<PAGE>


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

                                    FORM 10-Q

     [X] FOR THE QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                 FOR QUARTERLY PERIOD ENDED FEBRUARY 28, 1999
                                       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              (I.R.S. EmployerIdentification No.)
 incorporation or organization)


                             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 4,766,983 shares of common stock outstanding as of April 1, 1999.


<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.................10-12


Part II      OTHER INFORMATION


    Item 5.  Annual Meeting of Stockholders...................................13


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

                                        2
<PAGE>

PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                           MANAGED CARE SOLUTIONS, INC.
                           CONSOLIDATED BALANCE SHEETS

                                                     FEBRUARY 28,     MAY 31,
                                                        1999           1998
                                                   -------------- -------------
                                                     (UNAUDITED)
ASSETS

Current Assets:
  Cash and cash equivalents, including restricted
   cash of $10,920,000 and $9,007,000               $  16,019,000  $ 12,764,000
  Short-term investments                                2,156,000     1,510,000
  Accounts and notes receivable
   and unbilled services, net                           4,581,000     3,169,000
  Deferred income taxes, net                            1,344,000     1,066,000
  Prepaid expenses and other current assets               576,000       483,000
                                                    -------------  ------------
       Total current assets                            24,676,000    18,992,000

Related party notes receivable                            573,000       694,000
Property and equipment, net                             4,165,000     4,609,000
Performance bonds                                       2,553,000     3,794,000
Goodwill, net                                           2,553,000     2,826,000
Other assets                                            1,003,000       808,000
                                                    -------------  ------------
                                                    $  35,523,000  $ 31,723,000
                                                    =============  ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
  Accounts payable                                  $  1,360,000   $    447,000
  Accrued medical claims                               9,072,000      7,799,000
  Risk pool payable                                    1,404,000      1,540,000
  Related party risk pool payable                        117,000        152,000
  Accrued compensation                                 2,315,000      1,862,000
  Other accrued expenses                               1,774,000      2,153,000
  Current portion of long-term debt                            -         67,000
                                                    ------------   ------------
     Total current liabilities                        16,042,000     14,020,000

Related party long-term debt                           4,063,000      3,961,000
Deferred income taxes, net                               185,000        239,000
                                                    ------------   ------------
     Total liabilities                                20,290,000     18,220,000
                                                    ------------   ------------

Commitments                                                    -              -

Stockholders' Equity:
  Common stock, $0.01 par value
   Authorized - 10,000,000 shares
   Issued and outstanding -
   4,767,000 and 4,671,000 shares                         48,000         47,000
  Capital in excess of par value                       5,899,000     15,702,000
  Accumulated deficit                                   (714,000)    (2,246,000)
                                                   -------------  -------------
     Total stockholders' equity                       15,233,000     13,503,000
                                                   -------------  -------------
                                                   $  35,523,000  $  31,723,000
                                                   =============  =============

                                       3

        The accompanying notes are an integral part of these statements.

<PAGE>

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


                               THREE MONTHS ENDED         NINE MONTHS ENDED
                           -------------------------  -------------------------
                             FEBRUARY     FEBRUARY      FEBRUARY     FEBRUARY
                                28,          28,           28,          28,
                               1999         1998          1999         1998
                           ------------ ------------  ------------ ------------

Revenues                   $ 21,573,000 $ 17,104,000  $ 61,456,000 $ 47,949,000
                           ------------ ------------  ------------ ------------

Direct cost of operations    16,348,000   13,591,000    46,470,000   38,238,000
Marketing, sales and
 administrative               4,861,000    3,342,000    13,465,000    9,219,000
                           ------------ ------------  ------------ ------------

  Total costs and expenses   21,209,000   16,933,000    59,935,000   47,457,000
                           ------------ ------------  ------------ ------------

Operating income                364,000      171,000     1,521,000      492,000
                           ------------ ------------  ------------ ------------

Interest income                 234,000      219,000       720,000      623,000
Interest expense                (91,000)     (92,000)     (271,000)    (285,000)
                           ------------ ------------  ------------ ------------

