<PAGE>

                                                                    EXHIBIT 10.2
 
                             EMPLOYMENT AGREEMENT
                             --------------------

     THIS EMPLOYMENT AGREEMENT (the "Agreement"), made effective this 1st day of
May, 1998, is entered into by Physicians Quality Care, Inc., a Delaware
corporation with its principal place of business at 950 Winter Street, Suite
2410, Waltham, MA 02154 (the "Company"), and Dana H. Frank, MD ("Dr. Frank") of
Baltimore, Maryland. The Company recognizes that the future growth,
profitability and success of the business of the Company will be enhanced by the
employment of Dr. Frank. The Company desires therefore to secure the benefit of
Dr. Frank's experience and ability. In order to retain the services of Dr.
Frank, the Company desires to offer him a compensation package which recognizes
the significance of his individual contributions to the future growth,
profitability and success of the Company and allows him to share in the same
while allowing him to draw a salary commensurate with his knowledge and
experience.

     THEREFORE, on the basis of the foregoing facts and in consideration of the
mutual covenants and agreements contained herein, the parties hereto agree as
follows:
     1.   Employment.  The Company agrees to employ Dr. Frank, and he accepts
          ----------                                                         
employment with the Company, upon the terms and subject to the conditions set
out here.

     2.   Term.  The term of this Agreement (the "Term") shall commence on May
          ----                                                                
1, 1998 (the "Commencement Date"), and shall continue in effect for a period of
48 months, expiring April 30, 2002 unless extended by mutual agreement.  In the
event this Agreement is not renewed for a term of at least one year, Dr. Frank
will receive severance of $125,000 plus $50,000 if his position as President of
Flagship Health, PA is terminated concurrently (i.e within 30 days) with non
renewal of this Agreement or Dr. Frank resigns his position as President of
<PAGE>
 
Flagship Health, PA concurrently (i.e within 30 days) with non renewal of this
Agreement. Severance under this section shall be paid in 12 equal installments
beginning May 1, 2002.

     3.   Position.  The Company and Dr. Frank agree that, subject to the
          --------                                                       
provisions of this Agreement and subject to the direction of the Chief Executive
Officer and the Board of Directors of the Company (the "Board"), the Company
shall, during the Term, employ Dr. Frank; and Dr. Frank shall serve as President
or Vice Chair of the Board of the Company.  During the Term also, the Company
agrees to nominate Dr. Frank for election as President or Vice Chair and
Director of the Company at all elections of officers and Directors unless Dr.
Frank declines to stand for election. Dr. Frank shall report directly to the
Chief Executive Officer of the Company and the Board and shall be subject to the
supervision of, and shall have such authority as is set out in the bylaws and as
is delegated to him by the Chief Executive Officer and the Board which shall
include, but not be limited to, those activities set forth in Exhibit A,
attached and incorporated as part of this Agreement.

     Dr. Frank accepts such employment and agrees to undertake the duties and
responsibilities inherent in such position and such other duties and
responsibilities as the Chief Executive Officer of the Company or the Board
shall from time to time reasonably assign to him. Dr. Frank agrees to abide by
the written rules, regulations, instructions, personnel practices and policies
of the Company and any changes thereto which may be adopted from time to time by
the Company.

     It is understood and agreed that Dr. Frank will reside in Baltimore,
Maryland but that his responsibilities under this Agreement will require travel
throughout the Company's services areas. Dr. Frank will not be required to
relocate from Baltimore.

                                      -2-
<PAGE>
 
     4.   Additional Duties. In addition to his duties as President of the
          -----------------                                               
Company or Vice Chair, Dr. Frank shall serve also as President of Flagship
Health, PA for so long as he is elected to that position in accordance with the
bylaws of the professional association.  Additionally, Dr. Frank shall serve as
a member of the Joint Policy Board established under the Services Agreement
between Physicians Quality Care, Inc. and Flagship Health, PA as a nominee of
the Company. Subject to consent of Flagship Health, P.A. for Dr. Frank's
responsibilities under this Agreement, he shall continue to engage actively in
the practice of medicine with Flagship Health, PA.  Finally, the Company will
ensure that Dr. Frank has sufficient administrative support to carry out his
responsibilities under this Agreement.

