<PAGE>
 
================================================================================

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

                                   FORM 10-Q

                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

               FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
                                        
              --------------------------------------------------

                         Commission File Number 0-26816

                            IDX SYSTEMS CORPORATION
             (Exact name of registrant as specified in its charter)

         VERMONT                                            03-0222230
(State or other jurisdiction of                         (I.R.S. Employer 
incorporation or organization)                           Identification No.) 
                              

                              1400 SHELBURNE ROAD
                          SOUTH BURLINGTON, VT  05403
                    (Address of principal executive offices)

      Registrant's telephone number, including area code:  (802-862-1022)

          Indicate by check mark whether the registrant 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).

                              Yes    X       No
                                  -------       -------

 Indicate by check mark whether the registrant has been subject to such filing
requirements for the past 90 days.

                              Yes    X       No
                                  -------       -------

  The number of shares outstanding of the registrant's Common Stock, $.01 par
            value per share, as of November 7, 1996 was 20,924,747.

 
================================================================================

                       [Exhibit index begins on Page 17]
<PAGE>
 
                            IDX SYSTEMS CORPORATION
                                   FORM 10-Q
               FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996

                               TABLE OF CONTENTS

<TABLE> 
<CAPTION> 
                                                                                              PAGE
                                                                                              ----
<S>                                                                                          <C> 
PART I.  FINANCIAL INFORMATION

ITEM 1.  Interim Financial Statements:
 
         a)  Condensed consolidated balance sheets as of September 30, 1996 and
             December 31, 1995 (unaudited)                                                      3
 
         b)  Condensed consolidated statements of income for the three
             and nine months ended September 30, 1996 and 1995 (unaudited)                      4
 
         c)  Condensed consolidated statements of cash flows for the  nine months ended
             September 30, 1996 and 1995 (unaudited)                                            5
 
         d)  Notes to condensed consolidated financial statements                               6
                             
ITEM 2.  Management's discussion and analysis of financial
         condition and results of operations                                                    7
 
PART II. OTHER INFORMATION
 
ITEM 1.  Legal proceedings                                                                      15
 
ITEM 2.  Changes in securities                                                                  15
 
ITEM 3.  Defaults upon senior securities                                                        15
 
ITEM 4.  Submission of matters to a vote of security holders                                    15
                                                  
ITEM 5.  Other information                                                                      15
 
ITEM 6.  Exhibits and reports on Form 8-K                                                       15
 
SIGNATURES                                                                                      16
 
EXHIBIT INDEX                                                                                   17
</TABLE>

                                       2
<PAGE>
 
Item 1.    Interim Financial Statements

                            IDX SYSTEMS CORPORATION
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
 
                                        SEPTEMBER 30,  DECEMBER 31,
                                            1996           1995
                                        -------------  ------------
                                          (UNAUDITED)
<S>                                     <C>            <C>
ASSETS
------
CASH AND SECURITIES                       $ 93,898       $ 79,776
ACCOUNTS RECEIVABLE, NET                    36,840         28,013
OTHER CURRENT ASSETS                         3,140          3,616
                                          --------       --------
TOTAL CURRENT ASSETS                       133,878        111,405
                                                       
PROPERTY AND EQUIPMENT, NET                 16,562         16,221
OTHER ASSETS                                   798            785
                                          --------       --------
                                                       
TOTAL ASSETS                              $151,238       $128,411
                                          ========       ========
 
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
ACCOUNTS PAYABLE AND ACCRUED
 EXPENSES                                 $ 16,074       $ 14,124
DEFERRED REVENUE                            10,088          7,766
                                          --------       --------
TOTAL CURRENT LIABILITIES                   26,162         21,890
                                                       
LONG-TERM DEBT                               2,700          2,907
                                                       
MINORITY INTEREST                            1,622          1,182
                                                       
STOCKHOLDERS' EQUITY                       120,754        102,432
                                          --------       --------
                                                       
TOTAL LIABILITIES AND                                  
STOCKHOLDERS' EQUITY                      $151,238       $128,411
                                          ========       ========
</TABLE>
                            See accompanying notes.

