<PAGE>
 
                                  FORM 10-K/A
                               (Amendment No. 3)

                      SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, DC 20549
                 
             [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                      THE SECURITIES EXCHANGE ACT OF 1935     

                  For the fiscal year ended December 31, 1996
                                            -----------------
                                      or

             [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934

                        Commission file number 1-11506
                        ------------------------------
                              VALUE HEALTH, INC.
                              ------------------
            (Exact name of registrant as specified in its charter)

                Delaware                                 06-1194838
----------------------------------------      --------------------------------
     (State or other jurisdiction of          (IRS Employer Identification No.)
     incorporation or organization)

  22 Waterville Road, Avon, Connecticut                        06001
-----------------------------------------     ---------------------------------
(Address of principal executive offices)                    (Zip Code)


       Registrant's telephone number, including area code: (860) 678-3400
                                                           --------------     
           Securities registered pursuant to Section 12(b) of the Act:
                         Common Stock, Without Par Value
                Preferred Stock Purchase Rights, $0.01 par value
        Securities registered pursuant to Section 12(g) of the Act: None

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
                ---------------                          ---------------

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K/A or any amendment to
this Form 10-K/A. [ ]

The Aggregate market value, as of March 3, 1997, of Common Stock held by
non-affiliates of the registrant: $974,526,399 based on the last reported sale
price on the New York Stock Exchange.

The Number of shares of Common Stock, without par value, outstanding as of March
3, 1997: 54,618,815.
<PAGE>

         
 
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K
-------- ---------------------------------------------------------------

             
         (a) (1) Consolidated Financial Statements 
             Financial Statements of Value Health, Inc. and its subsidiaries are
             included in Part II, Item 8, pages 20 through 50 of this report and
             include:      

             . Consolidated Balance Sheets as of December 31, 1996 and 1995

             . Consolidated Statements of Operations for the years ended
               December 31, 1996, 1995 and 1994

             . Consolidated Statements of Changes in Stockholders' Equity for
               the years ended December 31, 1996, 1995 and 1994

             . Consolidated Statement of Cash Flows for the years ended December
               31, 1996, 1995 and 1994

             . Notes to Consolidated Financial Statements

             . Report of Independent Accountants - Coopers & Lybrand L.L.P.

             . Independent Auditors' Report - KPMG Peat Marwick LLP


         (a)(2)  Financial Statement Schedule
                 
             The following supplemental schedule and related information for the
             years ended December 31, 1996, 1995 and 1994, is included on page
             75 of this report:      

             . Schedule II: Valuation and Qualifying Accounts


             All other schedules are omitted because they are not applicable or
             the required information is shown in the consolidated financial
             statements or the notes thereto.

                                       69
<PAGE>
 
(a) (3)    List of Exhibits:

<TABLE>     
<CAPTION> 

Exhibit
Number     Description of Exhibit
------     ----------------------
<S>        <C> 
3.1, 4.1   -Restated Certificate of Incorporation of the Registrant, as amended.
           (filed as Exhibit 3.1, 4.1 to the Registrant's Form 10-K for the
           fiscal year ended December 31, 1993 and incorporated herein by this
           reference)

3.2, 4.2   -Amended and Restated By-laws of the Registrant. (filed as Exhibit 3
           to the Registrant's Current Report on Form 8-K dated February 9,
           1994, and incorporated herein by this reference)

4.3        -Specimen certificate representing the Common Stock. (filed as
           Exhibit 4.4 to the Registration Statement on Form S-1, Registration
           No. 33-39134, and incorporated herein by this reference)

10.1       -Amended and Restated 1987 Stock Plan. (filed as Exhibit 10.1 to the
           Registrant's Form S-1, Registration Statement No. 33-39134, and
           incorporated herein by this reference)

10.2       -1991 Stock Plan, as amended. (filed as Exhibit 10.2 to the
           Registrant's Form 10-K for the fiscal year ended December 31, 1994
           and incorporated herein by this reference)

10.3       -1991 Employee Stock Purchase Plan. (filed as Exhibit 10.3 to the
           Registration Statement on Form S-1, registration No. 33-39134, and
           incorporated herein by this reference)

10.4       -1991 Non-Employee Director Stock Option Plan, as amended. (filed as
           Exhibit 10.4 to the Registrant's Form 10-K for the fiscal year ended
           December 31, 1994 and incorporated herein by this reference)

10.5**     -Amended and Restated Employment Agreement dated as of September 1,
           1993, by and between the Registrant and Robert E. Patricelli. (filed
           as Exhibit 10.5 to the Registrant's Form 10-K for the fiscal year
           ended December 31, 1993 and incorporated herein by this reference)

10.5a      -Amendment, dated September 27, 1996 to Employment Agreement between
           the Registrant and Robert E. Patricelli. (Previously filed (A)).

