICE OF $194,283 PER MONTH.

<PAGE>

      IF  EXERCISED  AT  THE   COUNTY'S   OPTION,   THE  FIRM  FIXED  PRICE  FOR
      ADMINISTRATION  OF THE CMS  PROGRAM FOR LAST THREE  MONTHS OF SERVICE,  TO
      INCLUDE RECONCILING AND FINAL CLOSE OUT OF THE PROGRAM, IS $524,709;  THIS
      PRICE IS TO BE  PRORATED  FOR EACH OF THE THREE  MONTHS  IN THE  AMOUNT OF
      $174,903 PER MONTH.

      The firm price for the work  specified in  "Statement of Work for AB75 and
      SB12/612 Related  Programs"  (attached to the First Amendment) is $155,000
      (25% of  $620,000)  for the period July 1, 1990 through  September,  1990.
      This price is prorated  for each of the three  months from July 1, 1990 to
      September 30, 1990 in the amount of $51,666 per month.

<PAGE>

      The firm price for the work  specified in  "Statement of Work for AB75 and
      SB12/612 Related  Programs"  (attached to the First Amendment) is $465,000
      (9 months  portion  of $620,000) for the  period  October 1, 1990  through
      June 30, 1991.  This price is  prorated for each of  the  nine months from
      October 1, 1990 to June 30, 1991 in the amount of $51,666 per month.

      The firm price for the work  specified in  "Statement of Work for AB75 and
      SB12/612  Related  Programs"  (attached  to the First  Amendment)  for the
      period July 1, 1991 through  August 31, 1991 is $103,333 (2 months portion
      of $620,000).  This  price  is prorated  for each  of the  two months from
      July 1, 1991 to August 31, 1991 in the amount of $51,666 per month.

      The firm price for the work  specified in  "Statement of Work for AB75 and
      SB12/612  Related  Programs"  (attached  to the First  Amendment)  for the
      period  September 1, 1991 through June 30, 1992 is $516,667  (the 10-month
      portion of  $620,000).  This price is prorated  for each of the ten months
      from  September  1, 1991 to June 30,  1992 in the  amount of  $51,666  per
      month.  In the event the CMS Program is terminated  prior to the end of FY
      1991-92,  upon 10 days  written  notification  by the  Director  of Health
      Services,  Contractor will be paid an additional  three months at $ 51,666
      per month for closeout activities pending further negotiations.

      The firm price for the work  specified in  "Statement of Work for AB75 and
      SB12/612  Related  Programs"  (attached  to the First  Amendment)  for the
      period  July 1, 1992  through  June 30,  1993 is  $620,000.  This price is
      prorated for each of the twelve months in the amount of $51,666 per month.

      The firm price for the work  specified in  "Statement of Work for AB75 and
      SB12/612  Related  Programs"  (attached  to the First  Amendment)  for the
      period  July 1, 1993  through  June 30,  1994 is  $620,000.  This price is
      prorated for each of the twelve months in the amount of $51,666 per month.

      The firm price for the work  specified in  "Statement of Work for AB75 and
      SB12/612  Related  Programs"  (attached  to the First  Amendment)  for the
      period  July 1, 1994  through  June 30,  1995 is  $620,000.  This price is
      prorated for each of the twelve months in the amount of $51,666 per month.

      The firm price for the work  specified in  "Statement of Work for AB75 and
      SB12/612  Related  Programs"  (attached  to the First  Amendment)  for the
      period  July 1, 1995  through  June 30,  1996 is  $620,000.  This price is
      prorated for each of the twelve months in the amount of $51,666 per month.

<PAGE>

      The firm price for the work  specified in  "Statement of Work for AB75 and
      SB12/612  Related  Programs"  (attached  to the First  Amendment)  for the
      period July 1, 1996 through  December 31, 1996 is $309,996.  This price is
      prorated for each of the six months in the amount of $51,666 per month.

