<PAGE>

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

                                    FORM 10-Q

          [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                  FOR QUARTERLY PERIOD ENDED NOVEMBER 30, 1998
                                       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 4,766,983 shares of common stock outstanding as of January 4, 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 1.  Legal Proceedings.............................................13


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

                                       2
<PAGE>

PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS
<TABLE>

                                     MANAGED CARE SOLUTIONS, INC.
                                     CONSOLIDATED BALANCE SHEETS
<CAPTION>

                                                                      NOVEMBER 30,       MAY 31,
                                                                         1998             1998
                                                                     -------------    -------------
<S>                                                                  <C>              <C>
                                                                      (UNAUDITED)

ASSETS
------

Current Assets:
  Cash and cash equivalents, including restricted cash of                
    $9,043,000 and $9,007,000                                        $  12,663,000    $  12,764,000
  Short-term investments                                                 3,155,000        1,510,000
  Accounts and notes receivable and unbilled services, net               4,570,000        3,169,000
  Prepaid expenses and other current assets                                477,000          483,000
  Deferred income taxes, net                                             1,049,000        1,066,000
                                                                     -------------    -------------
     Total current assets                                               21,914,000       18,992,000

Related party notes receivable                                             577,000          694,000
Property and equipment, net                                              4,243,000        4,609,000
Performance bonds                                                        2,553,000        3,794,000
Goodwill, net                                                            2,644,000        2,826,000
Other assets                                                             1,003,000          808,000
                                                                     -------------    -------------      
                                                                     $  32,934,000    $  31,723,000
                                                                     =============    =============

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------

Current Liabilities:
  Accounts payable                                                   $     383,000    $     447,000
  Accrued medical claims                                                 8,337,000        7,799,000
  Risk pool payable                                                      1,347,000        1,540,000
  Related party risk pool payable                                          132,000          152,000
  Accrued compensation                                                   2,147,000        1,862,000
  Other accrued expenses                                                 1,725,000        2,153,000
  Current portion of long-term debt                                              -           67,000
                                                                     -------------    -------------
     Total current liabilities                                          14,071,000       14,020,000

Related party long-term debt                                             3,978,000        3,961,000
Deferred income taxes, net                                                 271,000          239,000
                                                                     -------------    -------------
     Total liabilities                                                  18,320,000       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                                        15,898,000       15,702,000
  Accumulated deficit                                                   (1,332,000)      (2,246,000)
                                                                     -------------    -------------
     Total stockholders' equity                                         14,614,000       13,503,000
                                                                     -------------    -------------
                                                                     $  32,934,000    $  31,723,000
                                                                     =============    =============

                                                3

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

<TABLE>

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

<CAPTION>

                                                  THREE MONTHS ENDED                 SIX MONTHS ENDED
                                            -----------------------------      -----------------------------
                                              NOVEMBER        NOVEMBER           NOVEMBER        NOVEMBER
                                                 30,             30,                30,             30,
                                                1998            1997               1998            1997
                                            -------------   -------------      -------------   -------------
<S>                                         <C>             <C>                <C>             <C>

Revenues                                    $  20,639,000   $  16,103,000      $  39,883,000   $  30,845,000
                                            -------------   -------------      -------------   -------------

Direct cost of operations                      15,822,000      12,867,000         30,122,000      24,647,000
Marketing, sales and administrative             4,217,000       3,120,000          8,604,000       5,877,000
                                            -------------   -------------      -------------   -------------

  Total costs and expenses                     20,039,000      15,987,000         38,726,000      30,524,000
                                            -------------   -------------      -------------   -------------

Operating income                                  600,000         116,000          1,157,000         321,000
                                            -------------   -------------      -------------   -------------

Interest income                                   233,000         213,000            486,000         404,000
Interest expense                                  (90,000)       (102,000)          (180,000)       (193,000)
                                            -------------   -------------      -------------   -------------

  Net interest income                             143,000         111,000            306,000         211,000
                                            -------------   -------------      -------------   -------------

Income before income taxes                        743,000         227,000          1,463,000         532,000

Provision for income taxes                        251,000          60,000            549,000         177,000
                                            -------------   -------------      -------------   -------------

Net income                                  $     492,000   $     167,000      $     914,000   $     355,000
                                            =============   =============      =============   =============

Net income per share--basic                 $        0.10   $        0.04      $        0.19   $        0.08
                                            =============   =============      =============   =============

Weighted average common
  shares outstanding--basic                     4,720,000       4,394,000          4,707,000       4,394,000
                                            =============   =============      =============   =============

Net income per share assuming dilution      $        0.09   $        0.04      $        0.17   $        0.08
                                            =============   =============      =============   =============

Weighted average common shares
  outstanding--assuming dilution                5,780,000       4,457,000          5,891,000       4,483,000
                                            =============   =============      =============   =============

                                                     4

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

<PAGE>

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

<CAPTION>
                                                                 SIX MONTHS ENDED
                                                            -----------------------------
                                                             NOVEMBER 30,    NOVEMBER 30,
                                                                1998            1997
                                                            -------------   -------------
<S>                                                         <C>             <C>