NOTE: The balance sheet at December 31, 1995 has been derived from the audited 
financial statements at that date.

                                       3
<PAGE>
 
Item 1.    Interim Financial Statement

                            IDX SYSTEMS CORPORATION
                  CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
 
 
                                                      THREE MONTHS ENDED           NINE MONTHS ENDED
                                                         SEPTEMBER 30                 SEPTEMBER 30
                                                     1996             1995         1996          1995
                                                  ----------       ---------    ---------     ---------
                                                          (UNAUDITED)                  (UNAUDITED)       
<S>                                              <C>                 <C>          <C>        <C>
REVENUES                                                                        
-------- 
SOFTWARE LICENSE FEES                               $11,888          $ 9,253       $ 38,126    $30,219
MAINTENANCE AND SERVICE FEES                         19,411           15,842         53,925     45,791
HARDWARE SALES                                        7,289            7,009         22,964     18,783
                                                    -------          -------       --------    -------
TOTAL REVENUES                                       38,588           32,104        115,015     94,793
                                                                                
OPERATING EXPENSES                                                              
------------------
COST OF LICENSE, MAINTENANCE                                                    
  AND SERVICE FEES                                   14,044           12,155         40,028     36,938
COST OF HARDWARE SALES                                5,306            5,459         18,063     14,546
SELLING, GENERAL, AND ADMIN                           8,552            6,216         24,380     18,204
RESEARCH AND DEVELOPMENT                              6,039            5,197         17,737     14,544
                                                    -------          -------       --------    -------
                                                     33,941           29,027        100,208     84,232
                                                                                
OPERATING INCOME                                      4,647            3,077         14,807     10,561
INTEREST AND OTHER                                                              
  (INCOME) EXPENSE                                   (1,074)            (450)        (2,923)      (938)
INCOME BEFORE INCOME TAXES                            5,721            3,527         17,730     11,499
INCOME TAX PROVISION                                  2,292              180          7,092        605
                                                    -------          -------       --------    -------
NET INCOME                                          $ 3,429          $ 3,347       $ 10,638    $10,894
                                                    =======          =======       ========    =======
                                                                                
NET INCOME PER SHARE                                  $0.16                           $0.50    
                                                    =======                         =======    
                                                                                
HISTORICAL INCOME BEFORE INCOME TAXES                                $ 3,527                   $11,499    
PRO FORMA INCOME TAXES                                                 1,411                     4,600    
                                                                     -------                   -------    
PRO FORMA NET INCOME                                                 $ 2,116                   $ 6,899    
                                                                     =======                   =======    
                                                                                   
PRO FORMA NET INCOME PER SHARE                                         $0.12                     $0.40    
                                                                     =======                   =======    
                                                                                
AVERAGE SHARES OUTSTANDING                           21,460           17,905         21,387     17,440
</TABLE>
                            See accompanying notes.

                                       4
<PAGE>
 
Item 1.    Interim Financial Statement
                            IDX SYSTEMS CORPORATION
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                      NINE MONTHS ENDED
                                                         SEPTEMBER 30
                                                       1996       1995
                                                     ---------  ---------
                                                         (UNAUDITED)
<S>                                                  <C>        <C>
Operating Activities
Net income                                           $ 10,638   $ 10,894
Adjustments to reconcile net income to net
 cash provided by operating activities:
  Depreciation                                          3,519      2,157
  Increase in allowance for doubtful accounts             125        310
  Minority interest                                       440        273
  Changes in operating assets and liabilities:
    Accounts receivable                                (7,601)   (10,440)
    Prepaid expenses                                      144       (352)
    Accounts payable                                    1,283         34
    Accrued expenses                                    4,150        240
    Deferred revenue                                    2,322      1,190
    Other, net                                           (896)       168
                                                     --------   --------
Net cash provided by operating activities              14,124      4,474
 
