Document:

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                                                                   Exhibit 10.15

                       SEPARATION AGREEMENT AND RELEASE

            SEPARATION AGREEMENT AND RELEASE, dated as of October 2, 2000,
between HEALTH MANAGEMENT SYSTEMS, INC., a New York corporation (the "Company"),
and PAUL J. KERZ ("Kerz"), an individual residing at 126 East 65th Street, New
York, New York 10021.

            WHEREAS Kerz resigned as President and Chief Executive Officer
of the Company on October 2, 2000; and

            WHEREAS, as provided herein, Kerz is resigning from his positions as
an officer and director of any subsidiaries or affiliates of the Company; and

            WHEREAS the Company and Kerz wish to set forth their mutual
understanding and agreement regarding the termination of Kerz's employment as
President and Chief Executive Officer of the Company and to resolve any and all
matters arising out of or relating to such employment;

            NOW, THEREFORE, in consideration of the mutual promises, releases
and covenants contained herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged by the parties hereto,
the parties hereby covenant and agree as follows:

            1.    Resignation.  Kerz hereby confirms his resignation as
President and Chief Executive Officer of the Company on October 2, 2000
and hereby resigns from his positions as an officer or director of all
subsidiaries and affiliates of the Company effective as of 5:00 p.m. on
October 1, 2000 (the "Effective Date").

            2. Salary and Certain Benefits. In consideration of Kerz's execution
and delivery of this Agreement and his agreement to abide by its terms, the
Company agrees to employ Kerz as a senior advisor to the Company until the
second anniversary of the Effective Date and to make the following payments and
to provide the following benefits to Kerz:

            (i) Salary. During the period commencing on the Effective Date and
      ending on the second anniversary thereof, the Company shall pay Kerz
      monthly payments at the per annum rate of $364,000.

            (ii) Consulting Fee. Commencing on the second anniversary of the
      Effective Date and ending on April 20, 2006 (the "Final Termination
      Date"), the Company shall

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      engage Kerz as an independent contractor and pay Kerz a monthly consulting
      fee at the per annum rate of $50,000.

            (iii) Home Office Expenses. The Company will reimburse Kerz for up
      to $4,000 in expenses incurred by him in establishing and equipping a home
      office.

            (iv) Automobile Arrangements. The Company has previously made
      available to Kerz for his use (i) the car described under the caption
      "Owned Car" on Annex I hereto (the "Owned Car") and (ii) the car described
      under the caption "Leased Car" on said Annex I (the "Leased Car"). The
      Company agrees to sell the Owned Car to Kerz for the purchase price
      specified on Annex I hereto, and Kerz agrees to purchase the Owned Car for
      such price, at a closing to take place on a mutually convenient date not
      later than December 15, 2000. The Company also agrees to assign and
      transfer to Kerz, and Kerz agrees to assume all obligations under, the
      lease (as described in Annex I) for the Leased Car, such assignment and
      assumption to take place not later than December 15, 2000.

            (v) Season Tickets. The Company will make available to Kerz under
      the Company's existing season ticket subscription to the New York Knicks
      tickets for up to 12 regular season games, to be selected on a basis
      mutually satisfactory to the Company and Kerz. Kerz agrees to pay the cost
      of any playoff tickets made available to the Company under the
      subscription and to afford the Company the right to use two-thirds of such
      tickets (for which the Company shall reimburse Kerz at cost). The Company
      does not intend to retain the Company's existing season ticket
      subscription following the end of this playing season. At the request of
      Kerz, the Company will use reasonable efforts, at the sole cost and
      expense of Kerz, to change the mailing address for such subscription to
      Kerz's residence and to assign to Kerz any rights the Company may have to
      subscribe for such season tickets following the end of the season. The
      Company makes no representations or warranties whatsoever as to whether
      such an assignment will be permitted under the agreements governing such a
      subscription.

            (vi) Other Benefits. Commencing on the Effective Date and continuing
      until the earlier of Kerz's 65th birthday or his death, the Company shall,
      except as provided below, continue to provide health insurance for Kerz
      and his dependents under the Company's current health insurance plan or,
      with respect to any period immediately prior to Kerz's 65th birthday,
      under a COBRA arrangement paid for by the Company, provided that, if the
      Company changes insurers, there will be no exclusion for pre-existing
      conditions of Kerz or any of his dependents and the benefits provided by
      the new insurer to Kerz and his dependents shall be substantially similar
      to the health insurance currently offered by the Company to such persons.
      The obligation to provide health insurance to Kerz pursuant to this
      paragraph (vi) shall terminate upon Kerz becoming eligible for similar
      benefits with a subsequent employer.