     5.   Compensation. As compensation for Dr. Frank's employment and his
          ------------                                                    
additional duties as set out in sections 3 and 4 above, the Company shall pay
Dr. Frank an annual base salary of $100,000 or such greater amount as the Board
may approve from time to time, payable in bi-weekly installments; provided that
the Company shall automatically and retroactively increase Dr. Frank's annual
base salary under this Agreement to the extent necessary that his total annual
earnings under his physician employment agreement with Flagship Health, PA,
under this Agreement and for his services as President of Flagship Health, PA
shall be at least $220,000. Dr. Frank's performance will be reviewed annually by
the Chief Executive Officer in consultation with the Board of Directors, and Dr.
Frank will be considered for an increase in his base salary as part of each
annual review.

     6.   Accounting.  It is understood and agreed that Dr. Frank's compensation
          ----------                                                            
under this Agreement shall be accounted for as additional revenue which is
independent of his medical practice revenues under his employment agreement with
Flagship Health, PA.

                                      -3-
<PAGE>
 
     7.   Benefits.  Upon meeting all applicable eligibility requirements, Dr.
          --------                                                            
Frank shall be entitled to such other benefits, compensation or rights as are
generally made available to members of senior management of the Company
including, without limitation, sick pay, participation in any medical,
disability, retirement and dental insurance plans that may be adopted by the
Company and participation in equity incentive plans, including stock option
plans, of the Company.  To the extent any benefit referenced in this section
requires a length of service or vesting requirement, Dr. Frank shall be credited
with service to the Company from and after September 1, 1996.

     8.   Vacation.  Dr. Frank shall be entitled to four weeks of paid vacation
          --------                                                             
and one week of continuing education each year during the Term.  If Dr. Frank
does not utilize all vacation or continuing education time in the year earned,
the unused vacation time in any year shall not carry over to the next year.

     9.   Expenses.  The Company shall reimburse Dr. Frank for all reasonable
          --------                                                           
travel, entertainment and other expenses incurred or paid by Dr. Frank in
connection with, or related to, the performance of his duties, responsibilities
or services under this Agreement, upon presentation by Dr. Frank of
documentation, expense statements, vouchers and/or such other supporting
information as the Company may request, provided, however, that the amount
available for such travel, entertainment and other expenses may be fixed in
advance by the Chief Executive Officer or the Board.  It is understood and
agreed also that the Company shall pay Dr. Frank's reasonable legal expenses
associated with negotiation of this Agreement, not to exceed $5,000.

                                      -4-
<PAGE>
 
     10.  Restricted Stock Option Award.  Pursuant to the Company's right to
          -----------------------------                                     
repurchase and right to restrict transfer in accordance with a Stock Restriction
Agreement between the parties:

          (a) The Company shall issue 500,000 options for shares of Common Stock
to Dr. Frank on May 1, 1998 at a purchase price of $3.00 per share and subject
to vesting during the Term.  The first allocation of 300,000 shares shall vest
on the effective date of this Agreement while the remaining allocations shall
vest in equal shares of 100,000 each on April 30, 1999 and April 30, 2000,
subject to the terms and provisions of the Stock Restriction Agreement.

          (b) It is expressly understood and agreed that the options granted
under sub-section a) above are in addition to 300,000 options granted to Dr.
Frank during 1997 at a purchase price of $2.50 per share, such options to vest
at the rate of 100,000 options at January 1, 1998; 100,000 options at September
1, 1998; and 100,000 options at January 1, 1999.