Cash flows from operating activities:
  Net income                                                $     914,000   $     355,000
  Adjustments to reconcile net income to net cash  
    provided by operating activities:
   Bad debt expense                                                     -          23,000
   Depreciation and amortization                                1,135,000         907,000
   Loss on sale of property and equipment                           2,000          18,000
   Deferred income taxes                                           49,000        (169,000)
   Interest on long-term debt                                     114,000         133,000
   Changes in assets and liabilities:
     Accounts receivable and unbilled services                 (1,401,000)      1,309,000
     Prepaid expenses and other current assets                      6,000       1,365,000
     Accounts payable                                             (64,000)       (139,000)
     Accrued medical claims                                       538,000        (421,000)
     Risk pool payable                                           (193,000)       (709,000)
     Related party risk pool payable                              (20,000)        (93,000)
     Accrued compensation                                         285,000         275,000
     Accrued expenses                                            (428,000)        308,000
     Other assets                                                (195,000)       (153,000)
                                                            -------------   -------------
Net cash provided by operating activities                         742,000       3,009,000
                                                            -------------   -------------

Cash flows from investing activities:
  Purchase of property and equipment                             (625,000)     (1,225,000)
  Proceeds from sale of property and equipment                     56,000           4,000
  Purchase of short-term investments                           (1,645,000)              -
  Proceeds from maturity/sale of short-term investments                 -           1,000
  Proceeds from related party notes receivable                    117,000         275,000
  Proceeds from notes receivable                                        -         245,000
  Sales (purchases) of assets securing performance bond         1,241,000         (54,000)
                                                            -------------   -------------
Net cash used in investing activities                            (856,000)       (754,000)
                                                            -------------   -------------

Cash flows from financing activities:
  Net decrease in long-term debt                                 (184,000)       (100,000)
  Proceeds from common stock issuance                             197,000               -
                                                            -------------   -------------
Net cash provided by (used in) financing activities                13,000        (100,000)
                                                            -------------   -------------

Net increase (decrease) in cash and cash equivalents             (101,000)      2,155,000
Cash and cash equivalents, beginning of period                 12,764,000       7,212,000
                                                            -------------   -------------
Cash and cash equivalents, end of period                    $  12,663,000   $   9,367,000
                                                            =============   =============
</TABLE>

                                            5

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

                          MANAGED CARE SOLUTIONS, INC.
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - NATURE OF BUSINESS
---------------------------

In management's  opinion,  the  accompanying  unaudited  consolidated  financial
statements  contain  all  adjustments   (consisting  of  only  normal  recurring
adjustments)  considered  necessary for a fair  statement of the results for the
interim  periods  presented.  The  results of  operations  for the period  ended
November 30, 1998 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, 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
                                  ------------------------------------------------------------------------------------
                                             NOVEMBER 30, 1998                            NOVEMBER 30, 1997
                                  ---------------------------------------      ---------------------------------------

                                    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                  $   492,000     4,720,000      $ 0.10        $   167,000     4,394,000      $ 0.04
Effect of dilutive securities:
  Stock options and warrants                -       203,000                              -        63,000
  Convertible notes                    40,000       857,000                              -             -
                                  -----------     ---------                    -----------     ---------

Net income per common share,
  assuming dilution:
  Income available to common
    stockholders and
    assumed conversions           $   532,000     5,780,000      $ 0.09        $   167,000     4,457,000      $ 0.04
                                  ===========     =========      ======        ===========     =========      ======
</TABLE>

                                       6
<PAGE>
<TABLE>
<CAPTION>

                                                                     SIX MONTHS ENDED
                                  ------------------------------------------------------------------------------------
                                             NOVEMBER 30, 1998                            NOVEMBER 30, 1997
                                  --------------------------------------       ---------------------------------------

                                    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                  $   914,000     4,707,000      $ 0.19        $   355,000     4,394,000      $ 0.08
Effect of dilutive securities:
  Stock options and warrants                -       327,000                              -        89,000
  Convertible notes                    79,000       857,000                              -             -
                                  -----------     ---------                    -----------     ---------

Net income per common share,
  assuming dilution:
  Income available to common                       
    stockholders and
    assumed conversions           $   993,000     5,891,000      $ 0.17        $   355,000     4,483,000      $ 0.08
                                  ===========     =========      ======        ===========     =========      ======
</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 November 30, 1998,  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  $9,717,000  at
November 30, 1998,  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
$7,164,000.