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                  (vii) Legal Expenses. The Company will reimburse Kerz for up
         to $7,500 in legal fees incurred by him in connection with the
         negotiation of this Agreement.

            3. Promissory Notes and Transfer of Shares and Options; Certain
Additional Payments by the Company.

                  (i) The Company and Kerz have agreed that, as of the Effective
         Date, the Amended and Restated Promissory Note (Secured Loan) dated as
         of October 19, 1999 (the "Secured Note") made by Kerz in favor of HSA
         Managed Care Systems, Inc., a subsidiary of the Company ("HSA"), in the
         aggregate outstanding principal amount of $500,000, and the Amended and
         Restated Promissory Note (Unsecured Loan) dated as of October 19, 1999
         (the "Unsecured Note" and collectively with the Secured Note, the
         "Promissory Notes") made by Kerz in favor of HSA, in the aggregate
         outstanding principal amount of $1,000,000, shall be marked paid. The
         Company shall cause HSA to so mark the Promissory Notes and return such
         Promissory Notes to Kerz.

                  (i) The Company and Kerz have also agreed that, as of the
         Effective Date, Kerz will transfer, assign and deliver to the Company
         and/or its designees the securities, rights and other property
         described below (collectively, the "Transferred Assets"). The
         Transferred Assets shall consist of the following:

                           (A) 162,666 shares of the Company's Common Stock,
                  $.01 par value ("Common Stock"), owned by Kerz and pledged to
                  secure repayment of the Secured Note pursuant to the Security
                  Agreement dated as of October 29, 1998 between Kerz and HSA;

                           (B) an additional 100,000 shares of Common Stock now
                  owned by Kerz; and

                           (C) any and all of Kerz's right, title and interest
                  in (including, without limitation, the right to exercise or
                  vest any interest in) all stock options to purchase shares of
                  Common Stock of the Company granted to Kerz by the Company,
                  whether vested or unvested as of the date hereof.

                  (ii) As of the Effective Date (i) Kerz shall deliver to the
         Company the shares of Common Stock and agreements evidencing the
         options described in clauses (1), (2) and (3) above, together with
         stock powers duly executed in blank in the form provided by the
         Company. Kerz hereby represents and warrants to the Company that (x) he
         is the registered holder of the shares of Common Stock described in
         clauses (A) and (B) above (collectively, the "Common Shares") and (y)
         he has good and valid title to the Common Shares, in each case free and
         clear of any and all pledges, security interests, liens, charges or
         other encumbrances (other than security interests in favor of HSA).

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                  (iii) As consideration for the transfer and assignment of the
         Transferred Assets and the other covenants and agreements of Kerz
         contained herein, the Company agrees to pay Kerz, upon delivery of the
         Transferred Assets, the sum of $700,000 in cash. Of such amount,
         $549,996, representing the fair market value as of the Effective Date
         of the shares described in clauses (A) and (B) above shall be allocated
         to the purchase of such Transferred Assets and the balance shall be
         allocated to the covenant contained in Section 9.

                  4. Tax Withholding. The amounts otherwise payable to Kerz
pursuant to Sections 2(i), 2(ii) and 3(iv) shall be reduced by the amount of any
federal, state and local income and employment taxes required to be withheld by
the Company, pursuant to its regular payroll practices, in respect of any
compensation income recognized by Kerz in respect of the matters described in
Sections 2 and 3 above. To the extent that the aggregate amount of such withhold
ing taxes exceeds the amounts otherwise payable pursuant to said Sections 2(i),
2(ii) and 3(iv), then Kerz agrees to furnish cash funds or make other
arrangements satisfactory to the Company regarding such payment.

                  5. Acknowledgment by Kerz. Kerz acknowledges and agrees that,
from and after the Effective Date, he will not be entitled to any compensation,
bonus, contribution, benefit, pension or other payment from the Company or any
of its subsidiaries or affiliates, in cash, in securities, or in kind, other
than as set forth in this Agreement, and furthermore agrees that he will forever
forbear from making any claim against the Company or any such subsidiary or
affiliate for such other compensation, bonus, contribution, benefit, pension or
other payment.