  Net interest income           143,000      127,000       449,000      338,000
                           ------------ ------------  ------------ ------------

Income before income taxes      507,000      298,000     1,970,000      830,000

Provision (benefit)
 for income taxes              (111,000)     122,000       438,000      299,000
                           ------------ ------------  ------------ ------------
 
Net income                 $    618,000 $    176,000  $  1,532,000 $    531,000
                           ============ ============  ============ ============


Net income per
 share - basic             $       0.13 $       0.04  $       0.32 $       0.12
                           ============ ============  ============ ============



Weighted average common shares
 outstanding - basic          4,767,000    4,513,000     4,727,000    4,433,000
                           ============ ============  ============ ============


Net income per share -
 assuming dilution         $       0.11 $       0.04  $       0.28 $       0.12
                           ============ ============  ============ ============


Weighted average common
 shares outstanding -
 assuming dilution            5,882,000    4,833,000     5,891,000    4,589,000
                           ============ ============  ============ ============

                                       4

        The accompanying notes are an integral part of these statements.

<PAGE>

                          MANAGED CARE SOLUTIONS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

                                                          NINE MONTHS ENDED
                                                    ---------------------------
                                                    FEBRUARY 28,   FEBRUARY 28,
                                                        1999           1998
                                                    -------------  ------------

Cash flows from operating activities:
  Net income                                        $   1,532,000  $    531,000
  Adjustments to reconcile net income to
   net cash provided by operating activities:
  Bad debt expense                                         (2,000)       27,000
  Depreciation and amortization                         1,685,000     1,386,000
  Loss on sale of property and equipment                    5,000        28,000
  Deferred income taxes                                  (332,000)       41,000
  Interest on long-term debt                              165,000       206,000
  Changes in assets and liabilities:
    Accounts receivable and unbilled services          (1,410,000)      774,000
    Prepaid expenses and other current assets             (93,000)    1,397,000
    Accounts payable                                      913,000       145,000
    Accrued medical claims                              1,273,000       610,000
    Risk pool payable                                    (136,000)     (898,000)
    Related party risk pool payable                       (35,000)       (3,000)
    Accrued compensation                                  453,000       571,000
    Accrued expenses                                     (379,000)     (196,000)
    Other assets                                         (195,000)     (164,000)
                                                     ------------  ------------
Net cash provided by operating activities               3,444,000     4,455,000
                                                     ------------  ------------

Cash flows from investing activities:
  Purchase of property and equipment                   (1,003,000)   (2,060,000)
  Proceeds from sale of property and equipment             55,000         7,000
  Purchase of short-term investments                   (1,645,000)      (10,000)
  Proceeds from maturity/sale of short-term
   investments                                            999,000         1,000
  Proceeds from related party notes receivable            121,000       275,000
  Proceeds from notes receivable                                -       315,000
  Sales (purchases) of assets securing
   performance bond                                     1,241,000       (57,000)
                                                     ------------  ------------
Net cash  used in investing activities                   (232,000)   (1,529,000)
                                                     ------------  ------------

Cash flows from financing activities:
  Net increase (decrease) in long-term debt              (155,000)     (121,000)
  Proceeds from common stock issuance                     198,000     1,013,000
                                                     ------------  ------------
Net cash provided by financing activities                  43,000       892,000
                                                     ------------  ------------

Net increase in cash and cash equivalents               3,255,000     3,818,000
Cash and cash equivalents, beginning of period         12,764,000     7,212,000
                                                     ------------  ------------
Cash and cash equivalents, end of period             $ 16,019,000  $ 11,030,000
                                                     ============  ============

                                       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
February 28, 1999 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 the 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, 1998.

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

Basic net income per share is computed by  dividing  net income by the  weighted
average number of common shares  outstanding  during each period. Net income per
share  assuming  dilution is computed  by  dividing  net income by the  weighted
average  number of common  shares  outstanding  during the period  after  giving
effect to dilutive  stock options and warrants and adjusted for dilutive  common
shares assumed to be issued on conversion of the Company's convertible loans.