      THE FIRM PRICE FOR THE WORK  SPECIFIED IN  "STATEMENT OF WORK FOR AB75 AND
      SB12/612  RELATED  PROGRAMS"  (ATTACHED  TO THE FIRST  AMENDMENT)  FOR THE
      PERIOD  JANUARY 1, 1997 THROUGH  JUNE 30, 1997 IS $309,996.  THIS PRICE IS
      PRORATED FOR EACH OF THE SIX MONTHS IN THE AMOUNT OF $51,666
      PER MONTH.

      IF  EXERCISED  AT  THE  COUNTY'S  OPTION,  THE  COUNTY  MAY  CONTRACT  FOR
      MONTH-TO-MONTH  ADMINISTRATION  OF THE AB75 AND SB12/612  RELATED PROGRAMS
      AFTER JUNE 30, 1997 AT THE FIRM FIXED PRICE OF $51,666 PER MONTH.

      IF EXERCISED AT THE COUNTY'S OPTION, THE FIRM PRICE FOR THE WORK SPECIFIED
      IN "STATEMENT OF WORK FOR AB75 AND SB12/612 RELATED PROGRAMS" (ATTACHED TO
      THE FIRST  AMENDMENT)  FOR THE LAST THREE  MONTHS OF SERVICE IS  $154,998.
      THIS  PRICE IS  PRORATED  FOR EACH OF THE THREE  MONTHS  IN THE  AMOUNT OF
      $51,666 PER MONTH.

      The firm fixed price for all specified  services in Section 2, as amended,
      for the three month period, July 1, 1990 to September 30, 1990 is $723,821
      plus  $155,000 for a total of $878,821.  This amount is to be prorated for
      each of the three  months from July 1, 1990 to  September  30, 1990 in the
      amount of $241,274 plus $51,666 for a total of $292,940. These amounts are
      distinct and separate from any amounts invoiced by the Contractor  related
      to the Second Amendment ("Computer Software Use and Services"),  the Fifth
      Amendment  ("Perinatal  Provider  Network  claims  packaging  and  billing
      services") or the [Computer  System] Personal Property Lease and Option to
      Buy.

<PAGE>

      The firm fixed price for all specified  services in Section 2, as amended,
      for the nine month period,  October 1, 1990 to June 30, 1991 is $2,171,465
      plus $465,000 for a total of $2,636,465. This amount is to be prorated for
      each of the nine months from  October 1, 1990 through June 30, 1991 in the
      amount of $241,274  plus  $51,666 for a total of  $292,940;  except in the
      event the CMS Program is terminated prior to the end of FY 1990-91,  where
      upon 10 days written  notification,  the firm fixed price will be prorated
      on a daily rate  in  the  amount  of $7906 plus $51,666 per month  through
      June 30,  1991.  These amounts are distinct and separate  from any amounts
      invoiced  by the  Contractor  related to the Second  Amendment  ("Computer
      Software Use and  Services"),  the Fifth  Amendment  ("Perinatal  Provider
      Network Claims Packaging and Billing Services"),  or the [Computer System]
      Personal Property Lease and Option to Buy.

      The firm fixed price for all specified  services in Section 2, as amended,
      for the two month period, July 1, 1991 to August 31, 1991 is $482,548 plus
      $103,333 for a total of  $585,881.  This amount is to be prorated for each
      of the two months from July 1, 1991 through  August 31, 1991 in the amount
      of $241,274 plus $51,666 for a total of $292,940.

      The firm fixed price for all specified  services in Section 2, as amended,
      for the ten month period, September 1, 1991 to June 30, 1992 is $2,412,739
      plus $516,667 for a total of $2,929,406. This amount is to be prorated for
      each of the ten months from September 1, 1991 through June 30, 1992 in the
      amount of $241,274 plus $51,666 for a total of $292,940.  In the event the
      CMS Program is  terminated  prior to the end of FY  1991-92,  upon 10 days
      written  notification,  the firm fixed price of $292,940 per month will be
      prorated for an  additional  three months  pending  further  negotiations.
      These amounts are distinct and separate  from any amounts  invoiced by the
      Contractor  related to the Second  Amendment  ("Computer  Software Use and
      Services"),  the  Fifth  Amendment  ("Perinatal  Provider  Network  Claims
      Packaging  and  Billing  Services"),  or the  [Computer  System]  Personal
      Property Lease and Option to Buy.