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 November 30, 1998
                                            ----------------------------------------------------------------

                                               Management   Long-Term Care      Acute Care
                                                Services    Health Services   Health Services      Totals
                                                --------    ---------------   ---------------      ------
<S>                                             <C>         <C>               <C>                  <C>   

Total revenues from reportable segments      $ 10,634,000     $  7,435,000      $  4,057,000    $ 22,126,000
Intersegment revenues                          (1,223,000)        (264,000)                -      (1,487,000)
                                             ------------     ------------      ------------    ------------
   Total consolidated revenues               $  9,411,000     $  7,171,000      $  4,057,000    $ 20,639,000
                                             ============     ============      ============    ============

Interest income                              $     37,000     $    118,000      $     86,000    $    241,000
Intersegment interest income                            -           (8,000)                -          (8,000)
Interest expense                                  (98,000)               -                 -         (98,000)
Intersegment interest expense                       8,000                -                 -           8,000
                                             ------------     ------------      ------------    ------------
   Net interest income (expense)             $    (53,000)    $    110,000      $     86,000    $    143,000
                                             ============     ============      ============    ============

Depreciation and amortization                $    575,000                -                 -    $    575,000
                                             ============     ============      ============    ============

Segment income (loss) before taxes           $    507,000     $    336,000      $   (100,000)   $    743,000
Income tax expense (benefit)                      198,000          123,000           (70,000)        251,000
                                             ------------     ------------      ------------    ------------
   Net income (loss)                         $    309,000     $    213,000      $    (30,000)   $    492,000
                                             ============     ============      ============    ============

Expenditures for capital assets              $    360,000                -                 -    $    360,000
                                             ============     ============      ============    ============
</TABLE>

<TABLE>
<CAPTION>
                                                      For the Three Months Ended November 30, 1997
                                            ----------------------------------------------------------------
                                               Management   Long-Term Care      Acute Care
                                                Services    Health Services   Health Services      Totals
                                                --------    ---------------   ---------------      ------
<S>                                             <C>         <C>               <C>                  <C> 

Total revenues from reportable segments      $  7,295,000     $  6,475,000      $  3,648,000    $ 17,418,000
Intersegment revenues                          (1,084,000)        (231,000)                -      (1,315,000)
                                             ------------     ------------      ------------    ------------
     Total consolidated revenues             $  6,211,000     $  6,244,000      $  3,648,000    $ 16,103,000
                                             ============     ============      ============    ============

Interest income                              $     34,000     $    116,000      $     78,000    $    228,000
Intersegment interest income                            -          (15,000)                -         (15,000)
Interest expense                                 (117,000)               -                 -        (117,000)
Intersegment interest expense                      15,000                -                 -          15,000
                                             ------------     ------------      ------------    ------------
   Net interest income (expense)             $    (68,000)    $    101,000      $     78,000    $    111,000
                                             ============     ============      ============    ============

Depreciation and amortization                $    485,000                -                 -    $    485,000
                                             ============     ============      ============    ============

Segment income (loss) before taxes           $   (247,000)    $    396,000      $     78,000    $    227,000
Income tax expense (benefit)                     (131,000)         167,000            24,000          60,000
                                             ------------     ------------      ------------    ------------
   Net income (loss)                         $   (116,000)    $    229,000      $     54,000    $    167,000
                                             ============     ============      ============    ============

Expenditures for capital assets              $    545,000     $          -      $          -    $    545,000
                                             ============     ============      ============    ============
</TABLE>

                                       8
<PAGE>
<TABLE>
<CAPTION>
                                                       For the Six Months Ended November 30, 1998
                                            ----------------------------------------------------------------
                                               Management   Long-Term Care      Acute Care
                                                Services    Health Services   Health Services      Totals
                                                --------    ---------------   ---------------      ------
<S>                                             <C>         <C>               <C>                  <C> 

Total revenues from reportable segments      $ 20,489,000     $ 14,315,000      $  7,988,000    $ 42,792,000
Intersegment revenues                          (2,376,000)        (533,000)                -      (2,909,000)
                                             ------------     ------------      ------------    ------------
   Total consolidated revenues               $ 18,113,000     $ 13,782,000      $  7,988,000    $ 39,883,000
                                             ============     ============      ============    ============

Interest income                              $     85,000     $    239,000      $    179,000    $    503,000
Intersegment interest income                            -          (18,000)                -         (18,000)
Interest expense                                 (197,000)               -                 -        (197,000)
Intersegment interest expense                      18,000                -                 -          18,000
                                             ------------     ------------      ------------    ------------
   Net interest income (expense)             $    (94,000)    $    221,000      $    179,000    $    306,000
                                             ============     ============      ============    ============

Depreciation and amortization                $  1,135,000     $          -      $          -    $  1,135,000
                                             ============     ============      ============    ============

Segment income (loss) before taxes           $    606,000     $    887,000      $    (30,000)   $  1,463,000
Income tax expense (benefit)                      255,000          337,000           (43,000)        549,000
                                             ------------     ------------      ------------    ------------
   Net income                                $    351,000     $    550,000      $     13,000    $    914,000
                                             ============     ============      ============    ============

Expenditures for capital assets              $    625,000     $          -      $          -    $    625,000
                                             ============     ============      ============    ============

Segment total assets                         $ 22,761,000     $ 10,963,000      $  7,500,000    $ 41,224,000
Intersegment assets                            (7,725,000)        (511,000)          (54,000)     (8,290,000)
                                             ------------     ------------      ------------    ------------
   Total assets                              $ 15,036,000     $ 10,452,000      $  7,446,000    $ 32,934,000
                                             ============     ============      ============    ============
</TABLE>
<TABLE>
<CAPTION>
                                                       For the Six Months Ended November 30, 1997
                                            ----------------------------------------------------------------
                                               Management   Long-Term Care      Acute Care
                                                Services    Health Services   Health Services      Totals
                                                --------    ---------------   ---------------      ------
<S>                                             <C>         <C>               <C>                  <C> 