The following is the  computation  of the  reconciliation  of the numerators and
denominators  of net income  per common  share - basic and net income per common
share - assuming  dilution in accordance with Statement of Financial  Accounting
Standards No. 128, "Earnings Per Share".
<TABLE>
<CAPTION>

                                                          THREE MONTHS ENDED
                               --------------------------------------------------------------------
                                          FEBRUARY 28, 1999                FEBRUARY 28, 1998
                               ---------------------------------- ---------------------------------

                                  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          $  618,000    4,767,000   $ 0.13   $  176,000    4,513,000   $ 0.04
Effect of dilutive securities:
  Stock options and warrants            -      258,000                     -      320,000
  Convertible notes                40,000      857,000                     -            -
                               ----------    ---------            ----------    ----------
Net income per common
 share,assuming dilution:
Income available to common
 stockholders and                 
 assumed conversions           $  658,000    5,882,000   $ 0.11   $  176,000    4,833,000   $ 0.04
                               ==========    =========   ======   ==========    =========   ======  
</TABLE>

                                       6

<PAGE>
<TABLE>
<CAPTION>
                                                          NINE MONTHS ENDED
                               --------------------------------------------------------------------
                                          FEBRUARY 28, 1999                FEBRUARY 28, 1998
                               ---------------------------------- ---------------------------------

                                  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          $ 1,532,000  4,727,000    $ 0.32   $  531,000    4,433,000   $ 0.12
                                                     
Effect of dilutive securities:
  Stock options and warrants             -    307,000                      -      156,000
  Convertible notes                119,000    857,000                      -            -
                               -----------  ---------             ----------    ---------  
Net income per common share,
 assuming dilution:
 Income available to common                      
  stockholders and assumed             
  conversions                  $ 1,651,000  5,891,000    $ 0.28   $  531,000    4,589,000   $ 0.12
                               ===========  =========    ======   ==========    =========   ======
</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 February 28, 1999,  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  were  $10,099,000  at
February 28, 1999,  with deposit and reserve  requirements  (performance  bonds)
representing $2,553,000 of the Restricted Net Assets and net worth requirements,
in excess of  deposit  and  reserve  requirements,  representing  the  remaining
$7,546,000.

NOTE 4 - BUSINESS SEGMENTS
--------------------------

The Company's business segments consist of management  services,  long-term care
health services and acute care health services.  The management services segment
is engaged in the business of  administering  risk-based  managed care plans and
programs in seven states. Long-term care health services is comprised of Ventana
Health Systems, Inc. ("Ventana"), which is a long-term care Medicaid health plan
operating in seven counties in Arizona and Community Health USA, Inc. ("CHUSA"),
which provides in-home personal, respite,  companionship and homemaking services
to recipients in Arizona.  Acute care health services consists of Arizona Health
Concepts,  Inc. ("AHC"),  an acute care Medicaid health plan currently operating
in two counties in Arizona.

                                       7
<PAGE>

Information concerning operations by business segment follows:

<TABLE>
<CAPTION>

                                            For the Three Months Ended February 28, 1999
                                           ----------------------------------------------

                                    Management     Long-Term Care       Acute Care
                                     Services     Health Services    Health Services      TOTALS
                                  -------------   ---------------    ---------------   ------------
<S>                               <C>             <C>                <C>               <C>   
                                             
Total revenues from       
  reportable segments             $  11,084,000   $    7,713,000     $    4,381,000    $ 23,178,000
Intersegment revenues                (1,302,000)        (303,000)                 -      (1,605,000)
                                  -------------   --------------     --------------    ------------ 
  Total consolidated revenues     $   9,782,000   $    7,410,000     $    4,381,000    $ 21,573,000
                                  =============   ==============     ==============    ============