                  6. Resignation. As of the Effective Date Kerz shall execute
and deliver to the Company, simultaneously with the execution and delivery of
this Agreement, a letter of resignation substantially in the form annexed hereto
as Exhibit A. Kerz understands that the Company does not intend to re-nominate
him as a candidate for election as a director of the Company following the end
of his current term.

                  7. Survival of Certain Indemnification Obligations. The
Company acknowledges and agrees that nothing in this Agreement, including,
without limitation, the mutual releases and covenants contained in Section 8
below, shall limit or affect in any manner the obligation of the Company to
indemnify Kerz as a former officer and director of the Company or of any
subsidiary or affiliate thereof (and the Company agrees that it will so
indemnify Kerz) to the fullest extent provided in the By-Laws and Certificate of
Incorporation of the Company in effect at the Effective Time (copies of the
relevant portions of which are annexed to this Agreement and incorporated
herein) and in accordance with the laws of the jurisdiction in which the Company
is organized. In addition to and notwithstanding the foregoing, the Company
agrees that in no event shall the terms and conditions of the indemnification
rights afforded to Kerz be less favorable to him than those afforded by the
Company to any other person similarly situated with respect to any claim
asserted against Kerz and such other person in relation to or in connection with
their acting as officers or directors of the Company or of any subsidiary or
affiliate thereof. In the event any action is brought against Kerz for which
indemnification is

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sought hereunder, Kerz agrees that he will cooperate in the defense of such
action by the Company and will provide to the Company any and all such
assistance as it shall reasonably request in connection therewith. Kerz further
agrees that he will cooperate in the defense of the pending claims made by IHHS
and Davis and Associates against the Company and provide all such assistance in
that regard as the Company shall reasonably request.

                  8.       Mutual Release and Covenants.

                  (i) Except as provided in Section 8(iii) below and with
         respect to any indemnification obligation imposed on the Company as
         described in Section 7 above, effective as of the Effective Date, Kerz
         irrevocably and unconditionally releases and discharges the Company,
         its past and present officers, directors, agents, attorneys, repre-
         sentatives, employees, servants, subsidiaries, affiliates,
         shareholders, successors and assigns, and all persons acting by,
         through, under or in concert with any of them (collectively, the
         "Company Releasees"), jointly and severally, from any and all claims,
         demands, rights, liabilities, debts, liens, damages, punitive damages,
         costs, losses, expenses and/or compensation, covenants, contracts,
         controversies, agreements, promises, actions and causes of action, of
         every kind and nature whatsoever, at law or in equity, including, but
         not limited to, rights arising under the United States Constitution
         and/or under statute (both state and federal), rule, regulation, or
         ordinance (including, without limitation, Title VII of the Civil Rights
         Act of 1964, the Rehabilitation Act of 1973, including Section 504
         thereof, the Civil Rights Act of 1866, 42 U.S.C. Section 1981, the Age
         Discrimination in Employment Act of 1967, the Americans with
         Disabilities Act, the Equal Pay Act, The Fair Labor Standards Act and
         the Employee Retirement Income Security Act ("ERISA"), all as amended),
         at common law, whether in tort, in contract or otherwise, known or
         unknown, suspected or unsuspected, disclosed or undisclosed, which
         against the Company Releasees, or any of them, Kerz ever had, now has
         or hereafter can, shall or may have for, upon, or by reason of any act,
         omission, matter, cause or thing whatsoever, from the beginning of time
         to the date of this Release.

                  (ii) Except as provided in Section 8(c) below, effective as of
         the Effective Date, the Company, on behalf of itself and each of the
         Company Releasees, irrevocably and unconditionally releases and
         discharges Kerz, his past and present agents, attorneys,
         representatives, employees, servants, partners, successors and assigns,
         and all persons acting by, through, under or in concert with any of
         them (collectively, the "Kerz Releasees"), jointly and severally, from
         any and all claims, demands, rights, liabilities, debts, liens,
         damages, punitive damages, costs, losses, expenses and/or compensation,
         covenants, contracts, controversies, agreements, promises, actions and
         causes of action, of every kind and nature whatsoever, at law or in
         equity, under statute (both state and federal), rule, regulation, or
         ordinance, at common law whether in tort, in contract or otherwise,
         known or unknown, suspected or unsuspected, disclosed or undisclosed,
         which against the Kerz Releasees, the Company ever had, now has or
         hereafter can, shall or may

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         have for, upon, or by reason of any act, omission, matter, cause or
         thing whatsoever, from the beginning of time to the date of this
         Release.