Total revenues from reportable segments      $ 13,788,000     $ 12,654,000      $  7,011,000    $ 33,453,000
Intersegment revenues                          (2,142,000)        (466,000)                -      (2,608,000)
                                             ------------     ------------      ------------    ------------
   Total consolidated revenues               $ 11,646,000     $ 12,188,000      $  7,011,000    $ 30,845,000
                                             ============     ============      ============    ============

Interest income                              $     70,000     $    224,000      $    141,000    $    435,000
Intersegment interest income                            -          (31,000)                -         (31,000)
Interest expense                                 (224,000)               -                 -        (224,000)
Intersegment interest expense                      31,000                -                 -          31,000
                                             ------------     ------------      ------------    ------------
   Net interest income (expense)             $   (123,000)    $    193,000      $    141,000    $    211,000
                                             ============     ============      ============    ============

Depreciation and amortization                $    907,000     $          -      $          -    $    907,000
                                             ============     ============      ============    ============

Segment income (loss) before taxes           $   (464,000)    $    751,000      $    245,000    $    532,000
Income tax expense (benefit)                     (226,000)         314,000            89,000         177,000
                                             ------------     ------------      ------------    ------------
   Net income (loss)                         $   (238,000)    $    437,000      $    156,000    $    355,000
                                             ============     ============      ============    ============

Expenditures for capital assets              $  1,225,000     $          -      $          -    $  1,225,000
                                             ============     ============      ============    ============

Segment total assets                         $ 19,804,000     $  8,860,000      $  6,189,000    $ 34,853,000
Intersegment assets                            (6,597,000)        (744,000)          134,000      (7,207,000)
                                             ------------     ------------      ------------    ------------
   Total assets                              $ 13,207,000     $  8,116,000      $  6,323,000    $  27,646,000
                                             ============     ============      ============    ============
</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
maintenance organization ("HMO") subsidiary, Ventana Health Systems ("Ventana");
an Arizona based primary and acute care HMO subsidiary,  Arizona Health Concepts
("AHC");   management  contracts  pursuant  to  which  the  Company  administers
privately owned HMOs located in Hawaii,  Michigan,  New Mexico,  and Texas;  the
management of healthcare  services for an indigent  population for the County of
San Diego; a contractual  arrangement  with the State of Indiana Medicaid Agency
and a subsidiary providing home healthcare and community worker services.

RESULTS OF OPERATIONS

Revenues for the three and six-month  periods ended  November 30, 1998 increased
$4,536,000 and  $9,038,000 to  $20,639,000  and  $39,883,000,  respectively,  as
compared to the same periods of the prior year.

For the three and six-month periods ended November 30, 1998,  revenues generated
from fees for management of health plans not owned by the Company  increased 52%
and 56%, respectively,  over the comparable prior year periods to $9,411,000 and
$18,113,000.  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.

Aggregate  capitation  revenue received by Ventana and AHC increased  $1,336,000
and  $2,571,000  for the three and six-month  periods  ended  November 30, 1998,
respectively,  to  $11,228,000  and  $21,770,000.  The  primary  reasons for the
increases were a rise in capitation rates received by both plans in October 1998
from the State of Arizona and increased enrollment.

Direct costs of operations  increased to  $15,822,000  and  $30,122,000  for the
three  and  six-month  periods  ended  November  30,  1998,  respectively,  from
$12,867,000  and $24,647,000  for the  corresponding  periods of the prior year.
Direct  costs   of  operations  for  the  three  and  six-month  periods   ended
November 30, 1998 consisted of $5,923,000 and $11,268,000, respectively, related
to fees generated  from  management of health  plans  not  owned  by the Company
and $9,899,000 and $18,854,000, respectively, from operating expenses of Ventana
and AHC.

The  direct  costs of  operations  to manage  plans as a  percentage  of related
revenue  decreased  from 69% for the three-month  period ended November 30, 1997
to 63% for  the  related period  of the current year.  For the six-month  period
ended  November 30, 1998, direct  costs  of operations  to  manage  plans  as  a
percentage of revenue  was 62% versus 71% in the comparable  period of the prior
year.  The decrease is primarily due  to additional  costs incurred  during  the
period ended November 30, 1997 related  to start up of the additional  plans  in
New Mexico and Texas, which became operational in October 1997 and January 1998,
respectively.

Direct  costs as a  percentage  of related  revenue for the three and  six-month
periods ended November 30, 1998 were 86% and 84%, respectively,  for Ventana and
94% and 93%, respectively,  for AHC. In comparison, such costs were 84% for both
the three and six-month  periods ended November 30, 1997 for Ventana and 92% and
89%, respectively, for AHC.  The primary reason for the  increase over the prior
year in AHC's direct costs was higher inpatient utilization.