          (c) The Company agrees that the options to purchase the Company's
Common Stock referred to in subsections a) and b) above are subject to the
following terms and conditions:

          (i) Upon termination of this Agreement for any reason prior to April
30, 2002, all vested options, including all options which vest at termination,
if not previously exercised by Dr. Frank, shall expire at the later of October
                                                ------                        
1, 2002 or 27 months from the effective date of termination of this Agreement
and may be exercised by Dr. Frank at any time or times prior to the expiration
date, in whole or in part. Prior to such date, the vested options shall not
terminate for any reason whatsoever, including death, disability, or termination
of employment.  Upon expiration of this initial term of this Agreement, all
vested options, if not

                                      -5-
<PAGE>
 
previously exercised by Dr. Frank, shall expire after 27 months and may be
                                         ------
exercised by Dr. Frank at any time or times prior to the expiration date, in
whole or in part. Prior to such date, the vested options shall not terminate for
any reason whatsoever, including death, disability, or termination of
employment.

          (ii)      All options and any shares represented thereby upon exercise
of the options shall be irrevocable, shall be subject to the terms of the Stock
Restriction Agreement of even date, and shall not be subject to the terms of the
Stockholders Agreement between the Company and Dr. Frank dated August 30, 1996.
All vested options may be transferred to any Permitted Transferee of Dr. Frank
as such term is defined in the Stock Restriction Agreement.

          (iii)     In the event of any change in the Company's Common Stock,
the Company and Dr. Frank shall make appropriate adjustments to the kind and
number of options granted to Dr. Frank and the price per share of the stock
subject to the options.

     11.  Discharge of Dr. Frank Without Cause or Termination by Dr. Frank With
          ---------------------------------------------------------------------
Good Reason.
----------- 
     
          (a) At any time prior to expiration of the Term, the Board may
terminate Dr. Frank' s employment without Cause, and Dr. Frank may terminate his
employment with Good Reason (as defined in Subsection (b) of this Section 11),
subject to payment by the Company of the severance amounts set forth in
Subsections (c) and (d) of this Section 11.

          (b) For purposes of this Section 11, Good Reason shall mean:

          (i) without Dr. Frank's express written consent, the assignment to Dr.
Frank of any duties materially inconsistent with the offices held hereunder, or
a material alteration or diminution in the nature or status of his
responsibilities; or an adverse and material

                                      -6-
<PAGE>
 
alteration in his reporting responsibilities, titles or offices, or any removal
of him or failure to reelect him to any of such positions or any pattern or
practice of harassment or embarrassment or other offensive conduct by or at the
direction of the Company's management, which conduct is designed, intended, or
has the effect of undermining Dr. Frank's position or authority with the Company
or provoking his resignation;

          (ii)      any reduction in Dr. Frank's annual base salary or a
material reduction in fringe benefits in effect on the effective date or as the
same may be increased during the Term;

          (iii)     any material breach by the Company of this Agreement which
the Company fails to correct within 30 working days after receiving written
notice thereof.

          (iv)      after written notice to and consultation with the Company, a
determination by Dr. Frank that the requirements of his position and duties
under sections 3 and 4 of this Agreement are inconsistent with his practice of
medicine within Flagship Health, PA and provided that he shall be willing and
able to return to full time practice of medicine within Flagship Health, PA or
Flagship Health II, PA.

     (c) In the event Dr. Frank is discharged by the Company without Cause
or Dr. Frank terminates his employment with Good Reason under subsection (b),
the Company shall pay Dr. Frank severance equal to the greater of:
                                                   ---------------
          (i) severance for two years at the annual rate of $125,000 plus
$50,000 each year during the severance period if Dr. Frank's position as
President of Flagship Health, PA is terminated concurrently (i.e within 30 days)
with termination of employment under

                                      -7-
<PAGE>
 
this section 11(c) or Dr. Frank resigns his position as President of Flagship
Health, PA concurrently (i.e within 30 days) with termination of employment
under this section 11(c); or

          (ii)      severance at the annual rate set out above for the remaining
term of this Agreement otherwise in effect but for discharge or resignation
under this section 11(c). In the event Dr. Frank's employment is terminated
under this Section 11, all stock options issued under this Agreement shall vest
on the termination date. Dr. Frank shall then have an immediate right to receive
all shares of such stock upon payment of the purchase price in accordance with
the Stock Restriction Agreement and section 10 of this Agreement.