                  (iii) Nothing in this Section 8 is intended to or constitutes
         a release or waiver of any rights or obligations any party may have
         under this Agreement, and all such rights and obligations are expressly
         preserved.

                  (iv) Kerz acknowledges that the payments and benefits to be
         provided to him pursuant to this Agreement exceed those to which he
         would otherwise be entitled. He further acknowledges that the agreement
         by the Company to provide such payments and other benefits is expressly
         conditioned upon his compliance with all the terms and conditions of
         this Agreement.

                  (v) Kerz represents and warrants (i) that he has not filed or
         commenced, individually or collectively, any actions, charges or claims
         against the Company or its present and former shareholders, partners,
         officers, directors, employees, agents, subsidiaries and affiliates
         released pursuant to this Section 8, and that he will not, in the
         future, file or commence, individually or collectively, any such
         actions, charges or claims; (ii) that he has made no transfer,
         assignment, conveyance or other disposition to any other person or
         entity any claims against or any interest in claims against the Company
         Releasees (iii) that no other person or entity has an interest in any
         such claims; and (iv) and that he is fully entitled to give his full
         and complete release of all such claims.

                  (vi) The Company represents and warrants (i) that it has not
         filed or commenced, individually or collectively, any actions, charges
         or claims against Kerz released pursuant to this Section 8, and that it
         will not, in the future, file or commence, individually or
         collectively, any such actions, charges or claims; (ii) that it has
         made no transfer, assignment, conveyance or other disposition to any
         other person or entity any claims against or any interest in claims
         against the Kerz Releasees (iii) that no other person or entity has an
         interest in any such claims; and (iv) and that it is fully entitled to
         give its full and complete release of all such claims.

                  9.       Confidentiality and Noncompete Agreement.

                  (i) Kerz acknowledges and agrees that the Company and its
         subsidiaries have developed and are currently providing to hospitals,
         health care institutions and third-party payors throughout the United
         States a number of unique and proprietary technology-based products. By
         reason of the services rendered by Kerz during the course of his
         employment, he has acquired and has been given access to secret and
         confidential information concerning these products and systems and the
         proprietary methods and processes by which these systems are installed
         and operated by the Company and its subsidiaries in the Company's
         client institutions. Kerz further acknowledges that these systems, and
         the method of installation and operation of these systems, are unique,
         secret

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         and confidential and constitute trade secrets and proprietary
         information of the Company. Kerz hereby agrees that during the period
         commencing on the Effective Date and ending on the Final Termination
         Date (the "Restricted Period"), he will not directly or indirectly
         furnish, disclose or divulge any such information, methods, processes
         or trade secrets or any other confidential or proprietary information
         of the Company and its subsidiaries (collectively, the "Confidential
         Information") to any other party or use such Confidential Information
         for his own benefit or the benefit of any other person or entity
         without the prior written consent of the Company given after the
         Effective Date.

                  (ii) During the Restricted Period, Kerz shall not compete with
         the Company or any of its subsidiaries, either directly or indirectly,
         or engage in any business directly or indirectly competitive with the
         Business (as hereinafter defined). This Section 9(ii) shall not be
         construed to prohibit (i) Kerz's future pursuit of a career or job
         opportunity in data processing or related industries, so long as the
         focus of the career or job opportunity is not in competition with the
         Business, (ii) Kerz's acting as a consultant to an investment firm with
         regard to investments in the healthcare services industry, so long as
         such role does not involve any investment or strategic advice or
         operational responsibility with respect to entities in direct
         competition with the Business or (iii) Kerz's ownership of up to 5% of
         the outstanding common stock of any publicly traded company that
         competes with the Business, so long as Kerz's involvement with such
         company is limited to such investment.

                  (iii) During the Restricted Period, Kerz shall not solicit or
         induce any employee of the Company or any of its subsidiaries to
         terminate his or her employment with the Company or such subsidiary or
         compete with the Company or any of its subsidiaries in any manner,
         directly or indirectly.

                  (iv) For purposes of this Section 9, "Business" means the
         businesses conducted by the Company and its subsidiaries as of the date
         hereof, including, without limitation, the business related to the
         aggregation and application of eligibility data to charge information
         required to effect those transfer payments associated with the delivery
         of health care.