                                       10
<PAGE>

Marketing,  sales and  administration  expenses  increased  from  $3,120,000 and
$5,877,000  for the  three  and  six-month  periods  ended  November  30,  1997,
respectively,  to $4,217,000 and $8,604,000 for the three and six-month  periods
ended  November  30,  1998,  respectively.  The  increase  is  primarily  due to
increases  in  salary  and  related  expenses  as a  result  of  growth  in plan
membership  and   organizational   changes   intended  to  improve   operational
efficiency.

Net interest income for the three and six-month  periods ended November 30, 1998
was  $143,000  and  $306,000,   respectively,   versus  $111,000  and  $211,000,
respectively,  for the same  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
interest income is due to growth in the Company's investable funds.

Net income was $492,000 and $914,000,  respectively, for the three and six-month
periods ended November 30, 1998 versus  $167,000 and $355,000 for the comparable
periods of the prior year.  The primary reason for the increase was the addition
of two management contracts in Texas and New Mexico.

LIQUIDITY AND CAPITAL RESOURCES

During the six-month period ended November 30, 1998, the Company's cash and cash
equivalents  decreased $101,000 to $12,663,000.  Operating  activities generated
$742,000 for the six-month period ended November 30, 1998, versus providing cash
of $3,009,000  during the six-month  period ended November 30, 1997. The primary
reasons for the change were the increase in accounts  receivable  as a result of
the  temporary  delay in receipt  of  certain  management  fees in  November,  a
decrease in accrued expenses offset by an increase in accrued medical claims due
to payments withheld by Ventana and AHC on pharmacy claims awaiting verification
of claims  information.  The  principal  reasons for cash  generated  during the
six-month period ended November 30, 1997, were a decrease in accounts receivable
and the receipt of $1,700,000 in federal tax refunds.

Investing   activities   used   $856,000   for   the   six-month  period   ended
November 30, 1998 as compared to $754,000 for the same period of the prior year.
During the six-month period ended November 30, 1998,  $625,000 of cash  was used
to purchase  fixed  assets  and  $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.

Financing  activities  generated  $13,000  for   the   six-month   period  ended
November 30,  1998  versus  using  cash of  $100,000 in  the same  period of the
prior year.  Principal payments on long-term debt were the primary uses of funds
during  both  periods  offset by $197,000 of common  stock  issuance during  the
six-month  period  ended  November 30, 1998,  primarily  as   a  result of   the
employee  stock purchase plan.

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
November 30, 1998, 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  $9,717,000 at November 30, 1998,  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 $7,164,000.  Funds provided by
Ventana to MCS under loan agreements  totaled $339,000 at November 30, 1998. 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 System
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.

                                       11
<PAGE>

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 a new processing  system.  The  vendors currently  being reviewed  all have
confirmed that their software is year 2000 compliant.  The Company plans to test
hardware and software to  assess  these  representations  of Oracle  Corporation
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 the State of Hawaii that the State
may not  address  all of its year 2000  problems  prior to  December  31,  1999.
However, the State is  optimistic  that  its  systems will  be compliant  before
year 2000.  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.

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
$41,000 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 April 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.

                                       12
<PAGE>

PART II - OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

The Company and  Community  Care Plus  ("CCP"),  a health plan  operating in St.
Louis,  Missouri,  entered  into  a  settlement  on  November  11,  1998  of the
litigation  in the United  States  District  Court for the  Eastern  District of
Missouri  pertaining  to an  administrative  services  agreement.  Both  parties
alleged  breaches of the  agreement,  which was terminated in September of 1996.
The  settlement  provided  for CCP to pay $175,000 to the Company and to dismiss
its claims against the Company.  The Company made no payments of any kind to CCP
in consideration of the Company dismissing its counterclaims against CCP.

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

          (a)  Exhibits
               (10.1) Amendment to the Administrative Services Agreement between
                      the registrant and Lovelace Health Systems, Inc.*
               (27)   Financial data schedule.

          (b)  Reports on Form 8-K

               None

*Confidential Treatment Requested


                                       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: January 13, 1999
                               

                                       14
<PAGE>
                                                                    EXHIBIT 10.1

                                    AMENDMENT

This  Amendment  to  the  June  1,  1997   Administrative   Services   Agreement
("Agreement")  between Lovelace Health Systems,  Inc.  ("Plan") and Managed Care
Solutions,  Inc.,  a Delaware  corporation  authorized  as a New Mexico  general
business  corporation  ("MCS") is entered  into and is  effective  as of June 1,
1998.

For  good and  valuable  consideration,  the  sufficiency  of  which  is  hereby
acknowledged, the parties hereby agree to amend the Agreement as follows:

1.    Section  2.2.3,  CLAIM  PROCESSING  AND  PAYMENT,  is  amended  to add the
      following sentence between the existing first and second sentences:

            "MCS shall further comply with Plan's "Standards for Delegation
            of Payment Administration Activities", attached hereto as 
            Exhibit C."

2.    Section 2.2.4 is amended by adding the following at the end thereof:

            "Plan will  maintain  an  adequate  balance at all times in the bank
            account  established  for use by MCS for  payment of claims and MCS'
            administrative  fees.  Failure to maintain an adequate balance,  and
            any penalties incurred as a result,  will be the sole responsibility
            of the Plan;  provided,  however, the parties will not consider it a
            failure by Plan to maintain an adequate  balance if MCS  negligently
            overpays claims or commits any other negligent action or inaction."