      The firm fixed price for all specified  services in Section 2, as amended,
      for the two month period, July 1, 1991 to August 31, 1991 is $482,548 plus
      $103,333 for a total of  $585,881.  This amount is to be prorated for each
      of the two months from July 1, 1991 through  August 31, 1991 in the amount
      of $241,274 plus $51,666 for a total of $292,940. The firm fixed price for
      all specified services in Section 2, as amended, for the ten month period,
      September 1, 1991 to June 30, 1992 is $2,412,739 plus $516,667 for a total
      of  $2,929,406.  This amount is to be prorated  for each of the ten months
      from  September  1, 1991  through  June 30, 1992 in the amount of $241,274
      plus  $51,666  for a total of  $292,940.  In the event the CMS  Program is
      terminated  prior  to  the  end  of  FY  1991-92,  upon  10  days  written
      notification,  the firm fixed price of $292,940 per month will be prorated
      for an additional three months pending further negotiations. These amounts
      are  distinct  and separate  from any amounts  invoiced by the  Contractor
      related to the Second  Amendment  ("Computer  Software Use and Services"),
      the Fifth  Amendment  ("Perinatal  Provider  Network Claims  Packaging and
      Billing  Services"),  or the [Computer System] Personal Property Lease and
      Option to Buy.

<PAGE>

      The firm fixed price for all specified  services in Section 2, as amended,
      for the period  July 1, 1992  through  June 30,  1993 is  $2,895,287  plus
      $620,000 for a total of $3,515,287. This amount is to be prorated for each
      of the twelve months in the amount of $241,274 plus $51,666 for a total of
      $292,940.  These  amounts  are  distinct  and  separate  from any  amounts
      invoiced  by the  Contractor  related to the Second  Amendment  ("Computer
      Software Use and  Services"),  the Fifth  Amendment  ("Perinatal  Provider
      Network  Claims  Packaging  and Billing  Services"),  Section 12 "Medi-Cal
      Recovery  Services,  or the [Computer  System] Personal Property Lease and
      Option to Buy.

      The firm fixed price for all specified  services in Section 2, as amended,
      for the period  July 1, 1993  through  June 30,  1994 is  $2,895,287  plus
      $620,000 for a total of $3,515,287. This amount is to be prorated for each
      of the twelve months in the amount of $241,274 plus $51,666 for a total of
      $292,940.  These  amounts  are  distinct  and  separate  from any  amounts
      invoiced  by the  Contractor  related to the Second  Amendment  ("Computer
      Software Use and  Services"),  the Fifth  Amendment  ("Perinatal  Provider
      Network  Claims  Packaging  and Billing  Services"),  Section 12 "Medi-Cal
      Recovery Services",  Section 13 "CARE ACT/CMS Supplemental Pool Services",
      or the [Computer System] Personal Property lease and Option to Buy.

      The firm fixed price for all specified  services in Section 2, as amended,
      for the period  July 1, 1994  through  June 30,  1995 is  $2,895,287  plus
      $620,000 for a total of $3,515,287. This amount is to be prorated for each
      of the twelve months in the amount of $241,274 plus $51,666 for a total of
      $292,940.  These  amounts  are  distinct  and  separate  from any  amounts
      invoiced  by the  Contractor  related to the Second  Amendment  ("Computer
      Software Use and  Services"),  the Fifth  Amendment  ("Perinatal  Provider
      Network  Claims  Packaging  and Billing  Services"),  Section 12 "Medi-Cal
      Recovery Services",  Section 13 "CARE ACT/CMS Supplemental Pool Services",
      or the [Computer System] Personal Property lease and Option to Buy.
<PAGE>