          (d) Severance payments pursuant to Section 11(c) shall be paid as
follows:

          (i) a lump sum payment shall be made within 30 days of termination and
shall be equal to the first six months of the severance amount; and

          (ii)      beginning 60 days after termination, 18 equal monthly
severance payments shall be made for the balance of the severance amount and
provided that such payments shall accelerate and remaining payments shall be
paid in a lump sum in the event any payments thereunder are overdue by more than
15 business days on more than two occasions.

          (e) The parties hereto expressly acknowledge and agree that the
severance amounts payable to Dr. Frank upon a discharge or termination as
specified in this Section 11 will constitute full, reasonable and adequate
compensation for any such termination and that the payment of such compensation
and benefits shall fully satisfy and discharge any and all obligations of the
Company to Dr. Frank in connection with such termination.

     12.  Termination By Dr. Frank Without Cause.  Dr. Frank may terminate his
          --------------------------------------                              

                                      -8-
<PAGE>
 
employment without cause and without Good Reason, provided he first gives the
Company a written notice of intent to terminate at least 90 days prior to the
effective date of any such termination.  All rights of Dr. Frank under this
Agreement shall terminate upon the effective date of the termination of
employment; provided, however, the Company shall pay Dr. Frank any base salary
            --------  -------                                                 
earned through the effective date of the termination and a pro-rata share of any
                                                           --- ----             
Officer Incentive Bonus earned during the calendar year in which the termination
of employment occurs. This payment shall be made five business days prior to the
effective date of termination.

     13.  Discharge of Dr. Frank For Cause.
          -------------------------------- 

          (a) Notwithstanding anything in this Agreement to the contrary, the
Company shall have the right to terminate Dr. Frank's employment for Cause (as
defined in Subsection (b) of this Section 13) by giving to Dr. Frank written
notice of such termination as of a date (not earlier than 10 days after such
notice) to be specified in such notice, and his employment hereunder shall
terminate on the date so specified.

          (b) For purposes of this Section 13, "Cause" shall mean (i) Dr.
Frank's material failure to perform his duties with the Company as set out in
Exhibit A (other than any such failure resulting from his incapacity due to
physical or mental illness or injury or any such actual or anticipated failure
after the issuance of a notice by Dr. Frank of termination for Good Reason),
which is not remedied within 30 days as specified in a written demand for
performance; (ii) intentional misconduct materially and demonstrably injurious
to the Company, or (iii) Dr. Frank's conviction of a felony or of fraud or
embezzlement of the Company's property or purposes of this Agreement, Dr.
Frank's employment shall not be deemed to have been terminated for Cause unless
and until there shall have been delivered to him a copy of a

                                      -9-
<PAGE>
 
resolution, duly adopted by the affirmative vote of not less than two-thirds of
the entire membership of the Board of the Company at a meeting called and held
for this purpose, and after reasonable written notice to Dr. Frank and an
opportunity for him, together with his counsel, to be heard by the Board.

          (c) In the event this Agreement is terminated under Section 13(b)(i),
Dr. Frank will receive severance equal to his annual base salary then in effect,
payable in 12 equal monthly installments beginning 30 days after termination of
this Agreement and provided that such installment payments shall accelerate and
remaining payments shall be paid in a lump sum in the event any payments
thereunder are overdue by more than 15 business days on more than two occasions.

