<PAGE>1








                                 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 February 28, 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 4,364,712 shares of common stock outstanding as of April 11, 1997.
<PAGE>2

                               TABLE OF CONTENTS

                                                                           Page



Part I      FINANCIAL INFORMATION


     Item 1.Financial Statements


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


            Consolidated Statements of Operations...........................4-5


            Consolidated Statements of Cash Flows.............................6


            Notes to Unaudited Consolidated Financial Statements............7-8


     Item 2.Management's Discussion and Analysis of Financial Condition
            and Results of Operations......................................9-12


Part II     OTHER INFORMATION


     Item 4.Submission of Matters to a Vote of Security Holders..............13


     Item 6.Exhibits and Reports on Form 8-K.................................13


                                       2
<PAGE>3

PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                          MANAGED CARE SOLUTIONS, INC.
                          CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                                        February 28,          May 31,
                                                                                            1997               1996
                                                                                       -------------      ------------
                                                                                        (Unaudited)
<S>                                                                                     <C>                <C>
ASSETS

Current Assets:
  Cash and cash equivalents, including restricted cash of $5,303,000 and $3,082,000    $  7,781,000       $  3,804,000
  Short-term investments                                                                  1,921,000          3,000,000
  Accounts and notes receivable and unbilled services, net                                5,180,000          4,353,000
  Related party accounts and notes receivable                                                22,000             91,000
  Prepaid expenses and other current assets                                               1,396,000            832,000
  Deferred taxes, net                                                                       396,000            169,000
                                                                                       ------------       ------------     
     Total current assets                                                                16,696,000         12,249,000

Notes receivable                                                                            234,000            139,000
Related party notes receivable                                                              861,000          2,783,000
Property and equipment, net                                                               4,599,000          4,147,000
Performance bonds                                                                         4,474,000          4,078,000
Goodwill, net                                                                             3,283,000          3,534,000
Deferred taxes, net                                                                          73,000             73,000
Other assets                                                                                339,000            596,000
                                                                                       ------------       ------------
                                                                                       $ 30,559,000       $ 27,599,000
                                                                                       ============       ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
  Accounts payable                                                                     $    692,000       $    379,000
  Accrued medical claims                                                                  7,859,000          6,331,000
  Risk pool payable                                                                       2,975,000          1,646,000
  Related party risk pool payable                                                           260,000            117,000
  Accrued expenses                                                                        3,985,000          3,609,000
  Loss contract reserve                                                                        --              510,000
  Due to Medicus Systems Corporation                                                           --              647,000
  Current portion of long-term debt                                                         200,000          1,650,000
                                                                                       ------------       ------------
     Total current liabilities                                                           15,971,000         14,889,000

Long-term debt                                                                            3,012,000            267,000
Related party long-term debt                                                                549,000            249,000
                                                                                       ------------       ------------
     Total liabilities                                                                   19,532,000         15,405,000
                                                                                       ------------       ------------
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 - 4,365,000 shares                                                                 44,000             44,000
  Capital in excess of par value                                                         14,431,000         14,310,000
  Retained earnings (deficit)                                                            (3,455,000)        (2,167,000
                                                                                       ------------       ------------
     Total stockholders' equity                                                          11,027,000         12,194,000
                                                                                       ------------       ------------
                                                                                       $ 30,559,000       $ 27,599,000
                                                                                       ============       ============

                                                       3

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

<PAGE>4


                          MANAGED CARE SOLUTIONS, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (Unaudited)


<TABLE>
<CAPTION>
                                                    Three Months Ended
                                           ----------------------------------
                                           February 28,          February 29,
                                               1997                  1996
                                           ------------          ------------
<S>                                        <C>                   <C>

Revenues                                   $ 14,592,000          $  2,494,000
                                           ------------          ------------

Direct cost of operations                    11,373,000             3,047,000
Marketing, sales and administrative           3,246,000                65,000
                                           ------------          ------------

  Total costs and expenses                   14,619,000             3,112,000
                                           ------------          ------------

Operating income (loss)                         (27,000)             (618,000)
                                           ------------          ------------

Interest expense                                (95,000)                 --
Interest income                                 170,000                57,000
                                           ------------          ------------