      The firm fixed price for all specified  services in Section 2, as amended,
      for the period  July 1, 1995  through  June 30,  1996 is  $2,895,287  plus
      $620,000 for a total of $3,515,287. This amount is to be prorated for each
      of the twelve months in the amount of $241,274 plus $51,666 for a total of
      $292,940.  These  amounts  are  distinct  and  separate  from any  amounts
      invoiced  by the  Contractor  related to the Second  Amendment  ("Computer
      Software Use and  Services"),  the Fifth  Amendment  ("Perinatal  Provider
      Network  Claims  Packaging  and Billing  Services"),  Section 12 "Medi-Cal
      Recovery Services",  Section 13 "CARE ACT/CMS Supplemental Pool Services",
      or the [Computer System] Personal Property lease and Option to Buy.

      The firm fixed price for all specified  services in Section 2, as amended,
      for the period July 1, 1996 through  December 31, 1996 is $1,447,644  plus
      $309,996 for a total of $1,757,640. This amount is to be prorated for each
      of the six months in the amount of  $241,274  plus  $51,666 for a total of
      $292,940.  These  amounts  are  distinct  and  separate  from any  amounts
      invoiced  by the  Contractor  related to the Second  Amendment  ("Computer
      Software Use and  Services"),  the Fifth  Amendment  ("Perinatal  Provider
      Network  Claims  Packaging  and Billing  Services"),  Section 12 "Medi-Cal
      Recovery Services",  Section 13 "CARE ACT/CMS Supplemental Pool Services",
      or the [Computer System] Personal Property lease and Option to Buy.

      THE FIRM FIXED PRICE FOR ALL SPECIFIED  SERVICES IN SECTION 2, AS AMENDED,
      FOR THE PERIOD  JANUARY 1, 1997 THROUGH JUNE 30, 1997 IS  $1,214,814  PLUS
      $309,996 FOR A TOTAL OF $1,524,810. THIS AMOUNT IS TO BE PRORATED FOR EACH
      OF THE SIX MONTHS IN THE AMOUNT OF  $202,469  PLUS  $51,666 FOR A TOTAL OF
      $254,135 PER MONTH.  IF EXERCISED A THE  COUNTY'S  OPTION,  THE FIRM FIXED
      PRICE FOR  MONTH-TO-MONTH  ADMINISTRATION  OF THE CMS PROGRAM AND THE AB75
      AND SB12/612 AND RELATED  PROGRAMS IS $194,283 PLUS $51,666 FOR A TOTAL OF
      $245,949 PER MONTH.  IF EXERCISED AT THE COUNTY'S  OPTION,  THE FIRM FIXED
      PRICE FOR THE LAST THREE MONTHS OF SERVICE IS $524,709 PLUS $154,998 FOR A
      TOTAL OF $679,707.  THIS AMOUNT IS TO BE PRORATED FOR EACH OF THREE MONTHS
      IN THE AMOUNT OF $174,903  PLUS $51,666 FOR A TOTAL OF $226,569 PER MONTH.
      THESE AMOUNTS ARE DISTINCT AND SEPARATE  FROM ANY AMOUNTS  INVOICED BY THE
      CONTRACTOR  RELATED TO THE SECOND  AMENDMENT  ("COMPUTER  SOFTWARE USE AND
      SERVICES"),  THE  FIFTH  AMENDMENT  ("PERINATAL  PROVIDER  NETWORK  CLAIMS
      PACKAGING AND BILLING SERVICES"), SECTION 12 "MEDI-CAL RECOVERY SERVICES",
      SECTION 13 "CARE ACT/CMS  SUPPLEMENTAL  POOL  SERVICES",  OR THE [COMPUTER
      SYSTEM]   PERSONAL  PROPERTY   LEASE  AND   OPTION  TO   BUY.    EFFECTIVE
      JANUARY 1, 1997, THE PERINATAL CARE NETWORK SERVICES CONTAINED WITHIN THIS
      CONTRACT WERE TERMINATED.
<PAGE>

      The price is subject to  redetermination  any time the number of full time
      employees  increases  or  decreases  by three or more for any given month.
      Prior approval of the COUNTY is required for changes that will result in a
      redetermination  of price.  MONTHLY  STAFFING  LEVELS ARE CONTAINED IN THE
      MANAGED  CARE  SOLUTIONS  PROPOSAL  DATED  JANUARY  28,  1997.  The  above
      redetermination  does not apply to the claims  processing  requirement  as
      MEDICUS  warrants to take whatever  action  necessary to insure claims are
      paid in a timely  manner  during  the first year of this  Agreement  at no
      additional cost to the COUNTY.