Investing Activities
Purchase of property and equipment, net                (3,860)    (2,707)
Purchase of securities available-for-sale, net        (98,579)      (362)
Sale of securities available-for-sale                  64,084        250
                                                     --------   --------
Net cash used in investing activities                 (38,355)    (2,819)
 
Financing Activities
Proceeds from sale of common stock                      4,066      4,037
S Corporation distribution                                        (1,979)
Distributions from affiliates                                       (225)
Repayment of notes receivable to related parties                    (249)
Proceeds from related parties                                        637
Payments on long-term debt related to real estate        (207)      (386)
                                                     --------   --------
 
Net cash provided by financing activities               3,859      1,835
                                                     --------   --------
 
Increase (decrease) in cash and cash equivalents      (20,372)     3,490
 
Cash and cash equivalents at beginning of period       33,262      6,830
                                                     --------   --------
 
Cash and cash equivalents at end of period           $ 12,890   $ 10,320
                                                     ========   ========
</TABLE>
                            See accompanying notes.

                                       5
<PAGE>
 
Notes to Condensed Consolidated Financial Statements

Note 1 - Interim Statement Presentation

The unaudited condensed consolidated financial statements have been prepared by
the Company pursuant to the rules and regulations of the Securities and Exchange
Commission and in accordance with generally accepted accounting principles.
Accordingly, certain information and footnote disclosures normally included in
annual financial statements have been omitted or condensed.  In the opinion of
management, all necessary adjustments have been made to provide a fair
presentation.  The operating results for the nine months ended September 30,
1996 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1996.  For further information, refer to the
consolidated financial statements and footnotes included in the Company's latest
annual report on Form 10-K.

Note 2 - Pro Forma Net Income and Net Income Per Share Information

Pro forma net income represents actual historical pre-tax earnings in 1995 less
the tax provision which the Company would have recognized had it been taxed as a
"C" Corporation in 1995.  Prior to October 1, 1995, the Company was taxed as an
"S" Corporation.  Pro forma net income per share is computed using pro forma net
income and the weighted average number of Common and dilutive Common Stock
equivalent shares.  Common Stock equivalents are attributable to stock options
using the treasury stock method and, for the three-month and nine-month periods
ended September 30, 1995, include the weighted average estimated number of
shares which was necessary to fund the payment of undistributed S Corporation
earnings in excess of the previous twelve months net income.  Common Stock and
Common Stock equivalent shares issued during the twelve-month period prior to
the effective date of the Company's initial public offering consummated on
November 22, 1995 have been included in the calculation as if they were
outstanding for the three-month and nine-month periods ended September 30, 1995
using the treasury stock method.  The initial public offering price was used in
the determination of Common Stock equivalents for all periods presented up to
the effective date of the initial public offering.  After that date, the market
prices of Common Stock were used for computing Common Stock equivalents.
Primary and fully diluted pro forma net income per share are the same for the
three-month and nine-month periods ended September 30, 1995 and primary and
fully diluted net income per share are the same for the three-month and nine-
month periods ended September 30, 1996.

Note 3 - Reclassifications

Certain amounts in 1995 have been reclassified to conform with current period
presentations.

                                       6
<PAGE>
 
Item 2.    Management's Discussion and Analysis of Financial Condition and
           Results of Operations