  Net interest income                            75,000                57,000
                                           ------------          ------------

Income (loss) from continuing operations
  before income taxes                            48,000              (561,000)

Provision (benefit) for income taxes            (71,000)             (216,000)
                                           ------------          ------------

Income (loss) from continuing operations        119,000              (345,000)

Discontinued operations, net of taxes              --                (782,000)
                                           ------------          ------------

Net income (loss)                          $    119,000          $ (1,127,000)
                                           ============          ============

Income (loss) per share:
  Continuing operations                    $       0.03          $      (0.16)
  Discontinued operations                          --                   (0.36)
                                           ------------          ------------
                                           $       0.03          $      (0.52)
                                           ============          ============

Weighted Average Common and Common
  Equivalent Shares Outstanding               4,382,000             2,149,000
                                           ============          ============

                                       4

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


<PAGE>5



                          MANAGED CARE SOLUTIONS, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (Unaudited)

<TABLE>
<CAPTION>

                                                      Nine Months Ended
                                            -----------------------------------
                                            February 28,           February 29,
                                                1997                   1996
                                            ------------           ------------
<S>                                         <C>                    <C>

Revenues                                    $ 49,693,000           $  6,347,000
                                            ------------           ------------

Direct cost of operations                     40,072,000              6,089,000
Marketing, sales and administrative           11,209,000                532,000
                                            ------------           ------------

  Total costs and expenses                    51,281,000              6,621,000
                                            ------------           ------------

Operating income (loss)                       (1,588,000)              (274,000)
                                            ------------           ------------

Interest expense                                (226,000)                  --
Interest income                                  405,000                175,000
                                            ------------           ------------

  Net interest income                            179,000                175,000
                                            ------------           ------------

Income (loss) from continuing operations
  before income taxes                         (1,409,000)               (99,000)

Provision (benefit) for income taxes            (121,000)               (51,000)
                                            ------------           ------------

Income (loss) from continuing operations      (1,288,000)               (48,000)

Discontinued operations, net of taxes               --                 (254,000)
                                            ------------           ------------

Net income (loss)                           $ (1,288,000)          $   (302,000)
                                            ============           ============

Income (loss) per share:
  Continuing operations                     $      (0.30)          $      (0.02)
  Discontinued operations                           --                    (0.12)
                                            ------------           ------------
                                            $      (0.30)          $      (0.14)
                                            ============           ============

Weighted Average Common and Common
  Equivalent Shares Outstanding                4,365,000              2,154,000
                                            ============           ============

                                       5

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


<PAGE>6



                          MANAGED CARE SOLUTIONS, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (Unaudited)
<TABLE>
<CAPTION>

                                                                          Nine Months Ended
                                                                   -----------------------------
                                                                    February 28,    February 29,
                                                                        1997            1996
                                                                   --------------  -------------
<S>                                                                <C>             <C>

Cash flows from operating activities:
  Income (loss) from continuing operations                         $ (1,288,000)    $   (48,000)
  Adjustments to reconcile net income (loss) to net cash
   provided by (used in) operating activities:
   Bad debt expense                                                     900,000            --
   Depreciation and amortization                                      1,334,000          82,000
   Changes in assets and liabilities:
     Accounts receivable and unbilled services                       (1,727,000)      (1,020,000)
     Prepaid expenses and other current assets                         (564,000)           --
     Deferred income taxes                                             (227,000)         52,000
     Accounts payable                                                   313,000          16,000
     Accrued medical claims                                           1,528,000            --
     Risk pool payable                                                1,329,000            --
     Related party risk pool payable                                    143,000            --
     Accrued expenses                                                   376,000       1,371,000
     Loss contract reserve                                             (510,000)           --
     Other changes in assets and liabilities                            257,000        (446,000)
                                                                   ------------     -----------
Net cash provided by (used in) operating activities                   1,864,000           7,000
                                                                   ------------     -----------