Interest income                   $      47,000   $      118,000     $       75,000    $    240,000
Intersegment interest income                  -           (6,000)                 -          (6,000)
Interest expense                        (97,000)               -                  -         (97,000)
Intersegment interest expense             6,000                -                  -           6,000
                                  -------------   --------------     --------------    ------------
  Net interest income (expense)   $     (44,000)  $      112,000     $       75,000    $    143,000
                                  =============   ==============     ==============    ============   

Depreciation and amortization     $     543,000   $            -     $            -    $    543,000
                                  =============   ==============     ==============    ============

Segment income (loss)             
  before taxes                    $     304,000   $      374,000     $     (171,000)   $    507,000
Income tax expense (benefit)            184,000          135,000           (430,000)       (111,000)
                                  -------------   --------------     --------------    ------------
  Net income                      $     120,000   $      239,000     $      259,000    $    618,000
                                  =============   ==============     ==============    ============
Expenditures for capital assets   $     378,000   $            -     $            -    $    378,000
                                  =============   ==============     ==============    ============
</TABLE>
<TABLE>
<CAPTION>
                                            For the Three Months Ended February 28, 1998
                                           ----------------------------------------------

                                    Management     Long-Term Care       Acute Care
                                     Services     Health Services    Health Services      TOTALS

                                -------------   ---------------    ---------------   ------------     
<S>                             <C>             <C>                <C>               <C>
Total revenues from
  reportable segments             $  8,026,000    $    6,651,000     $    3,749,000    $ 18,426,000
Intersegment revenues               (1,091,000)         (231,000)                 -      (1,322,000)
                                  ------------    --------------     --------------    ------------
  Total consolidated revenues     $  6,935,000    $    6,420,000     $   17,104,000    $  3,749,000
                                  ============    ==============     ==============    ============

Interest income                   $     44,000    $      107,000     $       81,000    $    232,000
Intersegment interest income                 -           (13,000)                 -         (13,000)
Interest expense                      (105,000)                -                  -        (105,000)
Intersegment interest expense           13,000                 -                  -          13,000
                                  ------------    --------------     --------------    ------------
  Net interest income (expense)   $    (48,000)   $       94,000     $       81,000    $    127,000
                                  ============    ==============     ==============    ============

Depreciation and amortization     $    499,000    $            -     $            -    $    499,000
                                  ============    ==============     ==============    ============
                                       
Segment income(loss)              
  before taxes                    $     45,000    $      423,000     $     (170,000)   $    298,000
Income tax expense                                                         
  (benefit)                             18,000           171,000            (67,000)        122,000
                                  ------------    --------------     --------------    ------------
  Net income (loss)               $     27,000    $      252,000     $     (103,000)   $    176,000                      
Expenditures for capital assets   $    835,000    $            -     $            -    $    835,000 
                                  ============    ==============     ==============    ============
</TABLE>
                                      
                                       8
<PAGE>
<TABLE>
<CAPTION>
                                            For the Nine Months Ended February 28, 1999
                                           ---------------------------------------------
                                   Management     Long-Term Care       Acute Care
                                     Services     Health Services    Health Services      TOTALS
                                  -------------   ---------------    ---------------   ------------  
<S>                               <C>             <C>                <C>               <C>   

Total revenues from                          
  reportable segments             $ 31,573,000    $   22,029,000     $   12,369,000    $ 65,971,000
Intersegment revenues               (3,678,000)         (837,000)                 -      (4,515,000)
                                  ------------    --------------     --------------    ------------
  Total consolidated revenues     $ 27,895,000    $   21,192,000     $   12,369,000    $ 61,456,000
                                  ============    ==============     ==============    ============

Interest income                   $    132,000    $      357,000     $      255,000    $    744,000
Intersegment interest income                 -           (24,000)                 -         (24,000)
Interest expense                      (295,000)                -                  -        (295,000)
Intersegment interest expense           24,000                 -                  -          24,000
                                  ------------    --------------     --------------    ------------
  Net interest income (expense)   $   (139,000)   $      333,000     $      255,000    $    449,000
                                  ============    ==============     ==============    ============