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS
---------------------

THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1995

REVENUES

The Company's total revenues increased to $38.6 million during the three months
ended September 30, 1996 from $32.1 million in the corresponding period in 1995,
an increase of $6.5 million or 20.2%.  Revenues from software license fees
increased to $11.9 million during the three months ended September 30, 1996
(30.8% of total revenues) from $9.3 million (28.9% of total revenues) in the
corresponding period in 1995, an increase of $2.6 million or 28.5%.  The
increase was primarily due to an increase in installations of certain of the
Company's software products from its Ambulatory Suite.  Revenues from
maintenance and service fees increased to $19.4 million during the three months
ended September 30, 1996 (50.3% of total revenues) from $15.8 million (49.3% of
total revenues) in the corresponding period in 1995, an increase of $3.6 million
or 22.5%.  The increase in revenues from maintenance and service fees was due
principally to additional maintenance revenues resulting from the continued
growth in the Company's installed client base.  Hardware revenues increased to
$7.3 million during the three months ended September 30, 1996 (18.9% of total
revenues) from $7.0 million (21.8% of total revenues) in the corresponding
period in 1995, an increase of $.3 million or 4.0%.  The increase in hardware
revenues was principally due to shipments for new customer contracts and
customers upgrading their hardware systems.  The Company anticipates the level
of hardware sales will vary considerably from period to period and not
necessarily in a consistent relationship with other revenue.

COST OF LICENSE, MAINTENANCE AND SERVICE FEES

The cost of license, maintenance and service fees increased to $14.0 million
during the three months ended September 30, 1996 from $12.1 million in the
corresponding period in 1995, an increase of $1.9 million or 15.5%.  The gross
profit margin on license, maintenance and service fees increased to 27.7% during
the three months ended September 30, 1996 from 23.3% in the corresponding period
in 1995.  The increase in profit margin was principally due to the continued
growth in maintenance and installation revenue without a corresponding increase
in associated service expenses.

COST OF HARDWARE SALES

The cost of hardware sales decreased to $5.3 million during the three months
ended September 30, 1996 from $5.5 million in the corresponding period in 1995,
a decrease of $.2 million or 2.8%.  The gross profit margin on hardware sales
increased to 27.2% of hardware revenues during the three months ended September
30, 1996, from 22.1% in the corresponding period in 1995.

                                       7
<PAGE>
 
The increase was principally due to the sale of higher margin hardware
configurations and hardware operating systems during the quarter ended September
30, 1996. This gross profit margin trend is not anticipated to continue in the
future.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses increased to $8.5 million during
the three months ended September 30, 1996 from $6.2 million in the corresponding
period in 1995, an increase of $2.3 million or 37.6%.  As a percentage of total
revenues, selling, general and administrative expenses increased to 22.2% during
the three months ended September 30, 1996 from 19.4% in the corresponding period
in 1995.  The increase in selling, general and administrative expenses during
the three months ended September 30, 1996 was principally due to an increase in
the Company's sales and marketing staff.

RESEARCH AND DEVELOPMENT

Research and development expenses increased to $6.0 million during the three
months ended September 30, 1996 from $5.2 million in the corresponding period in
1995, an increase of $0.8 million or 16.2%.  The increase was due to an increase
in staff to support the development of additional products for the Company.  As
a percentage of total revenues, research and development expenses decreased to
15.6% during the three months ended September 30, 1996 compared to 16.2% in the
corresponding period in 1995.

NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1995

REVENUES

The Company's total revenues increased to $115.0 million during the nine months
ended September 30, 1996 from $94.8 million in the corresponding period in 1995,
an increase of $20.2 million or 21.3%.  Revenues from software license fees
increased to $38.1 million during the nine months ended September 30, 1996
(33.1% of total revenues) from $30.2 million (31.9% of total revenues) in the
corresponding period in 1995, an increase of $7.9 million or 26.2%.  The
increase was primarily due to an increase in installations of certain of the
Company's software products from its Ambulatory Suite.  Revenues from
maintenance and service fees increased to $53.9 million during the nine months
ended September 30, 1996 (46.9% of total revenues) from $45.8 million (48.3% of
total revenues) in the corresponding period in 1995, an increase of $8.1 million
or 17.8%.  The increase in revenues from maintenance and service fees was due
principally to additional maintenance revenues resulting from the continued
growth in the Company's installed client base.  Hardware revenues increased to
$23.0 million during the nine months ended September 30, 1996 (20.0% of total
revenues) from $18.8 million (19.8% of total revenues) in the corresponding
period in 1995, an increase of $4.2 million or 22.3%.  The increase in hardware
revenues was principally due to new contracts and customers upgrading their
hardware systems.