                  (v) Kerz acknowledges and agrees that the remedies of the
         Company at law, if any, for any breach or threatened breach of the
         provisions of this Section 9 would be inadequate and, therefore, agrees
         that the Company shall be entitled to appropriate injunctive and other
         equitable relief from a court of competent jurisdiction, as such court
         may determine. In any such action, Kerz waives his rights, if any, to
         the posting of a bond or other security by the Company.

                  10. Confirmation of Certain Matters. By signing this
Agreement, Kerz acknowledges and agrees that:

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                  (i) he has been afforded a reasonable and sufficient period of
         time to review this Agreement and conduct such investigation and make
         such inquiries as he deems appropriate, for deliberation and for
         negotiation of the terms hereof, that he has consulted with legal
         counsel of his choice before signing it, and that such counsel has
         represented him in negotiating the terms of this Agreement;

                  (ii) he has carefully read and understands the terms of this
         Agreement, which have been fully explained to him by his legal counsel;

                  (iii) he has signed this Agreement freely and voluntarily and
         without duress or coercion of any kind, and with full knowledge of its
         significance and consequences and of the rights relinquished,
         surrendered, released and discharged hereunder;

                  (iv) the only consideration for entering into this Agreement
         are the terms stated herein, and no other promise, statement or
         representation of any kind has been made to Kerz by any person or
         entity whatsoever to cause him to sign this Agreement; and

                  (v) all waiting, "cooling off" or other periods during which
         this Agreement could be re-considered, revoked or rescinded, if any,
         have, subject to the proviso set forth below, expired as of the date of
         his execution of this Agreement, and, to the extent any such period has
         not expired, Kerz waives, to the fullest extent permitted by law, any
         such right to re-consider, revoke or rescind this Agreement; provided,
         however, that, anything in this clause (e) to the contrary
         notwithstanding, Kerz may revoke his agreement to release claims under
         the Age Discrimination in Employment Act if he does so within seven
         days of executing this Agreement and this Agreement shall not be
         binding on the Company until expiration of such seven-day revocation
         period.

                  11. Communications. Kerz and the Company agree that they will
not make any communications or statements to the press or other third parties,
including without limitation to any hospitals and health care organizations or
officials, denigrating or impugning the character, ethics, integrity, or
present or future business or financial performance, ability, position or
circumstances of the other or of any of the Company's officers, directors,
employees, agents or representatives.

                  12. Amendments, Etc. It is expressly understood and agreed
that this Agree ment may not be altered, amended, modified or otherwise changed
in any respect whatsoever, except by a writing duly executed by the parties or
their authorized representatives. The parties acknowledge and agree that they
will make no claim at any time or place that this Agreement has been orally
altered or modified in any respect whatsoever. This Agreement shall not be
effective until it has been fully executed and delivered by all the parties and
the seven-day revocation period provided by Section 10 has expired.

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                  13. Notices. All notices that are required or may be given
pursuant to the terms of this Agreement shall be in writing and shall be
sufficient in all respects if (i) delivered personally, (ii) mailed by
registered or certified mail, return receipt requested and postage prepaid,
(iii) sent via a nationally recognized overnight courier service or (iv) if
applicable, sent via facsimile confirmed in writing to the recipient, in each
case as follows:

                           If to the Company, to:

                                    Health Management Systems, Inc.
                                    401 Park Avenue South
                                    New York, New York   10016
                                    Attention: President

                           and with a copy to:

                                    Reboul, MacMurray, Hewitt, Maynard & Kristol
                                    45 Rockefeller Plaza
                                    New York, New York 10111
                                    Attention: Robert A. Schwed, Esq.
                                    Facsimile:  (212) 841-5725

                           If  to Kerz, to:

                                    Mr. Paul J. Kerz
                                    126 East 65th Street
                                    New York, New York   10021

                           and with a copy to:

                                    Coleman, Rhine and Goodwin LLP
                                    750 Lexington Avenue, 26th Floor
                                    New York, New York   10022
                                    Attention: Bruce S. Coleman, Esq.
                                    Facsimile: (212) 317-1970

                  14. Severability. If any provision of this Agreement is or
becomes invalid, illegal or unenforceable in any respect under any law, the
validity, legality and enforceability of the remaining provisions hereof shall
not in any way be affected or impaired.

                  15. Waiver. No delay or omission by any party hereto in
exercising any right, power or privilege hereunder shall impair such right,
power or privilege, nor shall any single or partial exercise of any such right,
power or privilege preclude any further exercise thereof or the exercise of any
other right, power or privilege.