Depreciation and amortization     $  1,685,000    $            -     $            -    $  1,685,000
                                  ============    ==============     ==============    ============

Segment income (loss) 
  before taxes                    $    910,000    $    1,261,000     $     (201,000)   $  1,970,000
Income tax expense (benefit)           438,000           473,000           (473,000)        438,000
                                  ------------    --------------     --------------    ------------
  Net income                      $    472,000    $      788,000     $      272,000    $  1,532,000
                                  ============    ==============     ==============    ============

Expenditures for capital assets   $  1,003,000    $            -     $            -    $  1,003,000
                                  ============    ==============     ==============    ============

Segment total assets              $ 24,388,000    $   11,665,000     $    8,314,000    $ 44,367,000
Intersegment assets                 (8,337,000)         (402,000)          (105,000)     (8,844,000)
                                  ------------    --------------     --------------    ------------
  Total assets                    $ 16,051,000    $   11,263,000     $    8,209,000    $ 35,523,000
                                  ============    ==============     ==============    ============
</TABLE>

<TABLE>
<CAPTION>
                                            For the Nine Months Ended February 28, 1998
                                           ---------------------------------------------
                                   Management     Long-Term Care       Acute Care
                                    Services     Health Services     Health Services      TOTALS
                                  ------------   ---------------     ---------------   ------------ 
<S>                               <C>            <C>                 <C>               <C>    

Total revenues from                           
  reportable segments             $ 21,814,000   $    19,304,000     $   10,761,000    $ 51,879,000
Intersegment revenues               (3,233,000)         (697,000)                 -      (3,930,000)
                                  ------------   ---------------     --------------    ------------
  Total consolidated revenues     $ 18,581,000   $    18,607,000     $   10,761,000    $ 47,949,000
                                  ============   ===============     ==============    ============

Interest income                   $    114,000   $       330,000     $      223,000    $    667,000
Intersegment interest income                 -           (44,000)                 -         (44,000)
Interest expense                      (329,000)                -                  -        (329,000)
Intersegment interest expense           44,000                 -                  -          44,000
                                  ------------   ---------------     --------------    ------------
  Net interest income (expense)   $   (171,000)  $       286,000     $      223,000    $    338,000
                                  ============   ===============     ==============    ============

Depreciation and amortization     $  1,386,000   $             -     $            -    $  1,386,000
                                  ============   ===============     ==============    ============

Segment income (loss) 
  before taxes                    $   (418,000)  $     1,173,000     $       75,000    $    830,000
Income tax expense (benefit)          (208,000)          485,000             22,000         299,000
                                  ------------   ---------------     --------------    ------------
  Net income (loss)               $   (210,000)  $       688,000     $       53,000    $    531,000
                                  ============   ===============     ==============    ============

Expenditures for capital assets   $  2,060,000   $             -     $            -    $  2,060,000
                                  ============   ===============     ==============    ============

Segment total assets              $ 21,132,000   $     9,478,000     $    6,762,000    $ 37,372,000
Intersegment assets                 (6,859,000)         (705,000)            67,000      (7,497,000)
                                  ------------   ---------------     --------------    ------------
  Total assets                    $ 14,273,000   $     8,773,000     $    6,829,000    $ 29,875,000
                                  ============   ===============     ==============    ============
</TABLE>

                                       9
<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 plan
subsidiary,  Ventana  Health Systems  ("Ventana");  an Arizona based primary and
acute care health plan subsidiary,  Arizona Health Concepts ("AHC");  management
contracts pursuant to which the Company administers privately owned health plans
and health maintenance  organizations located in Hawaii,  Michigan,  New Mexico,
and Texas; the management of healthcare  services for an indigent population for
the County of San Diego, California; a contractual arrangement with the State of
Indiana Medicaid Agency and a subsidiary providing home healthcare and community
worker services.