COST OF LICENSE, MAINTENANCE AND SERVICE FEES

The cost of license, maintenance and service fees increased to $40.0 million
during the nine months ended September 30, 1996 from $36.9 million in the
corresponding period in 1995, an

                                       8
<PAGE>
 
PART I. FINANCIAL INFORMATION

increase of $3.1 million or 8.4%. The gross profit margin on license,
maintenance and service fees increased to 25.8% during the nine months ended
September 30, 1996 from 19.3% in the corresponding period in 1995. The increase
in profit margin was principally due to the continued growth in maintenance and
installation revenue without a corresponding increase in associated services
expenses.

COST OF HARDWARE SALES

The cost of hardware sales increased to $18.1 million during the nine months
ended September 30, 1996 from $14.6 million in the corresponding period in 1995,
an increase of $3.5 million or 24.2%  The gross profit margin on hardware sales
decreased to 21.3% of hardware revenues during the nine months ended September
30, 1996, from 22.6% in the corresponding period in 1995.  The decrease was
principally due to pricing pressure on hardware in the marketplace.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses increased to $24.4 million during
the nine months ended September 30, 1996 from $18.2 million in the corresponding
period in 1995, an increase of $6.2 million or 33.9%.  As a percentage of total
revenues, selling, general and administrative expenses increased to 21.2% during
the nine months ended September 30, 1996 from 19.2% in the corresponding period
in 1995.  The majority of these additional expenses during the nine months ended
September 30, 1996 were due to an increase in the Company's sales and marketing
staff over the same period in 1995.

RESEARCH AND DEVELOPMENT

Research and development expenses increased to $17.7 million during the nine
months ended September 30, 1996 from $14.5 million in the corresponding period
in 1995, an increase of $3.2 million or 22.0%.  The increase was due to an
increase of staff to support the development of additional products.  As a
percentage of total revenues, research and development expenses increased to
15.4% during the nine months ended September 30, 1996 from 15.3% in the
corresponding period in 1995.

LIQUIDITY AND CAPITAL RESOURCES

Since its inception in 1969, the Company has funded its operations, working
capital needs and capital expenditures primarily from operations.

Cash flows from operations are principally comprised of net income and
depreciation and are primarily affected by the net effect of the change in
accounts receivable, deferred revenue, accounts payable and accrued expenses.
Accounts receivable from customers have been collected consistently in the 65 to
87 day range.

Cash and cash equivalents at September 30, 1996 were $12.9 million, a decrease
of $20.3 million from December 31, 1995.  The majority of this decrease was due
to the investment of excess funds along with the proceeds from the Company's
initial public offering of common stock, which was consummated on November 22,
1995 in investment grade securities.

                                       9
<PAGE>
 
PART I. FINANCIAL INFORMATION
 

The Company has a revolving line of credit with a bank allowing the Company to
borrow up to $2.0 million bearing interest at the prime rate.  There were no
borrowings as of September 30, 1996.

The Company has no significant commitments for capital expenditures at this
time.

INCOME TAXES

From July 1, 1987 to November 1, 1995, the Company was treated for federal and
certain state income tax purposes as an S Corporation under the Internal Revenue
Code of 1986, as amended (the "Code").  As a result, the Company's stockholders,
rather than the Company, were required to pay federal and certain state income
taxes based upon the Company's earnings whether or not the earnings were
distributed to such stockholders.  On November 1, 1995, the Company terminated
its S corporation status and, accordingly, has become subject to federal and
state income taxes.

For purposes of financial statement presentations, the Company's financial
statements reflect pro forma financial information for 1995 as if the Company
had been taxed as a C corporation.  For the quarter ended September 30, 1996,
the Company provided for taxes at a rate of approximately 40% of pre-tax income.