3.    Section  2.2.6 is  amended by adding a new  subsection  2.2.6.7 to read as
      follows:

            "2.2.6.7.  It is  acknowledged  that  the  Plan  has an  established
            process for subrogation tracking and recovery. MCS will cooperate in
            the development of a subrogation  tracking and recovery program. The
            program will require MCS to provide certain  information to the Plan
            for the purposes of tracking and recovering subrogated claims."

4.    Section 2.2.7 is deleted in its entirety and replaced with the following:

            "CASE  MANAGEMENT.  Plan  shall be  responsible  for  performing  or
            sub-contracting  for all case management  services.  Case management
            services shall  encompass  inpatient and outpatient  case management
            services as defined by HSD's case management benefit as set forth in
            the contract between HSD and Plan."

5.    Section 2.2.10 is deleted in its entirety and replaced with the following:

            "UTILIZATION  MANAGEMENT.  MCS will submit a Utilization  Management
            program  ("UM  Program")  annually  to the  Health  Plan  Operations
            Workgroup  ("HPOW") for review and  approval.  The UM Program  shall
            comply with Plan's  contract with HSD (including  HSD's  independent
            external quality review organization  requirements),  NCQA standards
            and Plan's  "Standards  for  Delegation  of  Utilization  Management
            Activities",  attached  hereto as Exhibit D. MCS shall  maintain any
            license required in connection with its UM Program  activities,  and
            its UM Program shall comply with  applicable law. MCS shall maintain
            the UM  Program  under  the  supervision  of  Lovelace's  designated
            Medical Director."

                                       1
<PAGE>

6.    The fourth sentence of Section 2.2.12.2,  INFORMATION  SYSTEMS, is revised
      to read as follows:

            "MCS has selected to use Managed Care One in  fulfilling  its duties
            under  this  Agreement  and  may  elect  at any  time  in  its  sole
            discretion to use a different information system;  provided however,
            that no  disruption  of Plan  Program  functions,  increase  in Plan
            Program cost or reduction  in Plan  Program  capability  will result
            from such decision."

7.    Section 2.2.16 is deleted in its entirety and replaced with the following:

            "COMPLAINT  RESOLUTION  PROCEDURE.  MCS shall  maintain a  complaint
            resolution  procedure to process Member and Provider complaints that
            shall  comply  with   applicable   law,  Plan's  contract  with  HSD
            (including HSD's independent external quality review  organization),
            NCQA  standards  and,  with  respect  to Member  complaints,  Plan's
            "Standards  for  Delegation  of Member  Rights and  Responsibilities
            Function", attached hereto as Exhibit E."

8.    The first sentence of Section 2.2.17.1,  PROFESSIONAL LIABILITY INSURANCE,
      is deleted and replaced with the following:

            "During the term of this Agreement, Plan shall maintain, at its sole
            expense, a policy of HMO-type professional  liability insurance with
            coverage limits in the minimum amount of $1,000,000 per incident and
            $3,000,000 in the annual aggregate or such greater amounts as may be
            required by applicable state or federal law."

9.    A new Section 2.2.18 is added which provides in full as follows:

            "MCS shall be responsible for  administering  programs for Early and
            Periodic Screening, Diagnosis and Testing ("EPSDT") and Maternal and
            Child Health (MCH) as defined by MCS and Plan."

10.   Section 3.2. and subsections 3.3.1 through 3.3.14 are deleted and replaced
      in their entirety as follows:

                  "3.2  OPERATIONAL  PHASE-MANAGEMENT  FEE. Plan shall pay MCS a
            management  fee for services  performed  under this Agreement in the
            amount  and  according  to the  schedules  listed  in  Exhibit  A as
            amended.  MCS shall  submit to plan on a monthly  basis a  statement
            showing the estimated  management fee determined in accordance  with
            Exhibit A as amended.  In return for receiving the  management  fee,
            MCS   shall  be   responsible   for  all   costs   associated   with
            administration of the Plan, except for the following expenses, which
            shall be the responsibility of the Plan:

                  3.2.1  Covered  services;  3.2.2  Legal  services of the Plan;
                  3.2.3  Actuarial services of the Plan;
                  3.2.4  All insurance and  re-insurance  premiums for the Plan;
                  3.2.5  Expenses relating to the corporate existence of the
                         Plan;
                  3.2.6  Any audit and tax services related to the operations
                         of the Plan;
                  3.2.7  Advertising and marketing related expenses of the
                         Plan;
                  3.2.8  Any  income, property,  premium or  other taxes  of the
                         Plan and any assessments or license fees of the Plan;
                  3.2.9  Other expenses  clearly  related to the business of the
                         Plan as an independent  corporate  entity  or  expenses
                         incurred by Lovelace Health Systems which relate to the
                         SALUD! program  and are  principally  incurred  for the
                         oversight of the Plan;