RESULTS OF OPERATIONS

Revenues for the three and nine-month  periods ended February 28, 1999 increased
$4,469,000 and  $13,507,000 to $21,573,000  and  $61,456,000,  respectively,  as
compared to the comparable periods of the prior year.

For the three and nine-month periods ended February 28, 1999, revenues generated
from fees for management of health plans not owned by the Company  increased 41%
and 50%, respectively,  over the same periods of the previous year to $9,782,000
and $27,895,000. The increase is primarily due to the addition of two new plans,
Lovelace Community Health Plan in New Mexico and Rio Grande HMO in Texas, during
fiscal year 1998 and an increase in membership in the Community  Choice Michigan
plan during fiscal year 1999.

Aggregate  capitation  revenue received by Ventana and AHC increased  $1,622,000
and  $4,193,000  for the three and  nine-month  periods ended February 28, 1999,
respectively, to $11,791,000 and $33,561,000. The increases are primarily due to
an increase in capitation  rates received by both plans in October 1998 from the
State of Arizona and increase in  membership  of 141 and 500 for Ventana and AHC
respectively, during the nine month period ended February 28, 1999.

Direct costs of operations increased $2,757,000 and $8,232,000 for the three and
nine-month  periods ended February 28, 1999, to $16,348,000 and $46,470,000 over
the corresponding  periods of the prior year. Direct costs of operations for the
three and nine-month periods ended February 28, 1999 consisted of $5,938,000 and
$17,207,000,  respectively,  related to fees generated from management of health
plans not owned by the Company and  $10,410,000 and  $29,263,000,  respectively,
from operating expenses of Ventana and AHC.

The  direct  costs of  operations  to manage  plans as a  percentage  of related
revenue decreased from 65% for the three-month period ended February 28, 1998 to
61% for the three-month  period ended February 28, 1999. The primary reasons for
the  decrease  are an  increase in  membership  and  revenue  received  from the
Community Choice Michigan health plan partially  offset by incremental  expenses
incurred by the same health plan and  $300,000 in  additional  revenue  from Rio
Grande HMO for fees related to financial  performance  of the health plan during
calendar year 1998.  For the nine-month  period ended February 28, 1999,  direct
costs of operations  to manage plans as a percentage of related  revenue was 62%
as compared to 69% for the comparable  period of the prior year. The main reason
for the decrease in costs  incurred  during the  comparable  period of the prior
year for start up of  additional  plans in New Mexico and  Texas,  which  became
operational in July 1997 and January 1998, respectively.

Direct costs as a  percentage  of related  revenue for the three and  nine-month
periods  ended  February  28, 1999 were 86% and 84%,  respectively,  for Ventana
versus 84% for both  periods  during the  comparable  periods of the prior year.


                                       10
<PAGE>

Direct costs as a  percentage  of related  revenue for the three and  nine-month
periods ended February 28, 1999 were 95% and 94%, respectively, for AHC. For the
comparable  periods of the prior  year,  direct  costs for AHC were 98% and 92%,
respectively.  The reason  for the  decrease  in the  three-month  period  ended
February  28,  1999  is  due  to  high  inpatient   costs  incurred  during  the
three-months  ended February 28, 1998.  Direct cost of operations of AHC for the
three-month  period versus nine-month period ending are historically  higher due
to  seasonally  higher  utilization  of health care  services  during the winter
months.

Marketing,  sales and  administrative  expenses  for the  three  and  nine-month
periods  ended  February  28,  1999  increased  $1,519,000  and  $4,246,000,  to
$4,861,000 and $13,465,000,  respectively.  The change is caused by increases in
salary and related  expenses as a result of growth in  membership of plans owned
and managed by the  Company,  coupled  with  infrastructure  changes,  including
management  reorganization and process redesign intended to improve  operational
efficiency and achieve strategic goals.

The effective  income tax rate was 22% for the nine-month  period ended February
28, 1999 and 36% for the  comparable  period of the prior fiscal year. The lower
rate during the  current  fiscal year is caused by the  reduction  in  valuation
allowance of $397,000  against AHC's  deferred tax assets.  Net of the valuation
allowance  adjustment,  the  Company's  effective  tax  rate was  42%  primarily
reflecting non-deductible goodwill amortization.