Cash flows from investing activities:
  Purchase of property and equipment                                 (1,549,000)       (582,000)
  Sale of property and equipment                                         14,000            --
  Proceeds from maturity/sale of short-term investments               3,801,000       4,000,000
  Proceeds from related party notes receivable                        1,991,000            --
  Payments of notes receivable                                          (95,000)           --
  Increases in assets securing performance bond                        (396,000)           --
  Purchases of short-term investments                                (2,722,000)       (750,000)
                                                                   ------------     -----------
Net cash provided by investing activities                             1,044,000       2,668,000
                                                                   ------------     -----------

Cash flows from financing activities:
  Due to Medicus Systems Corporation                                   (647,000)           --
  Principal payment on long-term debt                                (1,584,000)           --
  Issuance of long-term debt                                          3,179,000            --
  Issuance of voting preferred stock                                       --             7,000
  Purchase of treasury stock                                               --          (533,000)
  Reissuance of treasury stock                                             --           762,000
  Dividends paid                                                           --          (576,000)
  Issuance of stock warrants                                            121,000            --
  Cash infusion from Medicus Systems Corporation                           --           250,000
                                                                   ------------     -----------
Net cash provided by financing activities                             1,069,000         (90,000)
                                                                   ------------     -----------

Net increase in cash and cash equivalents                             3,977,000       2,585,000
Cash and cash equivalents, beginning of period                        3,804,000       1,475,000
Cash allocated from discontinued operations                                --           346,000
                                                                   ------------     -----------
Cash and cash equivalents, end of period                            $ 7,781,000     $ 4,406,000
                                                                   ============     ===========

                                               6

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


<PAGE>7

                          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
February 28, 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, 1996.

NOTE 2 - MERGERS

The Company as it presently  exists is the result of a spin-off  and  subsequent
merger  transactions which occurred on March 1, 1996. Prior to March 1, 1996 the
Company was named Medicus Systems  Corporation (the "Predecessor  Corporation").
On March 1, 1996, all of the assets of the Predecessor  Corporation,  other than
those related to its managed care business,  were  transferred to a wholly owned
subsidiary  of the  Predecessor  Corporation,  and  all of the  shares  of  that
company,   then  named  Medicus  Systems  Corporation,   were  distributed  (the
"Distribution")  on a  share-for-share  basis to stockholders of the Predecessor
Corporation.  Immediately  after  the  Distribution,  the  Company,  which  then
consisted  only of the managed  care  business of the  Predecessor  Corporation,
effected a one-for-three reverse stock split. Also on March 1, 1996, immediately
after the reverse stock split, the Company  acquired three Arizona  corporations
engaged in the managed care business through merger transactions (the "Mergers")
pursuant  to which each of the Arizona  corporations  (Managed  Care  Solutions,
Inc.,  now named  Managed Care  Solutions of Arizona,  Inc.  ("MCSAZ"),  Ventana
Health Systems,  Inc.  ("Ventana") and Arizona Health  Concepts,  Inc.  ("AHC"))
became wholly owned  subsidiaries  of the Company,  and the  Company's  name was
changed to Managed Care Solutions, Inc.

NOTE 3 - DISCONTINUED OPERATIONS

The software and related lines of business of the Predecessor  Corporation  that
were  separated  as of March 1, 1996 are  reported as  discontinued  operations.
Prior years'  operating  results have also been  reclassified  to segregate  the
discontinued  operations.  Revenues from discontinued operations were $7,028,000
and  $23,670,000  for the  three  and  nine  months  ended  February  28,  1996,
respectively.

NOTE 4 - EARNINGS PER SHARE

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.  Average  shares  outstanding  and all per share amounts  included in the
financial  statements  and notes  thereto have been  adjusted  retroactively  to
reflect the one-for-three reverse stock split effective March 1, 1996.

                                       7

<PAGE>8


NOTE 5 - 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 February 28, 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  $8,919,000  at
February 28, 1997,  with deposit and reserve  requirements  (performance  bonds)
representing $2,453,000 of the Restricted Net Assets and net worth requirements,
in excess of  deposit  and  reserve  requirements,  representing  the  remaining
$6,466,000.