      Delete the 95 percent  payment of  services  in Item 29. The COUNTY  shall
      reimburse the Contractor 100 percent of the monthly invoice  providing the
      service is  satisfactory to the COUNTY and in no event reimburse less than
      95 percent.

      Amounts invoiced but not reimbursed shall be reimbursed  within 90 days or
      the COUNTY must provide within the 90 days a detailed reason why the funds
      are being held and when payment can be  expected.  In no event shall funds
      be withheld more than 180 days,  except for those subject  Section B, Item
      19. All other terms of Section B, Item 29, page B-7 of RFP 90231 remain in
      effect.

2.    SECTION 10 COMPUTER  SOFTWARE USE AND SERVICES,  10.2 and 10.3 are amended
      as to payment and to term, respectively, as follows:

      10.2 PAYMENT
           -------

      The maximum  costs to be  expended  by  Contractor  for the  software  and
      related  services  is  $453,586  for   the  period  May  25, 1990  through
      June 30, 1991 (as  detailed  in  Exhibit A);  and  $72,000 for the  period
      July 1, 1991 through  June 30, 1992 (as  detailed in Exhibit  "A-1");  and
      $100,000 for July 1, 1992  through June 30, 1993 (as  detailed in  Exhibit
      "A-2"); and $100,000  for July 1, 1993  through June 30, 1994 (as detailed
      in Exhibit "A-3"); and $133,250 for July 1, 1994 through June 30, 1995 (as
      detailed  in   Exhibit  "A-4");  $135,000   for  July   1,  1995   through
      June 30, 1996 (as detailed in Exhibit "A-5"); and $64,000 for July 1, 1996
      through December 31, 1996 (as detailed in Exhibit  "A-6"); AND $54,000 FOR
      JANUARY 1, 1997 THROUGH JUNE 30, 1997 (AS DETAILED IN EXHIBIT "A-6"); AND,
      IF EXERCISED AT THE COUNTY'S OPTION, AFTER JUNE 30, 1997 A  MONTH-TO-MONTH
      COST APPROVED BY THE COUNTY  AVERAGING  $9,000 PER MONTH. COUNTY agrees to
      pay Contractor, without deduction,  reservation or offset, within  30 days
      of receipt of an invoice from the Contractor. All such Contractor invoices
      shall include  receipts  and  documentation  of receipt  and acceptance of
      components of the application  software and other related  expenses.   The
      payments  shall be paid to  Contractor  at the address of  Contractor  set
      forth herein or to such other place  as  Contractor may from time  to time
      designate in writing.
<PAGE>

      10.3 TERM
           ----

      The term of Section 10 shall  continue until JUNE 30, 1997 WITH THE OPTION
      FOR  MONTH-TO-MONTH  EXTENSIONS  AFTER JUNE 30,  1997,  AS WELL AS A THREE
      MONTH OPTION  PERIOD FOR FINAL  RECONCILIATION  AND FINAL CLOSE OUT OF THE
      PROGRAM.

3.    SECTION 12 MEDI-CAL RECOVERY SERVICES,  12.2., is amended as to payment as
      follows:

      12.2  CONTRACT TYPE AND PAYMENT
            -------------------------

      The fee  payable  to the  Contractor  with  respect to  Medi-Cal  payments
      received by COUNTY as a result of Contractor's scope of work delineated in
      Section 12.1, "MEDI-CAL RECOVERY SERVICES", for all but inpatient hospital
      services,  shall  be a  percentage  of  the  recoveries  according  to the
      following schedule:

            For   health  care  services  rendered  during  Fiscal  Year 1991/92
            (July 1, 1991 to June 30, 1992), 25% of recoveries.