FACTORS AFFECTING FUTURE RESULTS

Statements in this report, and other reports, proxy statements and other
communications to stockholders, as well as oral statements made by the Company's
officers or its agents which express "belief," "anticipation," "intention," or
"expectation," as well as other statements which are not historical fact, and
statements as to the Company's future revenues, operating income, earnings per
share, or plans and objectives of management, including plans or objectives
relating to products or services of the Company, are forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995, and
involve risks and uncertainties described below.  There are a number of factors
of which the Company is aware that may cause the Company's actual results to
vary materially from those forecast or projected in any such forward-looking
statement.  The following are certain, but not necessarily all, of the factors
which the management of the Company presently believes could cause the Company's
actual operating results to be materially less than forecast or projected in any
forward-looking statement.

The Company's revenues and operating results can vary significantly from quarter
to quarter as a result of a number of factors, including the volume and timing
of systems sales and installations, and length of sales cycles and installation
efforts.  The timing of revenues from systems sales is difficult to forecast
because the Company's sales cycle can vary depending upon factors such as the
size of the transaction, the changing business plans of the customer, the
effectiveness of customer's management, and general economic conditions.  In
addition, because revenue is recognized at various points during the
installation process, the timing of revenue recognition varies considerably
based on a number of factors, including availability of personnel, availability
of the customer's resources and complexity of the needs of the customer's
organization.  The Company's initial contact with a potential customer depends
in significant part on the customer's

                                      10
<PAGE>
 
PART I. FINANCIAL INFORMATION


decision to replace, expand or substantially modify its existing information
systems, or modify or add business processes or lines of business. How and when
to implement, replace, expand or substantially modify an information system, or
modify or add business processes or lines of business, are major decisions for
health care organizations. Accordingly, the sales cycle for the Company's
systems is typically three to 18 months or more from initial contact to contract
execution, and the installation cycle is typically three to 18 months or more
from contract execution to completion of installation. During the sales cycle
and the installation cycle, the Company expends substantial time, effort and
funds preparing contract proposals, negotiating the contract and implementing
the system. Because a significant percentage of the Company's expenses are
relatively fixed, a variation in the timing of systems sales and installations
can cause significant variations in operating results from quarter to quarter.
The Company's future operating results may fluctuate as a result of these and
other factors, such as customer purchasing patterns, and the timing of new
product and service introductions and product upgrade releases.

The Company's revenues have historically followed seasonal patterns with a lower
level of sales and installations occurring in the fiscal quarter ending
September 30 and a greater level of sales and installations occurring in the
fiscal quarter ending June 30 (formerly the fiscal year end of the Company).
The Company believes that such seasonal fluctuation is attributable to a number
of factors, including the Company's former sales and installation compensation
program, which was formerly based significantly on fiscal year sales and
installation goals, and the vacation schedules of its clients.  In 1995, the
Company changed its fiscal year end from June 30 to December 31.  The Company is
not able to predict what impact, if any, the change will have on the seasonality
of the Company's business.  The Company believes that quarterly results of
operations will continue to be subject to significant fluctuations and that its
results of operations for any particular quarter or fiscal year may not be
indicative of results of operations for future periods.  There can be no
assurance that future seasonal and quarterly fluctuations will continue and will
not have a material adverse effect on the Company's results of operations,
financial condition or business.

Market prices for securities of companies such as the Company are highly
volatile.  Factors such as announcements of technological innovations or new
products or services by the Company or its competitors, proprietary rights
developments, and market conditions for health care or technology stocks in
general, could have a significant impact on the future market price of the
Company's Common Stock.