     14.  Termination In the Event of Disability or Death.
          ----------------------------------------------- 

          (a) Disability.  In the event that Dr. Frank shall fail, because of
              ----------                                                     
illness or injury, to render the services contemplated by this Agreement for six
consecutive calendar months or for shorter periods aggregating 180 or more
business days in any twelve (12) month period, the Company shall have the right
to terminate Dr. Frank's employment by giving to Dr. Frank written notice of
termination. In the event Dr. Frank's employment is terminated within the
meaning of this Section 14(a), Dr. Frank shall receive his salary at the rate
provided in Section 5 and any other compensation and benefits provided in
Sections 7, 8, and 9 to the effective date of such termination. Such termination
pursuant to this Section 14(a) shall not affect any rights which Dr. Frank may
have at the time of termination pursuant to any insurance or other death
benefit, bonus, retirement, severance pay or stock award plans or arrangements
of the Company,

                                      -10-
<PAGE>
 
or any equity incentive plan or any restricted stock award or options
thereunder, which rights shall continue to be governed by the terms and
provisions of any such plans and agreements.

          (b) Death.  This Agreement in all other respects will terminate upon
              -----                                                           
the death of Dr. Frank except for the payment of Dr. Frank's base salary at the
rate provided in Section 5 and any other compensation and benefits provided in
sections 7, 8, and 9 to the date of his death.

     15.  Termination in the Event of a Change of Control.
          ----------------------------------------------- 

          (a) In the event a Change in Control (as defined in Subsection (b)
below) shall occur during the Term and Dr. Frank's employment with the Company
is subsequently terminated or terminates for any reason within 120 days after
such Change in Control other than by reason of (i) disability or death or (ii)
termination by the Company for Cause pursuant to section 13(b) (ii) or
13(b)(iii) or (iii) termination by Dr. Frank for other than Good Reason, Dr.
Frank shall be entitled to receive the payments as set forth in Subsections (c)
and (d) of Section 11 and the vesting of all outstanding Shares.

          (b) A "Change in Control" shall occur or be deemed to occur if any of
                 -----------------                                             
the following events occur:

          (i) any individual, entity or group (within the meaning of Section
13(d)(3) or l4(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) (a "Person") is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Company representing 40% or more of the combined voting power of the
Company's then outstanding voting securities entitled to vote generally in the
election of directors (the "Outstanding Company Voting Securities"); provided
                                                                     --------
however, that for purposes of this subsection (i), the following acquisitions
-------                                                                      
shall not constitute a

                                      -11-
<PAGE>
 
Change of Control: (A) any acquisition directly from the Company, (B) any
acquisition by the Company, (C) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Company or any corporation
controlled by the Company, or (D) any acquisition by any corporation pursuant to
a transaction which complies with clauses (A), (B) and (C) of paragraph (iii)
below;

          (ii)      Individuals who, as of the Commencement Date, constitute the
Board (as of such date, the Incumbent Board) cease for any reason to constitute
                            ---------                                          
at least a majority of the Board; provided however, that any individual becoming
a director subsequent to the date hereof whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be, for
purposes of this Agreement, considered as though such person were a member of
the Incumbent Board, excluding any individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with respect to
the election or removal of directors or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than the Board; or

          (iii)     the stockholders of the Company approve a reorganization,
merger or consolidation of the Company with any other corporation or the sale or
other disposition of all or substantially all of the assets of the Company (a
"Business Combination"), in each case, unless, following such Business
                                       ------                         
Combination, (A) all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Company Voting
Securities immediately prior to such Business Combination beneficially own,
directly or indirectly, more than 50% of the combined voting power of the then
outstanding voting securities

                                      -12-
<PAGE>
 
entitled to vote generally in the election of directors of the corporation
resulting from such Business combination (including, without limitation, a
corporation which as a result of such transaction owns the company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership of the
Outstanding company Voting Securities immediately prior to-such Business
Combination, (B) no Person excluding any corporation resulting from such
Business Combination or any employee benefit plan (or related trust) of the
Company or such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 40% or more of, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed
prior to the Business Combination and (C) at least a majority of the members of
the Board of Directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the execution of
the initial agreement, or of the action of the board, providing for such
Business Combination; or

               (iv) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.