NOTE 6 - LIQUIDITY

The Company  experienced  a loss from  continuing  operations  in the nine month
period ended February 28, 1997. In an effort to improve its operating results in
fiscal 1997, the Company  reduced its total  workforce by  approximately  10% in
July 1996.  In addition,  the Company has  implemented  stringent  controls over
other expenses.  In August 1996, the Company  consolidated its AHC operations by
closing  two  satellite  offices in  Arizona.  The Company  also  relocated  its
corporate  headquarters  in January 1997 in an effort to reduce rent expense and
more efficiently utilize the space available.

On October 2, 1996,  the Company  signed an  agreement  with Blue Cross and Blue
Shield of Texas,  Inc.  ("BCBSTX")  whereby  BCBSTX  invested  $3,000,000 in the
Company in the form of a convertible secured loan. The loan has an original term
of three  years  with a renewal  option for an  additional  two years if certain
conditions  are met. The loan is  initially  secured by all of the assets of the
Company.  Eligible  assets must be maintained  pursuant to the pledge  agreement
equal  to at  least  150% of the  outstanding  balance.  The  Company  can  have
collateral  released from the pledge with the consent of BCBSTX.  The loan bears
interest at a rate of 8% per annum.  Principal  and  interest are payable at the
end of the initial three year term, and,  thereafter,  at the end of each annual
extension.  The  loan is  convertible  into  the  Company's  common  stock  at a
conversion price of $3.85 per share.  BCBSTX also received a warrant to purchase
100,000  shares of the Company's  common stock at an exercise price of $4.45 per
share and has the right of first refusal to  participate as an equity partner in
future MCS funding requirements.

In a separate  transaction,  a trust  controlled by William Brown, a director of
MCS, invested  $300,000 in the Company through a convertible  unsecured loan and
received a warrant to purchase  10,000 shares of MCS common stock.  The interest
rate,  term,  conversion  price and warrant  exercise price are the same for Mr.
Brown's  trust as for  BCBSTX,  except  that  interest  on the  loan is  payable
monthly.

                                       8

<PAGE>9


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

RESULTS OF OPERATIONS

The following  discussion  pertains to the managed care business and  continuing
operations  of the  Company.  The  other  business  activities,  which  had been
conducted by the Predecessor  Corporation  prior to the distribution on March 1,
1996, are separately  identified as discontinued  operations.  Results presented
consist of the Company's managed care business  consolidated with the operations
of all  three  wholly-owned  subsidiaries  (MCSAZ,  Ventana  and  AHC)  for  the
reporting period since March 1, 1996.

Revenues  increased from  $2,494,000 and $6,347,000 for the three and nine month
periods ended February 29, 1996,  respectively,  to $14,592,000  and $49,693,000
for the three and nine month  periods  ending  February 28, 1997,  respectively,
principally  as a result of the  Mergers.  For the three and nine month  periods
ended  February 28, 1997,  revenues  consisted of  $4,522,000  and  $15,302,000,
respectively,  from fees received  from  management of health plans not owned by
the Company and  $10,070,000  and  $34,391,000,  respectively,  from  capitation
revenue  received by Ventana and AHC.  Management fee revenue  increased 84% and
141% for the three and nine months ended February 28, 1997,  respectively,  over
the  comparable  periods  in the  prior  year due to an  increase  in rates  and
services provided on contracts in existence at June 1, 1995, the addition of new
contracts,  and  revenues  generated  by  contracts  managed by MCSAZ  since the
effective date of the Mergers.

The Company incurred  significant  operating losses attributable to the Colorado
Access contract in the third and fourth quarters of fiscal 1996 as a result of a
rate reduction and start-up  expenses.  The contract included a significant rate
reduction when membership  reached the 40,000 membership level.  Colorado Access
achieved  a 42,000  membership  level in its third  month of  operation.  It was
originally  estimated that the program would not reach this membership level for
two  years,  at which  time the  cost to  administer  this  program  would  have
decreased significantly.

After unsuccessful  attempts to negotiate a rate increase,  the Company notified
Colorado  Access in July  1996  that it was  terminating  the  contract.  It was
mutually agreed that the Company would assist in a timely transfer of management
operations to Colorado Access. The transition was completed on October 31, 1996.

