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                                                                   Exhibit 10.16


                                                                 29 January 1999



Mr. Alan Bendes
104 Walnut Drive
Tenafly, New Jersey   07670

Dear Mr. Bendes:

      Welcome to Health Management Systems, Inc. (hereinafter referred to as
either of "HMS" or the "Company"). We are delighted that you have accepted our
offer of employment and will begin work on 1 February 1999. This letter will
serve as confirmation of the terms and conditions of your employment with the
Company.

      1. Scope of Responsibilities. You will be employed as senior vice
president and chief financial officer of HMS, reporting to Paul J. Kerz, chief
executive officer of HMS. As the Company's chief financial officer, you will be
a member of the senior executive management team and a regular invitee to
meetings of the Board of Directors and its Audit Committee.

      2. Monthly Salary. Your initial and continuing minimum salary will be
$17,916.67 per month: a minimum annual salary of $215,000. You will receive your
first formal performance review in August 1999, followed by a second formal
performance review in October 2000, with any increase in monthly salary to be
effective 1 November 2000, if warranted by the performance review.

      3. Incentive Compensation. You will be eligible to participate in the
Company's incentive compensation plan in accordance with the rules otherwise
governing administration of the plan. In fiscal year 1999 you will receive a
bonus of not less than $40,000, which minimum amount shall be paid you by 10
February 1999.

      4. Equity Compensation. You will be awarded options (in the form of
Incentive Stock Options to the maximum extent permitted by law) to purchase
105,000 shares of HMS common stock. The options will be subject to the following
vesting schedule: options on 21,000 shares will vest on 1 February 1999; and, in
order to maximize the Incentive Option qualification, vesting of the remaining
options for 84,000 shares will be elongated to vest on 31 January 2003, rather
than on 31 October 2001
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Mr. Alan Bendes                                                  29 January 1999
                                                                          Page 2


subject to accelerated vesting of: (a) 21,000 options to 31 January 2000 subject
only to your continued employment by the Company, (b) 10,500 options to each of
31 January 2001 and 2002, respectively, upon realization by the Company of the
revenue budget for each of fiscal years 2000 and 2001, respectively; and, (c)
10,500 options to each of 31 January of 2001and 2002, respectively, upon
realization by the Company of the operating margin budget for each of fiscal
years 2000 and 2001, respectively and (d) 21,000 options to 31 January 2003
subject only to your continued employment. All options whose vesting has not
otherwise been accelerated pursuant to the foregoing will vest on 31 January
2003, subject only to your continued employment by the Company.

      5. Benefits. You will accrue vacation at a rate of 1.67 days per month and
will receive that number of paid personal days each calendar year as is accorded
to HMS employees in that year (3 personal days are accorded HMS employees in
calendar year 1999). You will be eligible for participation in those benefits
available to HMS executives, in accordance with the rules of eligibility in
effect.

      6. Car Allowance and Expenses. You will receive a car allowance of $800
per month. To the extent you elect to utilize corporate parking facilities
available through a Company lease, the monthly car allowance will be reduced by
the monthly cost to the Company of such parking space. You will be reimbursed
for those reasonable expenses you incur in the normal course of business in
connection with your employment by HMS, in accordance with existing Company
rules and regulations.

      7. Severance. In the event you are discharged by the Company without cause
(as defined below) or if your employment ceases as a consequence of a change of
corporate control or if your employment ceases due to relocation of Company
headquarters further than 25 miles from its current location, you will be
entitled to a severance period of twelve (12) months, during which time you will
continue to receive, at the end of each month, your then current monthly salary
and will retain eligibility for the Company's medical group insurance plan (with
the understanding that continuation in the Company's medical plan will not
constitute continuation of medical benefits pursuant to the provisions of COBRA,
for which you may then thereafter elect). In the event you are discharged by the
Company without cause you shall be entitled to any stock options already vested,
any stock options whose vesting has already or would have been accelerated
during the severance period, and the stock options for 10,500 shares and 21,000
shares that were otherwise due to be vested on 31 January 2002 and 31 January
2003 respectively; if your employment ceases as a consequence of a change of
corporate
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Mr. Alan Bendes                                                  29 January 1999
                                                                          Page 3



control or due to relocation of Company headquarters further than 25 miles from
its current location, you shall be entitled to any stock options already vested
and the vesting of any stock options not otherwise vested shall be accelerated
to the last date of your employment. In any event, you shall have until the end
of the severance period to exercise any options which have vested but remain
unexercised.

      For purposes of this letter, "cause" shall mean that you have committed
either of: (a) an intentional act of fraud, embezzlement or theft in connection
with your duties or in the course of your employment by the Company; (b)
intentional wrongful damage to property of the Company; (c) intentional
violation of civil rights or employment law; (d) intentional wrongful disclosure
of secret processes or confidential information of the Company, or (e)
intentional gross dereliction of duty. In this regard, no act or failure to act
on your part shall be deemed "intentional" if it was due primarily to an error
in judgment or negligence, and shall be deemed "intentional" only if done or
omitted to be done by you in bad faith and without reasonable belief that your
action or omission was in the best interests of the Company and which shall have
resulted in material harm to the Company. If discharged for cause, the date of
your termination of employment will be effective upon three (3) days' notice.

      8. Legal Status to Work. As a condition of employment, HMS is required to
certify the legal status of employees. Therefore, on your first day of
employment, it is imperative that you provide documentation substantiating both
your identity and authorization to work. Enclosed is a list of documents which
constitute adequate proof of these conditions.

      9. Patient Confidentiality. Concerns regarding the confidentiality of
patient clinical and financial records is receiving intensifying attention from
current and prospective clients of HMS. In response to these concerns, you are
requested to sign the appended Patient Confidentiality Agreement and return it
along with other requisite forms on your first day of employment by HMS.

      10. Forms. Enclosed herewith is a package containing various forms
required for your entry in our payroll and health plans. Please complete these
forms and bring them with you on your first day of employment. As well, enclosed
is your non-disclosure and non-compete agreement, which you are requested to
read, execute and return along with the other forms.
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Mr. Alan Bendes                                                  29 January 1999
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      As indicated at the outset of this letter, we are delighted that you will
begin as our new chief financial officer on Monday, 1 February 1999. There is
much to be done, so we eagerly look forward to your joining us with a high
degree of energy and commitment; in this regard, we reaffirm our understanding
that you, after an initial period of general orientation, will formulate and
work in accordance with a work schedule which gives mutual consideration to the
demands of the job and your preferences with regard to your times of travel and
work out of the office.

      Please let me know if you have any question in the above regard.

                                          Sincerely yours,



                                          Paul J. Kerz
                                          President

cc:   Lewis D. Levetown, HMS

Enclosures