            For  health  care  services  rendered  during  Fiscal  Year  1992/93
            (July  1,  1992  to  June 30,  1993),  15%  of  recoveries,  with  a
            guaranteed first dollar  from  these  recoveries  up  to $149,600 to
            cover  staff  and system  start-up  costs for FY 92-93.  This amount
            will be part of the 15% and  will  be  payable  during  FY  1993-94;
            however, if recoveries are  less  than  $149,600, COUNTY will not be
            responsible  for  supplementing  this  amount  and  Contractor  will
            recover only  up  to  actual  dollars  recovered.  For  health  care
            services rendered during FY 92-93, 25% of recoveries, for recoveries
            received  during FY 94-95, FY 95-96 and FY 96-97.

            For  health  care  services  rendered  during  Fiscal  Year  1993-94
            (July 1, 1993 to June 30,  1994),  15% of recoveries received during
            FY 93-94; and  75%  of  the  first  $100,000  recovered  and  25% of
            remaining recoveries,   for  recoveries  received  during  FY 94-95;
            25%  of recoveries received during FY 95-96, and FY 96-97.

            For  health  care   services   rendered  during  Fiscal  Year  94-95
            (July 1, 1994 to June 30, 1995), 25% of recoveries  received  during
            FY 94-95, FY 95-96, and FY 96-97.

<PAGE>

            For  health  care   services   rendered  during  Fiscal  Year  95-96
            (July 1, 1995 to June 30, 1996),  25% of recoveries  received during
            FY 95-96 and FY 96-97.

            FOR   HEALTH  CARE   SERVICES  RENDERED  DURING  FISCAL  YEAR  96-97
            (JULY 1, 1996 TO JUNE 30, 1997),  25% OF RECOVERIES  RECEIVED DURING
            FY 96-97 OR AFTER FY 96-97.

      Payment of Contractor's fees shall be made to Contractor directly from the
      Medi-Cal recovery account. On a monthly basis,  Contractor shall submit an
      invoice to the Department of Health Services,  providing  documentation of
      funds  recovered  during the period  and  Contractor's  fee amount for the
      period.  Upon  approval  of the  invoice  by the  Contract  Administrator,
      Contractor will transfer amount from the Medi-Cal recovery account.

      In the event the Contractor bills Medi-Cal for inpatient services, and the
      recovery  is  provided   directly  to  a  hospital,   the  Contractor  and
      hospital(s), with COUNTY concurrence, will determine the applicable fee.

4.    SECTION  13 CARE  ACT/CMS  SUPPLEMENTAL  POOL  SERVICES,  13.2 and 13.3 is
      amended as to payment and term; and is hereby amended to read as follows:

      13.2  CONTRACT TYPE AND PAYMENTS
            --------------------------

      Costs for services provided under Section 13 shall be reimbursed at a firm
      fixed price  prorated for monthly  payments.  The firm fixed price for the
      period July 1, 1992  through  June  30, 1993  is  $45,323;  for the period
      July 1, 1993 through June 30,  1994,  the firm fixed price is $57,356; for
      the period  July 1,  1994  through  June 30, 1995, the firm fixed price is
      $81,676;  for the period July 1, 1995  through  March 31,  1996,  the firm
      fixed   price   is   $72,219;  for   the  period  April  1,  1996  through
      December 31, 1996,  the firm  fixed  price  is  $72,219;  FOR  THE  PERIOD
      JANUARY 1, 1997 THROUGH  MARCH 31, 1997, THE FIRM FIXED  PRICE IS $45,614;
      AND FOR THE PERIOD  APRIL 1, 1997  THROUGH  JUNE 30, 1997, THE FIRM  FIXED
      PRICE IS $32,733. This price is to be prorated at one-twelfth of the total
      for each of the twelve  months  from July 1, 1992 to June 30, 1993 in  the
      amount of $3,776.92 per month; prorated for each of the twelve months from
      July 1, 1993 through  June 30, 1994 in  the amount of $4,779.67 per month;
      prorated  for  each  of  the twelve   months  from  July 1,  1994  through
      June 30, 1995 in the amount of $6,806 per month;  prorated for each of the
      nine  months  from  July 1, 1995  through March 31, 1996  in the amount of
      $8,024  per  month;  and  prorated  for  each  of  the  nine  months  from
      April 1, 1996  through  December 31,  1996 in  the  amount of  $8,024  per
      month;  UPON  EXECUTION  OF THIS AMENDMENT,  CONTRACTOR  WILL  BE  PAID  A
      LUMP  SUM OF $8,024; THEREAFTER PRORATED FOR EACH OF THE THREE MONTHS FROM
      JANUARY 1, 1997 THROUGH MARCH 31, 1997 IN THE AMOUNT OF $12,530 PER MONTH;
      AND PRORATED FOR  EACH OF  THE THREE  MONTHS  FROM  APRIL 1, 1997  THROUGH
      JUNE 30, 1997 IN THE AMOUNT OF $10,911 PER MONTH.

<PAGE>

      13.3  TERM
            ----

      The term of Section 13 shall continue through JUNE 30, 1997.

5.    The  changes  specified  above  constitute  the  only  amendments  to  the
      Agreement  dated May 30, 1989, as  amended  by the First  Amendment  dated
      April 9,  1990,  the  Second  Amendment  dated  May 30,  1990,  the  Third
      Amendment   dated   July    12,  1990,   the    Fourth   Amendment   dated
      September 17, 1990, the Fifth  Amendment dated October 31, 1990, the Sixth
      Amendment   dated    March   19,  1991,  the   Seventh   Amendment   dated
      June 26, 1991,  the Eighth  Amendment  dated  August 30, 1991,  the  Ninth
      Amendment   dated    June   22,   1992,   the    Tenth   Amendment   dated
      October 6,  1992,  the   Eleventh   Amendment  dated   April 7, 1993,  the
      Twelfth Amendment  dated  July 7, 1993,  the  Thirteenth  Amendment  dated
      July 5, 1994, the   Fourteenth  Amendment  dated  July 31, 1995,  AND  THE
      FIFTEENTH  AMENDMENT DATED APRIL 16, 1996.  All other terms and conditions
      of the Agreement, as previously amended remain unchanged and in full force
      and effect.
<PAGE>
                                                                    Exhibit 10.3

                            FIRST AMENDMENT TO THE
                          MANAGED CARE SOLUTIONS, INC.
                          EMPLOYEE STOCK PURCHASE PLAN

      The  Managed  Care  Solutions,  Inc.  Employee  Stock  Purchase  Plan (the
"Plan"),  as approved  by Managed  Care  Solutions,  Inc.  (the  "Corporation"),
effective  June 1, 1996,  is hereby  amended by action of the Board of Directors
(the "Board") of the Corporation, pursuant to the authority of Section 17 of the
Plan, as follows:

      1. Section 2(a) is amended to read as follows:

      "(a)  employees  who are  not employed  as  of the  first day (June 1st or
            December 1st) of an offering period;"

      In addition,  the first  sentence of the second  paragraph of Section 2 is
amended by substituting the phrase "offering  period" for the phrase "Plan Year"
and by deleting the phrase "within one year of the termination date."

      2.  The  following  new  paragraphs  are  added to the end of  Section  3:
"Effective  December 1, 1997,  there shall be two  six-month  offerings in  lieu
of a single   offering   in  each  Plan  Year.  The  first  six  month  offering
(the "transitional offering") shall commence on December 1, 1997, and  terminate
on May 31, 1998. The term of  the transitional offering shall coincide with  the
last six months of the offering  which  commenced on June 1, 1997 (the "original
1997 offering"),  which shall not be affected by the  transitional  offering. If
the total number of shares with respect to which  options  are  exercised  under
both  offerings would  otherwise exceed  the  maximum  number of shares  offered
under the Plan, then options under the original 1997 offering shall be exercised
first.