Net interest income for the three and nine-month  periods February 28, 1999, was
$143,000  and  $449,000,  respectively,  versus  $127,000  and  $338,000 for the
comparable  periods of the prior year.  Interest income is primarily  related to
investments  held by Ventana and AHC partially offset by interest expense on the
Company's  outstanding  convertible debt. The increase in net interest income is
due to growth in the Company's invested funds as a result of improved cash flow.

Net income was  $618,000 and  $1,532,000  for the three and  nine-month  periods
ended February 28, 1999, respectively,  as compared to $176,000 and $531,000 for
the same  periods  of the prior  year.  The  primary  reasons  for the  improved
profitability  are the  addition of two  management  contracts  in Texas and New
Mexico,  an increase in membership in the Community Choice Michigan plan managed
by the Company and the  recognition  of $366,000  and $397,000 for the three and
nine months ended February 28, 1999 respectively, in tax benefits resulting from
the reduction of valuation allowances for AHC's deferred tax assets.

In March 1999, the Company acquired AdviNet,  Inc., a wholly owned subsidiary of
Beverly Enterprises,  Inc. The cost of the acquisition was immaterial.  AdviNet,
Inc. is a provider of personalized  elder care  consultation,  referral and care
management assistance to seniors, their families and related caregivers.

LIQUIDITY AND CAPITAL RESOURCES

During the  nine-month  period ended  February 28, 1999,  the Company's cash and
cash  equivalents  increased  $3,255,000 to  $16,019,000.  Operating  activities
generated  $3,444,000 for the  nine-month  period ended February 28, 1999 versus
$4,455,000 for the comparable  period of the previous year. The change in fiscal
year 1999 is caused  by an  increase  in  accounts  receivable  due to timing of
management  fees received from certain  management  contracts and an increase in
prepaid  expenses,  partially  offset by an  increase  in  accounts  payable and
accrued  medical  claims.  The  primary  reasons for cash  generated  during the
nine-month period ended February 28, 1998 were a decrease in accounts receivable
and the receipt of $1,700,000 in federal tax refunds.

Investing   activities  used   $232,000   for   the   nine-month   period  ended
February 28, 1999  versus $1,529,000  during  the  same nine-months of the prior
year.  During  the  nine-month  period  ended  February 28, 1999,  $999,000  was
received  upon  maturity of a bond  held by Ventana and  $1,003,000  was used to
purchase  fixed  assets  for  growth  in  operations   and  investments  in  new
technology. $1,645,000 was used to increase short-term investments primarily due
to  the  transition  of  approximately $1,241,000 in performance bond funds into
short-term investments.

                                       11
<PAGE>

Financing  activities  generated $43,000 and $892,000 for the nine-month periods
ended February 28, 1999 and 1998, respectively.  Principal payments on long-term
debt were the primary uses of funds  during both  periods  offset by $198,000 of
common  stock  issuance  in  accordance  with stock  option and  employee  stock
purchase plans during the nine-month period ended February 28, 1999. The primary
source of funds during the comparable  period in fiscal year 1998 was $1,000,000
received  for  issuing   200,000   shares  of  the   Company's  Common  Stock to
Beverly Enterprises, Inc.

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, 1999, 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  $10,099,000 at February 28, 1999, with deposit and
reserve  requirements   (performance  bonds)  representing   $2,553,000  of  the
Restricted  Net Assets  and net worth  requirements,  in excess of  deposit  and
reserve requirements,  representing the remaining $7,546,000.  Funds provided by
Ventana to MCS under loan agreements  totaled $253,000 at February 28, 1999. VHS
provided  these loans in the normal course of  operations.  All such  agreements
were  pre-approved  as  required by the  Arizona  Health  Care Cost  Containment
Administration.