10.6       -Amended and Restated Employment Agreement dated as of March 1, 1994,
           by and between the Registrant and Steven J. Shulman. (filed as
           Exhibit 10.8 to the Registrant's Form 10-K for the fiscal year ended
           December 31, 1994 and incorporated herein by this reference)

10.6a      -Amendment, dated September 27, 1996 to Employment Agreement between
           the Registrant and Steven J. Shulman. (Previously filed (A)).

10.7       -Employment Agreement dated as of September 8, 1995 by and between
           the Registrant and James E. Buncher. (filed as Exhibit 10.8 to the
           Registrant's Form 10-K for the fiscal year ended December 31, 1995
           and incorporated herein by this reference)
</TABLE>      

                                       70
<PAGE>
 
10.7a      -Amendment dated September 27, 1996 to Employment Agreement between
           the Registrant and James E. Buncher. (Previously filed (A))

10.8       -Employment Agreement dated as of March 1, 1996 by and between the
           Registrant and Paul M. Finigan. (Previously filed (A))

10.8a      Amendment dated September 27, 1996 to Employment Agreement between
           the Registrant and Paul M. Finigan. (Previously filed (A))

10.9       -Employment Agreement dated as of September 2, 1996 by and between
           the Registrant and William J. Goss. (Previously filed (A))

10.9a      Amendment dated September 27, 1996 to Employment Agreement between
           the Registrant and William J. Goss. (Previously filed (A))

10.10**    -Employment Agreement, dated January 1, 1993 between Preferred Heath
           Care, Ltd. and David J. McDonnell. (filed as Exhibit 10.9 to the
           Preferred Health Care Ltd. Form 10-K for the fiscal year ended
           December 31, 1992 and incorporated herein by this reference)

10.11      -Registration Rights Agreement dated as of February 22, 1991 by and
           among the Registrant, Warburg, Pincus Capital Company, L.P., Robert
           E. Patricelli, William J. McBride and Steven J. Shulman. (filed as
           Exhibit 10.12 to the Registration Statement on Form S-1, Registration
           No. 33-39134, and incorporated herein by this reference)

10.12      -Rights Agreement, dated as of November 2, 1995, between Value
           Health, Inc. and Bank of Boston. (filed as Exhibit 99.1 to the
           Registrant's Current Report on Form 8-K dated February 9, 1994 and
           incorporated herein by this reference)

10.13      Form of Indemnification Agreement between the Registrant and its
           directors and certain of its officers. (filed as Exhibit 10.13 to the
           Registration Statement on Form S-1, Registration No. 33-39134, and
           incorporated herein by this reference)

10.14      -Agreement and Plan of Merger dated as of September 23, 1993 among
           the Registrant, VH Merger-Sub Corp. and Preferred Health Care Ltd.
           (filed as Exhibit 2.1 to the Registration Statement on Form S-4,
           Registration No. 33-71404 and incorporated herein by this reference)

10.15      -Stock Incentive Plan, as amended and restated (as of March 17,
           1992). (filed as Exhibit 10(a) to the Preferred Health Care Ltd. Form
           10-K for the fiscal year ended December 31, 1992 and incorporated
           herein by this reference)

10.16      -Stock Purchase Agreement dated May 18, 1994 by and among Value
           Health, Inc., Community Care Network, Inc., and Alliance Healthcare
           Foundation, Robert M. Colasanto, Sandra M. Foote, Richard C. Morgan,
           George S. Murphy, Nancy B. Plaxico, Douglas J. Reeves and Patrick J.
           Sullivan. (filed as Exhibit 2.1 to the Registrant's Current Report on
           Form 8-K dated May 18, 1994, File No. 0-19039, and incorporated
           herein by this reference)