      Each employee who is eligible to participate in the transitional  offering
and who has elected to  participate in the original 1997 offering may revoke his
election to  participate  in the original 1997 offering in whole or in part (but
shall  not be  required  to do so in order to  participate  in the  transitional
offering), and, notwithstanding Section 6, such revocation shall not be deemed a
withdrawal of funds;  provided,  however,  that the percentage withheld from the
employee's Base  Compensation  that is applied to the original 1997 offering and
the transitional offering, if applicable,  shall each be a whole percentage, and
the sum of such percentages  shall not exceed 10%; and provided further that the
maximum dollar amount withheld from an employee's Base  Compensation and applied
to the transitional  offering shall not exceed $25,000 minus the amount withheld
from the employee's Base Compensation and applied to the original 1997 offering.

<PAGE>

      Commencing  June 1, 1998,  there shall be two separate six month offerings
in each Plan  Year,  the first (the "June  offering")  commencing  on June 1 and
terminating on November 30, and the second (the "December offering")  commencing
on  December 1 and  terminating  on May 31. The number of shares  offered in the
June offering shall be 100,000,  and the number offered in the December offering
shall be 100,000 reduced by the number actually sold in the June offering.  Each
eligible  employee may make a separate  election to  participate in the June and
December offerings, provided that the maximum dollar amount of Base Compensation
withheld  during the  period of the  December  offering  shall be reduced by the
purchase price of stock actually  purchased  by  the employee  pursuant  to  the
June offering."

      3. The second sentence of Section 4 is amended by substituting  the phrase
"first day of the  offering  period  (June 1st or December  1st)" for the phrase
"first day of the Plan Year (June 1st)."

      4. Section 7 is amended by substituting the phrase  "offering  period" for
the phrase  "Plan Year"  throughout,  and by deleting the  parenthetical  phrase
"(and/or  the  first  day of each  Plan  Year  thereafter  during  the  offering
period)."

      5. The first  sentence  of Section 9 is amended to read as  follows:  "The
purchase  price for each share  purchased  will be the lesser of 85% of the fair
market value (as defined in Section 11) on the first day of the offering  period
(or the nearest prior  business day) or 85% of the fair market value at the time
the option is  exercised  (the last day of the offering  period,  or the nearest
prior  business day) (such price  hereinafter  referred to as the  "Subscription
Price"),  when there are sufficient funds in the employee's  account to purchase
one or more full shares."
<PAGE>

      6.  Section 13 is  amended by  substituting  the phrase  "the  beneficiary
designated by the employee" for the phrase "the employee's estate";  and further
amended by the addition of the  following  sentences to the end of said Section:
"Each  employee  shall have the right to  designate  one or more  beneficiaries,
including  primary and contingent  beneficiaries,  to receive his benefits under
the plan in the event of his  death,  and to change his  designated  beneficiary
from time to time without  consent of prior  beneficiaries;  provided,  however,
that all designations and changes of beneficiaries  shall be in writing,  in the
form  specified  by the  Committee,  and  shall  have no effect  until  actually
received by the  Corporation  in proper form.  If an employee has no  designated
beneficiary,  or if all of his  designated  beneficiaries  predecease  him,  his
designated beneficiary shall be his estate."

      7. This  amendment  shall not  require the  approval of the  Corporation's
stockholders,  and shall be effective on the date on which it is approved by the
Board of Directors. Except as otherwise amended herein, the Plan shall remain in
full force and  effect,  except that the  Committee  is  authorized  to make any
additional  changes to the Plan of an administrative or ministerial nature which
may be appropriate to implement the change to six-month offering periods.

      IN WITNESS  WHEREOF,  the  Corporation  has caused  this  Amendment  to be
executed this 25th day of July, 1997.

                                    MANAGED CARE SOLUTIONS, INC.


                                    By:   /s/Michael J. Kennedy
                                          -----------------------
                                    Its:  Chief Financial Officer
<PAGE>