In April 1996, the Company entered into an agreement with Community Health Care,
Inc. (CHCI) pursuant to which the Company became a 49% owner in Community Health
Choice, Inc. ("Choice"),  a new HMO being developed in Illinois. The Company had
undertaken to develop the HMO, provide the capital to purchase equipment for the
plan and provide the equity capital necessary to apply for the HMO license.  The
equity capital requirement was met in April 1996, when the Company loaned Choice
$2,000,000  pursuant to a seven year note.  The Company  concluded that existing
capitation and hospital  rates would not allow Choice to be  financially  viable
and therefore,  the Company notified Choice that the Company's relationship with
Choice should be terminated and the $2,000,000  repaid. On November 18, 1996 the
Company entered into an agreement pursuant to which the parties terminated their
relationship,  mutually  released  each  other  from all  liability,  and Choice
returned to the Company  $1,782,000 of the money loaned. The total loss recorded
in the nine month period  ended  February  28, 1997 for the  termination  of the
Colorado Access and Choice contracts was $858,000.

Ventana is the Company's  long term care Medicaid HMO that provided  services in
eight Arizona counties under a contract that expired September 30, 1996. In July
1996,  Ventana  was  awarded a five year  contract  for  seven  counties,  which
commenced October 1, 1996.

                                       9
<PAGE>10



AHC, the  Company's  acute care  Medicaid HMO in Arizona,  is operating  under a
three year  contract  (October  1994  through  September  1997) that had intense
pricing  competition  during the  bidding  process.  The agreed  upon rates have
resulted  in AHC,  as well as  several  other  HMO plans  participating  in this
program, incurring operating losses. Arizona Health Care Cost Containment System
Administration  ("AHCCCSA") has increased capitation rates for the third year of
the contract by approximately 5%, which began October 1, 1996. However,  AHCCCSA
also increased hospital rates in counties served by AHC by approximately 7%. AHC
has been able to  combine  improved  monitoring  of  medical  expenses  with the
elimination of unprofitable risk relationships to improve operating results.  In
addition,  on December 1, 1996, AHC  transitioned  its 3,600 members in Maricopa
County to another AHCCCSA health plan which further improved  operating  results
for the three months ended February 28, 1997.

In conjunction with the acquisition of AHC, 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 has charged  operating
losses incurred  totaling  $440,000 for the nine month period ended February 28,
1997,  against this reserve.  As a result,  these contract  losses are not fully
reflected in the Company's operating results for the periods presented.

AHC,  under its contract with  AHCCCSA,  is obligated to maintain a positive net
worth. AHCCCSA requested that AHC increase its net worth sighting AHC's negative
position.  In November  1996, MCS increased its investment in AHC by $950,000 to
fulfill this request.

AHC had been notified by one of its  subcontractors  that the  subcontractor was
significantly  behind in paying  claims  received  from  providers  for services
rendered  to  AHC  members.   At  November  30,  1996,  the  subcontractor  owed
approximately  $1,400,000  for such  claims.  As of March 31,  1997,  through an
agreement  reached between the  subcontractor and AHC, all such claims have been
paid to providers.  According to the terms of the agreement, AHC funded $674,000
of the total due to pay these  claims.  The  subcontractor  has  agreed to repay
these funds to AHC in monthly installments through September 1997.

Direct cost of operations increased to $11,373,000 and $40,072,000 for the three
and nine month periods ended February 28, 1997,  respectively,  from  $3,047,000
and $ 6,089,000 for the three and nine month  periods  ended  February 28, 1996,
respectively.  For the three and nine month  periods  ended  February  28,  1997
direct cost of operations consisted of $3,128,000 and $9,905,000,  respectively,
related  to fees  generated  from  management  of health  plans not owned by the
Company and $8,245,000 and $30,167,000, respectively, from operating expenses of
Ventana and AHC. The direct cost of  operations  to manage plans as a percentage
of related  revenue was 122% and 69% for the three month periods ended  February
28, 1996 and 1997,  respectively.  For the nine month period ended  February 28,
1997,  the direct cost of  operations to manage plans as a percentage of related
revenue  decreased to 65% from 96% for the comparable  period in the prior year.
The decrease was  primarily due to the  termination  of  unprofitable  contracts
during the current  fiscal year,  as well as startup costs related to operations
in Denver  Colorado  and costs  incurred  in  effecting  the  separation  of the
software  business of the Predecessor  Corporation  during the nine month period
ended February 1996.