          (c) In the event that Dr. Frank's employment is terminated under this
Section 15, all options to purchase the Company's Common Stock granted under
this Agreement shall vest on the termination date.  Dr. Frank shall then have
the full and immediate right to receive all such shares upon full payment of the
purchase price.

                                      -13-
<PAGE>
 
     16.  Indemnification.  The Company hereby agrees to indemnify Dr. Frank in
          ---------------                                                      
his capacity as an officer of the Company to the full extent permitted by
Delaware law and the Company's restated articles of incorporation.

     17.  Non-Compete.
          ----------- 
          (a) So long as Dr. Frank is employed by the Company and for a period
of two years after the termination or expiration of his employment, he will not
directly or indirectly: (I) as an individual proprietor, partner, stockholder,
officer, employee, director, joint venturer, investor, lender, or in any other
capacity whatsoever (other than as the holder of not more than one percent (1%)
of the total Outstanding stock of a publicly held company), engage directly or
indirectly in any business or entity in Maryland which operates, develops or
manages physician practice management entities to the extent such engagement
assists through a management position such business or entity in directly and
substantially competing with the business conducted by the Company in Maryland;
or (II) recruit, solicit or induce, or attempt to induce, any employee or
employees of the Company to terminate their employment with, or otherwise cease
their relationship with, the Company; or (III) solicit, divert or take away, or
attempt to divert or to take away, the business or patronage in Maryland of any
of the clients, customers or accounts, or prospective clients, customers or
accounts, of the Company which were contacted, solicited or served by Dr. Frank
while employed by the Company.  Nothing in this Agreement shall restrict Dr.
Frank's right to practice medicine or treat patients.

          (b) If any restriction set forth in this Section 17 is found by any
court of competent jurisdiction to be unenforceable because it extends for too
long a period of time or over too great a range of activities or in too broad a
geographic area, it shall be interpreted to

                                      -14-
<PAGE>
 
extend only over the maximum period of time, range of activities or geographic
area as to which it may be enforceable.

          (c) The restrictions contained in this Section 17 are necessary for
the protection of the business and goodwill of the Company and are considered by
Dr. Frank to be reasonable for such purpose. Dr. Frank agrees that any breach of
this Section 17 will cause the Company substantial and irrevocable damage and
therefore, in the event of any such breach, in addition to such other remedies
which may be available, the Company shall have the right to seek specific
performance and injunctive relief.

          (d) Notwithstanding anything in this section to the contrary, the
restrictions of this section 17 shall not apply in the event Dr. Frank's
employment is terminated under section 11(b) or 15(a).

     18.  Proprietary Information and Developments.
          ---------------------------------------- 
          (a)  Proprietary Information.
               ----------------------- 

          (i) Dr. Frank agrees that all information and know-how, whether or not
in writing, of a private, secret or confidential nature concerning the Company's
business, business relationships or financial affairs (collectively,
"Proprietary Information") is and shall be the exclusive property of the
Company.  By way of illustration, but not limitation, Proprietary information
may include inventions, products, processes, methods, techniques, formulas,
compositions, compounds, projects, developments, plans, research data,
clinical data, financial data, personnel data, computer programs, and customer
and supplier lists and contracts with or knowledge of customers or prospective
customers of the Company. Dr. Frank will not disclose any Proprietary
Information to others outside the Company or use the same for any unauthorized

                                      -15-
<PAGE>
 
purposes without written approval by an officer of the Company, either during or
after his employment, unless and until such Proprietary Information has become
public knowledge without fault by Dr. Frank.