10.17      -Agreement and Plan of Merger dated as of March 27, 1995 among Value
           Health, Inc., VHI Merger-Sub Corporation, and Diagnostek, Inc.
           (incorporated herein by reference to previously filed exhibit to
           Current Report on Form 8-K dated March 25, 1995, File No. 0-19039)

                                      71
<PAGE>
 
10.18      -Consulting Agreement dated as of March 27, 1995, as amended on June
           4, 1995 among Value Health, Inc., Diagnostek, Inc. and Nunzio P.
           DeSantis (incorporated herein by reference to previously filed
           exhibit to Current Report on Form 8-K dated March 25, 1995, File No.
           0-19039)

10.19      -Agreement not to Compete dated as of March 27, 1995, as amended on
           June 4, 1995 among Value Health, Inc., Diagnostek, Inc. and Nunzio P.
           DeSantis (incorporated herein by reference to previously filed
           exhibit to Current Report on Form 8-K filed by Diagnostek, Inc. dated
           June 8, 1995)

10.20      -First Amendment to Agreement and Plan of Merger, dated as of June 4,
           1995, by and among Value Health, Inc., VHI Merger-Sub. Corporation
           and Diagnostek, Inc. (incorporated herein by reference to previously
           filed exhibit to Current Report on Form 8-K filed by Diagnostek, Inc.
           dated June 8, 1995)

10.21      Agreement and Plan of Merger, dated January 15, 1997 among
           Columbia/HCA Healthcare Corporation, CVH Acquisition Corporation and
           Value Health, Inc. (incorporated herein by reference to previously
           filed exhibit to Current Report on Form 8-K dated January 15, 1997,
           File No. 001-11239).

10.22      Revolving Credit Agreement dated August 21, 1996. (filed as exhibit
           10 to the Registrant's Form 10-Q for the three months ended September
           30, 1996 and incorporated herein by this reference)

11.        -Computation of Net Earning Per Share. (Previously filed (A).

23.        -Consent of Independent Accountants.

(A)        Filed as an exhibit to Form 10-K/A (Amendment No. 2) on May 5, 1997

*          Confidential Treatment Previously Granted.

**         Executive Compensation Plans and Arrangements.

(b)        Reports of Form 8-K

           The Company filed a Current Report on Form 8-K during the
           fourth quarter of 1996, dated October 11, 1996.

                                      72
<PAGE>
 
                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) 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.
     
                                   VALUE HEALTH, INC.
    
DATE:  May 9, 1997     
                                   BY:  \s\ David M. Wurzer
                                   -------------------------------------
                                          David M. Wurzer
                                          Senior Vice President, Treasurer and
                                          Chief Financial Officer
                                          (Principal Financial and Accounting
                                          Officer)

     Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons in the capacities and on the dates
indicated.

<TABLE>     
<CAPTION> 

                   Signature                                              Titles(s)                                   Date
                   ---------                                              ---------                                   ----
<S>                                                         <C>                                                  <C> 
                                                            Chairman of the Board, President                     May 9, 1997
  \s\ Robert E. Patricelli                                  Chief Executive Officer, and
----------------------------------------------------        Director (Principal Executive Officer) 
Robert E. Patricelli                                        

  \s\ Steven J. Shulman                                     President, Pharmacy and Disease                      May 9, 1997
----------------------------------------------------        Management Group and
Steven J. Shulman                                           Director
                                                            

  \s\ William J. McBride                                    Director                                             May 9, 1997
----------------------------------------------------
William J. McBride

  \s\ David J. McDonnell                                    Director                                             May 9, 1997
----------------------------------------------------
David J. McDonnell, D.S.W.

                                                            Director                                             May 9, 1997
----------------------------------------------------
Walter J. McNerney

  \s\ Rodman W. Moorhead, III                               Director                                             May 9, 1997
----------------------------------------------------
Rodman W. Moorhead, III
</TABLE>      

                                      73
<PAGE>
 
<TABLE>     

<S>                                                         <C>                                                  <C> 
  \s\ Constance B. Newman                                   Director                                             May 9, 1997
----------------------------------------------------
Constance B. Newman

  \s\ John L. Vogelstein                                    Director                                             May 9, 1997
----------------------------------------------------
John L. Vogelstein

\s\ Hicks B. Waldron                                        Director                                             May 9, 1997
----------------------------------------------------
Hicks B. Waldron
</TABLE>      
                                      74