As a developer of information systems, the Company must anticipate and adapt to
evolving industry standards and new technological developments.  The market for
the Company's products is characterized by continued and rapid technological
advances in both hardware and software development, requiring ongoing
expenditures for research and development and the timely introduction of new
products and enhancements to existing products.  The establishment of standards
is largely a function of user acceptance.  Therefore, such standards are subject
to change.  The Company's future success will depend in part upon its ability to
enhance its existing products, to respond effectively to technology changes, to
migrate its clients to new technologies, to sell additional products to its
existing client base and to introduce new products and technologies to meet the
evolving needs of its clients in the health care information systems

                                      11
<PAGE>
 
PART I. FINANCIAL INFORMATION

market. The Company is currently devoting significant resources toward the
development of enhancements to its existing products and the migration of
existing products to new hardware and software platforms. There can be no
assurance that the Company will successfully complete the development of these
products or this migration in a timely fashion or that the Company's current or
future products will satisfy the needs of the health care information systems
market. Further, there can be no assurance that products or technologies
developed by others will not adversely affect the Company's competitive position
or render its products or technologies noncompetitive or obsolete.

The Company currently derives a significant percentage of its revenues from
sales of financial and administrative information systems and related services.
As a result, any factor adversely affecting sales of these products and services
could have a material adverse effect on the Company's results of operations,
financial condition or business.  Although the Company has experienced
increasing annual sales, revenues associated with existing products may decline
as a result of several factors, including price competition.  There can be no
assurance that the Company will continue to be successful in marketing its
current products or any new or enhanced products or maintaining the current
pricing for its existing products.

Certain of the Company's products provide applications that relate to patient
medical histories and treatment plans.  Any failure by the Company's products to
provide accurate and timely information could result in product liability claims
against the Company by its clients or their affiliates or patients.  The Company
maintains insurance that it believes is adequate to protect against claims
associated with the use of its products, but there can be no assurance that its
insurance coverage would adequately cover any claim asserted against the
Company.  A successful claim brought against the Company in excess of its
insurance coverage could have a material adverse effect on the Company's results
of operations, financial condition or business.  Even unsuccessful claims could
result in the expenditure of funds in litigation, as well as diversion of
management time and resources.  There can be no assurance that the Company will
not be subject to product liability claims, that such claims will not result in
liability in excess of its insurance coverage or that the Company's insurance
will cover such claims or that appropriate insurance will continue to be
available to the Company in the future at commercially reasonable rates.

The success of the Company is dependent to a significant degree on its key
management, sales and marketing, and technical personnel.  The Company believes
that its continued future success will also depend upon its ability to attract,
motivate and retain highly skilled, managerial, sales and marketing, and
technical personnel, including software programmers and systems architects
skilled in the computer languages in which the Company's products operate.
Competition for such personnel in the software and information services
industries is intense.  The loss of key personnel, or the inability to hire or
retain qualified personnel, could have a material adverse effect on the
Company's results of operations, financial condition or business.  Although the
Company has been successful to date in attracting and retaining skilled
personnel, there can be no assurance that the Company will continue to be
successful in attracting and retaining the personnel it requires to successfully
develop new and enhanced products and to continue to grow and operate
profitably.

                                      12
<PAGE>
 
PART I. FINANCIAL INFORMATION


The health care industry in the United States is subject to changing political,
economic and regulatory influences that may affect the procurement practices and
operations of health care organizations.  The Company's products are designed to
function within the structure of the health care financing and reimbursement
system currently being used in the United States.  During the past several
years, the health care industry has been subject to increasing levels of
governmental regulation of, among other things, reimbursement rates and certain
capital expenditures.  From time to time, certain proposals to reform the health
care system have been considered by Congress.  These proposals, if enacted, may
increase government involvement in health care, lower reimbursement rates and
otherwise change the operating environment for the Company's clients.  Health
care organizations may react to these proposals and the uncertainty surrounding
such proposals by curtailing or deferring investments, including those for the
Company's products and services.  The Company cannot predict with any certainty
what impact, if any, such proposals or health care reforms might have on its
results of operations, financial condition or business.