          (ii)      Dr. Frank agrees that all files, letters, memoranda,
reports, records, data, sketches, drawings, laboratory notebooks, program
listings, or other written, photographic, or other tangible material containing
Proprietary Information, whether created by Dr. Frank or others, which shall
come into his custody or possession, shall be and are the exclusive property of
the Company to be used by Dr. Frank only in the performance of his duties for
the Company.

          (iii)     Dr. Frank agrees that his obligation not to disclose or use
information, know-how and records of the types set forth in Subsection (a) of
this Section 18, also extends to such types of information, know-how, records
and tangible property of customers of the Company or suppliers to the Company or
other third parties who may have disclosed or entrusted the same to the Company
or to Dr. Frank in the course of the Company's business.

          (b)  Developments.
               ------------ 

               (i)  Dr. Frank will make full and prompt disclosure to the
Company of all inventions, improvements, discoveries, methods, developments,
software, and works of authorship, whether patentable or not, which are created,
made, conceived or reduced to practice by Dr. Frank or under his direction or
jointly with others during his employment by the Company, whether or not during
normal working hours or on the premises of the Company (all of which are
collectively referred to in this Agreement as "Developments").

                                      -16-
<PAGE>
 
          (ii)      Dr. Frank agrees to assign and does hereby assign to the
Company (or any person or entity designated by the Company) all his right, title
and interest in and to all Developments and all related patents, patent
applications, copyrights and copyright applications.

          Subsection (b) of this Section 18 shall not apply to any intellectual
work which is not related to the present or planned business or research and
development of the Company and which is made and conceived by Dr. Frank outside
work and not on the Company's premises and not using the Company's tools,
devices, equipment, intellectual property, or Developments.

          (iii)     Dr. Frank agrees to cooperate fully with the Company, both
during and after his employment with the Company, with respect to the
procurement, maintenance and enforcement of copyrights and patents (both in the
United States and foreign countries) relating to Developments - all at the
Company's expense.  Dr. Frank shall sign all papers, including, without
limitation, copyright applications, patent applications, declarations, oaths,
formal assignments, assignment of priority rights, and powers of attorney, which
the Company may deem necessary or desirable in order to protect its rights and
interests in any Development.

          (c) Other Agreements.  Dr. Frank hereby represents that he is not
              ----------------                                             
bound by the terms of any agreement with any previous employer or other party to
refrain from using or disclosing any trade secret or confidential or proprietary
information in the course of his employment with the Company or to refrain from
competing, directly or indirectly, with the business of such previous employer
or any other party.  Dr. Frank further represents that his performance of all
the terms of this Agreement as an employee of the Company does not and will

                                      -17-
<PAGE>
 
not any agreement to keep in confidence proprietary information, knowledge or
data acquired by him in confidence or in trust prior to his employment with the
Company.

     19.  Assignment.  Neither this Agreement nor any rights or benefits
          ----------                                                    
hereunder shall be subject to execution, attachment or similar process; nor may
this Agreement or any rights or benefits hereunder be assigned, delegated,
transferred, pledged or hypothecated, without the written consent of both
parties hereto, and any such assignment, delegation, transfer, pledge,
hypothecation, execution, attachment or similar process shall be null and void.

     20.  Successors: Binding Agreement; Authorization.
          -------------------------------------------- 

          (a) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Company to assume expressly
in writing and to agree to perform its obligations under this Agreement in the
same manner and to the same extent that the Company would be required to perform
it if no such succession had taken place.  Failure of the Company to obtain an
assumption of this Agreement prior to the effectiveness of succession shall be a
breach of this Agreement.  As used in this Agreement, "the Company" shall mean
the Company as defined above and any successor to its business or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.

          (b) This Agreement shall inure to the benefit of and be enforceable by
Dr. Frank's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. Any amounts payable by
the Company to Dr. Frank after the date of his death, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to his
devisee, legatee or other designee, or if there is no such designee, to his

                                      -18-
<PAGE>
 
estate.  Nothing contained in this Agreement shall be deemed to relieve the
Company of its obligations hereunder in the event of any assignment of this
Agreement.