The Company believes that its existing capital resources and cash flow generated
from  future  operations  will  enable  it to  maintain  its  current  level  of
operations and its planned operations, including capital expenditures, in fiscal
year 1999.


YEAR 2000 ISSUES

Many  existing  computer  systems may not properly  recognize  and process dates
after December 31, 1999.  Therefore,  certain  hardware and software,  including
that utilized by the Company,  may have to be modified  and/or  reprogrammed  to
properly  function  in the year 2000 and  beyond.  The  Company  has  created an
internal  year 2000  committee  to manage the  project of  addressing  year 2000
related  issues.  In May 1998,  the Committee  began to assess its  internal-use
hardware,  software,   non-information  systems  equipment,   embedded  systems,
procedures and business  processes.  The Company also began  communicating  with
State  agencies,  clients and vendors about year 2000 issues.  The phases of the
year 2000 project consist of awareness,  inventory analysis, assessment, project
management,  validation,  testing, and implementation.  Different aspects of the
Company  operations  are in  various  stages  of the  project,  with an  overall
completion date targeted for August 1999.

The Company's  operations are highly dependent on automated  systems and systems
applications.  Currently,  the Company utilizes an internally developed software
("MC1") to process claims and pay providers and considers the software  critical
to its operations. The current version of the MC1 software is based on Oracle v.
7.3.3.0.0,  which was certified in writing by Oracle Corporation to be year 2000
compliant.    The  Company  is  also  in  the  process  of  replacing  MC1  with
"Diamond 950 C/S" software  application  offered  by Health Systems Design Corp.
("HSD").   HSD confirmed  in  writing that its software is year 2000  compliant.
The Company  plans  to    test    hardware   and   software   to   assess  these
representations of Oracle Corporation, HSD and other vendors.

The Company also realizes that there are outside influences relative to its year
2000 efforts over which it has little or no control. The year 2000 committee has
begun to communicate  with State  agencies to assess their year 2000  readiness.
The Company has been notified by certain states that they may not address all of
their year 2000  problems  prior to December 31, 1999.  The Company is unable to
determine  the  effect,  if any,  that such  problems  may have on the  Company.
However, the Company will attempt to reduce the impact of other parties' failure
to resolve year 2000 problems.

                                       12
<PAGE>

Based on the  Company's  analysis to date,  year 2000 problems and costs are not
expected to have a materially adverse effect on the Company's business,  results
of  operations  or  financial  condition.  The Company  has spent  approximately
$60,000 to date  preparing and analyzing year 2000 issues.  It anticipates  year
2000 costs to reach approximately $250,000.  There can be no assurances that the
Company's  current  systems or those  acquired  in the future do not or will not
contain  undetected  defects associated with year 2000 issues that may result in
material costs to the Company. The Company is currently  developing  contingency
plans to recover from any undetected defects and expects to have a plan in place
by the end of August 1999.

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 5.   ANNUAL MEETING OF STOCKHOLDERS

The Company's  next  annual  meeting of stockholders is currently scheduled  for
June  1999,  and  the  Company  expects  to mail proxy materials to stockholders
on  or about April 30, 1999.  Any  proposals  by  stockholders  intended  to  be
presented  at  such  annual  meeting  must  be  received   by  the  Company in a
reasonable  time  prior  to such  mailing  date  in  order to be considered  for
inclusion in the Company's  proxy materials.  The Company  will be  entitled  to
exercise  discretionary   proxy   authority   with  respect  to  any   proposals
presented  by  stockholders  at that  meeting  unless the Company is notified of
such proposals a reasonable time prior to such mailing date.

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

          (a)  Exhibits

               (27)  Financial data schedule.

          (b)  Reports on Form 8-K

               None

                                       13
<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/ MICHAEL D. HERNANDEZ
                              ----------------------------------------
                              Michael D. Hernandez, Chairman and Chief
                              Executive Officer

                        By:   /S/ MICHAEL J. KENNEDY
                              ----------------------------------------
                              Michael J. Kennedy, Chief Financial Officer

                        Dated:      April 14 , 1999

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