                                       2
<PAGE>

                  3.2.10 Any  costs    associated    with   health    assessment
                         administration, health  education  and plan  promotion,
                         administration of  all  case  management   benefits  as
                         defined by HSD, administration of all quality assurance
                         and quality  management  functions as  they  relate  to
                         NCQA,  JCAHO  or  HSD  (including   HSD's   independent
                         external  quality    review   organization)     quality
                         requirements,  credentialing,   marketing,   and   Plan
                         compliance (including government  relations,  audit and
                         advocacy groups). Said costs relate to the Plan and its
                         staff and include,  but are not limited to, capitalized
                         and   non-capitalized   computer    equipment,   office
                         equipment,   furniture,   software,  office   supplies,
                         office space for Plan staff, printing, copying, postage
                         (associated   with   quality   management    and   case
                         management),   contracted  labor  (including  clerical,
                         word processing, and secretarial services), legal fees,
                         sub-contracted   professional  fees,  wages  (including
                         overtime wages),  employee  benefits,  telephone   line
                         leases, telephone,  utilities,  licenses,  seminars and
                         all   travel  expenses  for  Lovelace   Health   System
                         employees, taxes, fees and all other expenses incurred;
                  3.2.11 Costs associated with  Medical  Director(s), including,
                         but not limited to, salaries and benefits;
                  3.2.12 Prescription benefit claims processing and payment."

11.   A new Section 3.3 is added which provides in full as follows:

                  "3.3 HOLD HARMLESS.  The payment rates  specified in Exhibit A
            shall  be  payment  in full for all  services  provided  under  this
            Agreement. MCS agrees that in no event, including but not limited to
            nonpayment by Plan,  insolvency of Plan or breach of this Agreement,
            shall MCS bill,  charge,  collect a deposit from, seek compensation,
            remuneration,  or reimbursement  from or have any recourse against a
            Member,  HSD or  persons  other  than  Plan  for  services  provided
            pursuant  to this  Agreement.  This hold  harmless  provision  shall
            survive  termination  of this  Agreement  with  respect to  services
            performed by MCS prior to termination of this Agreement."

12.   Section 4.1 is deleted in its entirety and replaced with the following:

                  "4.1 TERM.  This Agreement  shall be effective on the date set
            forth on the first  page  above and shall be  effective  during  the
            period necessary to complete the Plan's  pre-operational  activities
            and shall then be in full force and effect  through the first twenty
            four (24) months of the Program.  This Agreement shall automatically
            renew for an additional  consecutive  twenty-four  (24) month period
            only if:

                        (i)  the  Plan,  Lovelace  Delivery  System  if it is an
                  insurer under  applicable  state law or any affiliate of CIGNA
                  Health  Care and HSD  mutually  agree to  extend  the terms of
                  their SALUD!  Medicaid Managed Care Services Agreement for any
                  additional term; and

                        (ii) MCS has  achieved 90% overall  compliance  with the
                  performance standards as described in Exhibit B hereto for the
                  period  October  1,  1998  through  June 30,  1999.  MCS shall
                  provide Plan with monthly  reports in a format  acceptable  to
                  Plan reflecting its level of compliance with each of the seven
                  standards outlined in Exhibit B."

                                       3
<PAGE>

13.   A new section 4.2.5 is added which provides in full as follows:

                  "4.2.5  Material  violation by either party of applicable HSD,
            State or  Federal  requirements,  as  determined  by the  applicable
            regulatory authority."

14.   The first sentence of section 4.3.6 is revised to read as follows:

            "The  parties   acknowledge  that  following   termination  of  this
            Agreement,  MCS shall  provide  no  services  to Plan  other than as
            described in Sections 4.3.2 and 4.3.3, above."

15.   A new section 4.3.7 is added which provides in full as follows:

                  "4.3.7  Notwithstanding  anything else contained herein to the
            contrary,  the  Plan  shall  not  be  required  to  purchase,   take
            possession,  reimburse, pay, assume or be financially responsible in
            any way as described in Sections 4.3.1 and 4.3.4 under the following
            circumstances:

                  (i)   The normal full term of this initial Agreement expires;
                  (ii)  The Agreement is terminated by written mutual consent of
                        both parties pursuant to Section 4.2.1;
                  (iii) The Agreement is terminated by Plan for material  breach
                        by MCS as described in Section 4.2.2; or
                  (iv)  The Agreement is terminated  pursuant to either  Section
                        4.2.3 or 4.2.4.

            In  addition,  MCS shall  provide  Plan on a quarterly  basis with a
            listing of fixed assets,  leasehold improvements and program related
            capitalized  expenses at book value as described  in Sections  4.3.1
            and 4.3.4."

16.   A new Section 4.3.8 is added which provides as follows:

                  "4.3.8  Notwithstanding  anything else contained herein to the
            contrary,  in the event this  Agreement  is  terminated  because MCS
            fails  to  achieve  90%  overall  compliance  with  the  performance
            standards as  described  in Section  4.1(ii) and Exhibit B, the Plan
            shall only be required to (i)  purchase the  leasehold  improvements
            acquired  and  used  by  MCS  to  administer  the  Plan  at a  price
            determined in  accordance  with Section 4.3.1 and (ii) assume and/or
            be fully financially responsible for any lease of office space being
            utilized for Plan  operations.  Accordingly,  except as described in
            the preceding sentence,  the Plan shall not be required to purchase,
            take   possession,   reimburse,   pay,   assume  or  be  financially
            responsible  in any way as described in Sections 4.3.1 and 4.3.4 for
            termination of this Agreement under such circumstances."