          (c) Execution and delivery of this Agreement on behalf of the company
and the grant of all options contained herein have been fully authorized and
approved by all requisite corporate action of the company and all required
consents from stockholders and other third parties have been obtained by the
Company.

     21.  Severability.  Whenever possible, each provision of this Agreement
          ------------                                                      
shall be interpreted in such manner as to be valid and effective under
applicable law, but if any provision of this Agreement is found to be prohibited
or invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity without invalidating the remainder of
such provision or the remaining provisions of this Agreement.

     22.  Notices.  All notices, requests, demands and other communication
          -------                                                         
hereunder shall be in writing and shall be deemed to have been duly given if
personally delivered or if mailed by United States Postal Service, prepaid, to
the parties or their permitted assignees at the Company, in the case of the
Company, 950 Winter Street, Suite 2410 Waltham, Massachusetts 02154, with a copy
to Edward J. Dailey, Esq., Bromberg & Sunstein LLP, 125 Summer Street, Boston,
Massachusetts 02110 or such address as shall constitute the Company's
headquarters and in the case of Dr. Frank at the last address shown in the human
resources records of the Company, with a copy to James S. Jacobs, Esq., Jacobs &
Dembert, PA, One South Street, Suite 1910, Baltimore, Maryland 21202-3201.  The
date of personal delivery or the third business day following the date of
mailing shall be deemed to be the date of such notice, demand or communication.

                                      -19-
<PAGE>
 
     23.  Waiver and Modification.  Any waiver, alteration or modification of
          -----------------------                                            
any of the terms of this Agreement shall be valid only if made in writing and
signed by the parties.  Each party from time to time may waive any of his or its
rights without affecting a waiver with respect to any subsequent occurrences or
transactions.

     24.  Entire Agreement.  This Agreement constitutes and embodies the entire
          ----------------                                                     
understanding and agreement of the parties and, except as otherwise provided
here, there are no other agreements or understandings, written or oral, in
effect between the parties hereto relating to the employment of Dr. Frank by the
Company.

     25.  Governing Law. This Agreement shall be governed by and interpreted in
          -------------                                                        
accordance with the laws of the Commonwealth of Massachusetts, except where
Federal law governs and except as the corporate laws of the State of Delaware
govern indemnification.

     25.  Counterparts.  This Agreement may be executed in counterparts, each of
          ------------                                                          
which shall be deemed an original, but both of which taken together shall
constitute one and the same instrument.

     26.  No Mitigation.  In no event shall Dr. Frank be obligated or required
          -------------                                                       
in any fashion to seek other employment, set off income or earnings from any
source, or otherwise mitigate or reduce severance amounts payable under this
Agreement.

                                      -20-
<PAGE>
 
THIS AGREEMENT has been executed in duplicate by Dana H. Frank, MD and
Physicians Quality Care, Inc. by and through Eugene M. Bullis, Senior Vice
President and Chief Financial Officer.


/s/ Dana Frank                                 /s/ Eugene M. Bullis
-------------------------                      -------------------------------
Dana H. Frank, MD                              Eugene M. Bullis
                                                   Senior Vice President and
                                                   Chief Financial Officer
                                                   Physicians Quality Care, Inc.

                                      -21-
<PAGE>
 
                                   EXHIBIT A


     The President or Vice Chair of Physicians Quality Care, Inc. shall report
to the Chief Executive Officer and the Board of Directors.  The President or
Vice Chair shall have such duties as are set out in the bylaws of Physicians
Quality Care, Inc. and as delegated from time to time by the Chief Executive
Officer.  Additionally, the President or Vice Chair shall have those duties set
out in the bylaws of Flagship Health, PA for so long as he serves as President
of Flagship, PA.  Finally, the President or Vice Chair shall also practice
medicine in accordance with his Physician Employment Agreement with Flagship
Health, PA.

                                      -22-