The direct costs as a percentage of related revenue for the three and nine month
periods  ending  February  28, 1997 were 80% and 83% for Ventana and 87% and 91%
for AHC, respectively.

Marketing, sales and administrative expenses increased from $65,000 and $532,000
for the three and nine month periods ended February 28, 1996,  respectively,  to
$3,246,000 and  $11,209,000  for the three and nine month periods ended February
28, 1997, respectively.  This increase is primarily the result of the additional
marketing,  sales  and  administrative  activities  of  MCSAZ,  Ventana  and AHC
subsequent to the effective date of the Mergers.

                                       10

<PAGE>11


Net interest income for the three and nine month periods ended February 28, 1997
was  $75,000  and  $179,000,   respectively,   which  is  primarily  related  to
investments  held by Ventana and AHC  subsequent  to the  effective  date of the
Merger.  For the three and nine month  periods  ended  February  28,  1996,  net
interest  income was $57,000 and $175,000,  respectively,  related to short-term
investments of the Company.

Income taxes are the result of the Company carrying back the losses generated by
the parent entity  against income  generated in prior periods.  The variation in
the tax rate between the nine months ended  February 28, 1997 and the comparable
prior year period is primarily due to  nondeductible  goodwill  amortization and
the valuation allowance for the net operating losses of the subsidiaries.

Income (loss) from continuing  operations was $119,000 and  ($1,288,000) for the
three and nine  month  periods  ended  February  28,  1997  respectively  versus
($345,000)  and ($48,000) for the related  periods in the prior fiscal year. The
primary  reasons  for  the  change  in  profitability   were  costs  related  to
terminating  contracts in Colorado,  Illinois and Missouri and costs  associated
with  terminated  employees as part of the  workforce  reduction  effort in July
1996.

LIQUIDITY AND CAPITAL RESOURCES

During the nine month period ended  February 28, 1997,  the  Company's  cash and
cash  equivalents  increased  $3,977,000  to  $7,781,000  on February  28, 1997.
Operating  activities  provided  $1,864,000  for the  nine  month  period  ended
February 28, 1997,  versus  $7,000 for the same period in the prior fiscal year.
The  primary  cause  for the  change  was the  growth  in  current  liabilities,
partially  offset by the loss from  continuing  operations and growth in prepaid
expenses and accounts receivable.

Investing  activities provided $1,044,000 for the nine months ended February 28,
1997 versus  $2,668,000  for the  comparable  periods of the prior  fiscal year.
Sources of cash consisted of proceeds from the maturity of  investments  and the
settlement  of the loan with  Choice.  Cash was used to purchase  $1,549,000  of
property and equipment primarily for the Michigan, Indiana, Colorado and Phoenix
office expansions.

Financing  activities provided $1,069,000 for the nine months ended February 28,
1997 versus using ($90,000) for the comparable  period of the prior fiscal year.
Principal  payment on  long-term  debt as well as  payments  to Medicus  Systems
Corporation in fiscal 1997 were the primary uses of funds,  while treasury stock
activity and dividend  payments were the primary use of funds for the comparable
periods in the prior fiscal year. Sources of cash consisted of proceeds from the
long term debt issued to BCBSTX and to a trust controlled by William Brown.

On October 2, 1996,  the Company  signed an agreement with BCBSTX whereby BCBSTX
invested  $3,000,000 in the Company in the form of a  convertible  secured loan.
The loan has an  original  term of three  years  with a  renewal  option  for an
additional  two  years if  certain  conditions  are met.  The loan is  initially
secured by all of the assets of the Company.  Eligible assets must be maintained
pursuant  to the  pledge  agreement  equal to at least  150% of the  outstanding
balance.  The  Company  can have  collateral  released  from the pledge with the
consent of BCBSTX. The loan bears interest at a rate of 8% per annum.  Principal
and  interest  are  payable  at the end of the  initial  three-year  term,  and,
thereafter,  at the end of each annual  extension.  The loan is convertible into
the Company's common stock at a conversion price of $3.85 per share. BCBSTX also
received a warrant to purchase  100,000 shares of the Company's  common stock at
an  exercise  price of $4.45 per share  and has the  right of first  refusal  to
participate as an equity partner in future MCS funding requirements.