The U.S. Food and Drug Administration (the "FDA") has promulgated a draft policy
for the regulation of certain computer software products as medical devices
under the 1976 Medical Device Amendments to the Federal Food, Drug and Cosmetic
Act (the "FDC Act") and has recently indicated it may modify such draft policy
or create a new policy.  To the extent that computer software is a medical
device under the policy, the manufacturers of such products could be required,
depending on the product, to (i) register and list their products with FDA, (ii)
notify the FDA and demonstrate substantial equivalence to other products on the
market before marketing such products, or (iii) obtain FDA approval by
demonstrating safety and effectiveness before marketing a product.  In addition,
such products would be subject to the FDC Act's general controls, including
those relating to good manufacturing practices and adverse experience reporting.
Although it is not possible to anticipate the final form of the FDA's policy
with regard to computer software, the Company expects that, whether or not the
draft is finalized or changed, the FDA is likely to become increasingly active
in regulating computer software that is intended for use in health care
settings.  The FDA can impose extensive requirements governing pre- and post-
market conditions such as device investigation, approval, labeling and
manufacturing.  In addition, the FDA can impose extensive requirements governing
development controls and quality assurance processes.  There can be no assurance
that actions taken by the FDA to regulate computer software products will not
have a material adverse effect on the Company's results of operations, financial
condition or business.

The Company intends to continue to grow in part through acquisitions of
complementary products, technologies and businesses or alliances with
complementary businesses.  The Company's ability to expand successfully through
acquisitions or alliances depends on many factors, including the successful
identification and acquisition of products, technologies or businesses and
management's ability to effectively integrate and operate the acquired or
aligned products, technologies or businesses.  There is significant competition
for acquisition and alliance opportunities in the health care information
systems industry, which may intensify due to consolidation in the industry,
thereby increasing the costs of capitalizing on such opportunities.  The Company
competes for acquisition and alliance opportunities with other

                                      13
<PAGE>
 
PART I. FINANCIAL INFORMATION

companies that have significantly greater financial and management resources.
There can be no assurance that the Company will be successful in acquiring or
aligning with any complementary products, technologies or businesses; or, if
acquired or aligned with, that the Company will be able to successfully
integrate any such products, technologies or businesses into its current
business and operations. The failure to successfully integrate any significant
products, technologies or businesses could have a material adverse effect on the
Company's results of operations, financial condition or business.

Because of these and other factors, past financial performance should not be
considered an indicator of future performance.  Investors should not use
historical trends to anticipate future results.

                                      14
<PAGE>
 
PART II.  OTHER INFORMATION


Item 1.    LEGAL PROCEEDINGS

           None.


Item 2.    CHANGES IN SECURITIES

           None.

Item 3.    DEFAULTS UPON SENIOR SECURITIES

           Not applicable.

Item 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

           None.


Item 5.    OTHER INFORMATION

           None.

Item 6.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
           FORM 8-K.

          (a) The exhibits filed as part of this Form 10-Q are listed on the
Exhibit Index immediately preceding such exhibits, which Exhibit Index is
incorporated herein by reference.

          (b) No Current Reports on Form 8-K were filed by the Company during
the last quarter of the period by this report.

                                      15
<PAGE>
 
SIGNATURES

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.

                                    IDX SYSTEMS CORPORATION



Date:  November 13, 1996                 By: /s/ John A. Kane
                                            -------------------------------
                                         John A. Kane,
                                         Vice President, Finance and
                                         Administration, Chief Financial
                                         Officer and Treasurer
                                         (Principal Financial and
                                         Accounting Officer)


                                      16
<PAGE>
 
EXHIBIT INDEX

Exhibit Index

     The following exhibits are filed as part of this Quarterly Report on Form
10-Q:
<TABLE>
<CAPTION>
 
Exhibit No.    Description                                                Page
-------------  -----------                                                ----
<S>            <C>                                                        <C>
 
11             Statement regarding computation of per share earnings for    18
               the three months ended September 30, 1996.
 
12             Statement regarding computation of per share earnings for    19
               the nine months ended September 30, 1996.

27             Financial Data Schedule
</TABLE>

                                      17