17.   Section 5.1 is deleted in its entirety and replaced with the following:

                  "5.1  CONFIDENTIALITY.    MCS   agrees   to   safeguard    the
            confidentiality of all  data  pertaining to this Agreement,  Covered
            Services rendered to  Members and  Member  information in accordance
            with HSD  requirements and State and Federal law."

                                       4

<PAGE>

18.   Section 5.11 is amended to add at the end the following two sentences:

            "MCS shall further provide  authorized  representatives  of HSD with
            reasonable  access to facilities and records  pertaining to the Plan
            for financial and medical audit purposes.  MCS shall release to Plan
            any information pertaining to the Plan necessary for Plan to perform
            any of its obligations under its agreement with HSD."

19.   Article V is  amended  by adding a new  Section  5.14  thereto  to read as
      follows:

                  "5.14  LONG TERM CARE PROGRAM.

                        5.14.1 If MCS obtains a Health Maintenance  Organization
                  ("HMO")  license in New Mexico in order to qualify to submit a
                  proposal  to  participate  in a Long Term Care  (LTC)  program
                  established  and  authorized  by the State of New Mexico,  the
                  Plan  would  agree  (unless   constrained  from  doing  so  by
                  applicable  law) not to submit a bid to participate in the LTC
                  program  without MCS's consent.  Upon request by the Plan, MCS
                  will include,  as part of its LTC provider network  components
                  of the Plan's  provider  network as requested by the Plan, and
                  will  compensate the Plan network for such services at no less
                  than  the  prevailing  Medicaid  reimbursement  rates or other
                  reimbursement rates that MCS negotiates with the Plan.

                        5.14.2 If MCS decides  not to apply for an HMO  license,
                  then  MCS  will  have  the  right  to  assist  the Plan in the
                  preparation of a bid for an LTC contract with the State and to
                  provide administrative services to the Plan in connection with
                  such  contract;  provided,  however,  that the Plan shall have
                  sole authority to determine whether to submit a bid for an LTC
                  contract and to determine all details  concerning such bid. If
                  the Plan is awarded the bid, the Plan shall compensate MCS for
                  such  administrative  services on a  capitated  basis and will
                  contract  with MCS to share  risk for  medical  expenses.  LHS
                  shall  allow MCS the power and  authority  to control  medical
                  expenses in its capacity as administrative  agent. The parties
                  shall  negotiate  the  extent to which MCS shall  assume  such
                  financial risk.

                        5.14.3 MCS will in either  case meet the all  applicable
                  capital,  reserve and net work requirements.  Should the State
                  of New Mexico  decide to utilize a contract to  administer  an
                  LTC  program,  MCS may,  except as otherwise  provided  above,
                  participate directly with the State independently of the Plan.
                  Notwithstanding   anything  else   contained   herein  to  the
                  contrary,  the terms and provisions of this Section 5.14 shall
                  survive the date of  termination of this contract for a period
                  of two years."

                                       5

<PAGE>

20.   Exhibit A to the  Agreement is deleted in its  entirety and replaced  with
      the following:

                           MCS MANAGEMENT FEE SCHEDULE

                        Period                  PMPM Management Fee

                  6/1/98 through 6/30/99            $[        ]*+
                  7/1/99 through 6/30/00            $[        ]**+
                  7/1/00 through 6/30/01            $[        ]**+

             *    If the Agreement is terminated by Plan prior to 1/1/99 for any
                  reason other  than a material breach of contract by MCS or HSD
                  request,  Plan will make a  retroactive  payment  to MCS of an
                  amount  equal to the  difference  between  this  rate and rate
                  which  would  have  applied  under  Exhibit A to the  original
                  Agreement  prior to execution of this Amendment for the period
                  from  the  Effective  Date  of  this  Amendment   through  the
                  termination date.

            **    The rate  structure for the period 7/1/99  through  6/30/01 is
                  applicable  only if the Agreement is renewed for any period as
                  described in Section 4.1, as amended.

Except as modified  above,  the terms and conditions of the Agreement  remain in
full force and effect.



LOVELACE HEALTH SYSTEMS, INC.       MANAGED CARE SOLUTIONS, INC.


By    /s/ Martin Hickey, M.D.             By    /s/ Richard M. Jelinek
      --------------------------------          -------------------------------
      Signature of Authorized Agent             Signature of Authorized Agent


      Martin Hickey, M.D.                       Richard M. Jelinek
      --------------------------------          -------------------------------
      Typed or Printed Name                     Typed or Printed Name


Its   Chief Executive Officer             Its:  Senior Vice President
      --------------------------------          -------------------------------


Title Chief Executive Officer             Title Senior Vice President
      --------------------------------          -------------------------------

Date: 12/24/98                            Date: 12/29/98
      --------------------------------          -------------------------------

                                       6

  +Confidential treatment requested
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