                                       11

<PAGE>12


In a separate  transaction,  a trust  controlled by William Brown, a director of
MCS, invested  $300,000 in the Company through a convertible  unsecured loan and
received a warrant to purchase  10,000 shares of MCS common stock.  The interest
rate,  term,  conversion  price and warrant  exercise price are the same for Mr.
Brown's  trust as for  BCBSTX,  except  that  interest  on the  loan is  payable
monthly.

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
February 28, 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  was  $8,919,000 at February 28, 1997,  with deposit and
reserve  requirements   (performance  bonds)  representing   $2,453,000  of  the
Restricted  Net Assets  and net worth  requirements,  in excess of  deposit  and
reserve requirements,  representing the remaining  $6,466,000.  Ventana provided
funds to MCS under loan agreements totaling $2,093,000 at February 28, 1997. VHS
provided  these loans in the normal course of  operations.  All such  agreements
were pre-approved as required by AHCCCSA.

The Company  experienced  a loss from  continuing  operations  in the nine month
period ended February 28, 1997. In an effort to improve its operating results in
the nine month period ended  February  28, 1997,  the Company  reduced its total
workforce  by  approximately  10%,  which is expected to result in an  estimated
annual savings of $1,700,000. In addition, the Company has implemented stringent
controls  over other  expenses.  In August,  the  Company  consolidated  its AHC
operations by closing two satellite offices in Arizona. The closure of these two
offices is expected to result in estimated  savings of $240,000 annually and, by
bringing  these  operations  into one  facility,  is also  expected  to  improve
controls  over medical  expenses.  There can be no assurance as to the amount of
savings which will actually result from the actions described above.

The  Company  believes  that,  based on its  current  projections,  its cash and
capital  resources  should be sufficient to meet its financial  requirements  in
calendar  1997.  The Company  will  continue  its effort to  increase  revenues,
renegotiate  existing  agreements and minimize  operating  costs.  However,  the
Company can make no assurances that it will meet its current projections.

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 will require additional financing to cover start-up costs
and capital  equipment.  While  discussions  have begun to secure the  necessary
financing,  there is no assurance  that the Company will be  successful  in such
efforts.

                                       12
<PAGE>13



PART II - OTHER INFORMATION

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The following  matters were  submitted to a vote of security  holders during the
Managed Care Solutions Annual Meeting of Stockholders held December 6, 1996:


                                     Votes Cast           Authority
                                        For               Withheld
                                     ----------           ---------
Description of Matter
---------------------
1. Election of Directors:
   Richard C. Jelinek                4,218,835                5,327
   William G. Brown                  4,218,868                5,294
   Risa Lavizzo-Mourey               4,218,865                5,297
   Walter J. McNerney                4,207,685               16,477
   Henry Kaldenbaugh                 4,218,868                5,294
   John Lingenfelter                 4,218,868                5,294
   James A. Burns                    4,218,835                5,327


<TABLE>
<CAPTION>


                                            Votes Cast     Votes Cast                     Broker
                                                For         Against       Abstentions     Non-Votes
                                            ----------     ----------     -----------     ---------
<S>                                          <C>           <C>            <C>             <C>

2. Proposal to approve and adopt the
   Company's 1996 Stock Option Plan,
   as Amended                               2,558,892        96,688         2,493         1,566,089

3. Proposal to approve and adopt the
   Company's 1996 Non-Employee
   Director Stock Option Plan               2,594,825        60,472         2,776         1,566,089

4. Proposal to approve and adopt the
   Company's Employee Stock
   Purchase Plan                            2,596,107        44,215         1,898         1,581,942

</TABLE>

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

          (a)     Exhibits
                    (27) Financial Data Schedule

          (b)     Reports on Form 8-K
                    None

                                       13
<PAGE>14


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: April 11, 1997

                                       14