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                  16. Entire Agreement. This Agreement embodies the entire
agreement between the Company and Kerz with respect to the matters referred to
herein, and, except as otherwise expressly provided herein or therein, this
Agreement shall not be affected by reference to any other document.

                  17. Binding Agreement. This Agreement shall be binding upon,
and inure to the benefit of, each of the parties hereto and their respective
successors, heirs, devisees, legatees, executors, administrators, permitted
assigns, trustees, and agents.

                  18. Counterparts. This Agreement may be executed in one or
more counter parts, each of which shall constitute a duplicate of the original,
and which together shall constitute one document.

                  19. Assignability. Neither this Agreement nor any of the
parties' rights hereunder shall be assignable by either party hereto without the
prior written consent of the other party hereto.

                  20. Governing Law. This Agreement shall in all respects be
interpreted, enforced and governed under the laws of the United States and of
the State of New York.

                  21. Consent to Jurisdiction. All judicial proceedings brought
against any party to this Agreement arising out or relating to this Agreement or
any obligation hereunder shall be brought in any state or federal court of
competent jurisdiction in the state, county and city of New York. By executing
and delivering this Agreement, each party hereto hereby irrevocably: (i) accepts
generally and unconditionally the exclusive jurisdiction and venue of such
courts and waives any defense of forum non conveniens; (ii) agrees that service
of all process in any such proceeding in any such court may be made by
registered or certified mail, return receipt re quested, to the party at the
address specified in this Agreement; (iii) agrees that service as provided in
clause (ii) above is sufficient to confer personal jurisdiction over such party
in any such proceeding in any such court, and otherwise constitutes effective
and binding service in every respect; and (iv) agrees that the provisions of
this Section 16 relating to jurisdiction and venue shall be binding and
enforceable to the fullest extent permissible under New York General Obligations
Law Section 5-1402 or otherwise.

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                  IN WITNESS WHEREOF, the Company and Kerz have executed and
delivered this Separation Agreement and Release as of the day and year first
above written.

                                            HEALTH MANAGEMENT SYSTEMS, INC.

                                            By:
                                                  ------------------------------
                                            Name:
                                            Title

                                                  ------------------------------
                                                         Paul J. Kerz

                                       11
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STATE OF NEW YORK                    )
                                     )      ss.:
COUNTY OF NEW YORK                   )

                  On the ______ day of December 2000, before me personally came
Paul J. Kerz, to me known, and known to be the same person described herein and
who executed the foregoing Separation Agreement and Release, and who duly
acknowledged to me that he executed the same.

                                                  ------------------------------
                                                           Notary Public
<PAGE>   13
                                     ANNEX I

                              Owned and Leased Cars

<TABLE>
<CAPTION>
Owned Car
---------

<S>                        <C>
Description                1999 Blue Mercedes Benz E320S/4 wagon with vehicle ID. No.
                           WDBJH82F6XX021920 having NY License Plate 6UK399

Purchase Price:            Purchased by HMS on 4/14/99 for $61,082.25 with a
                           book value at 10/31/00 of $30,776.99
                           Monthly Depreciation is $750.66

Leased Car
----------

Description:               1995 Gray Mercedes Benz E320A Cabrolet with vehicle ID No.
                           WDBEA66E4SC244226 having NY License Plate G156BK

Description of Lease:      Leased through Mercedez Benz Credit Corporation Capital Lease Number
                           500-1240-08442-9 which has 36 monthly payments of $1,677.59 with last
                           payment due on 10/20/01
</TABLE>
<PAGE>   14
                                    EXHIBIT A

                                 October 2, 2000

To the Board of Directors
of Health Management Systems, Inc.

                  I hereby resign from any and all positions I hold as a
director and/or officer of any subsidiaries or affiliates of Health Management
Systems, Inc. (the "Company") effective immediately. I also confirm my
resignation as President and Chief Executive officer of the Company on October
2, 2000.

                                                              Very truly yours,

                                                              Paul J. Kerz<PAGE>   1
                                                                   Exhibit 10.16

                                                                 29 January 1999

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

Dear Mr. Bendes:

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

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

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

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

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

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

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

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

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

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

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

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

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

      10. Forms. Enclosed herewith is a package containing various forms
required for your entry in our payroll and health plans. Please complete these
forms and bring them with you on your first day of employment. As well, enclosed
is your non-disclosure and non-compete agreement, which you are requested to
read, execute and return along with the other forms.
<PAGE>   4
Mr. Alan Bendes                                                  29 January 1999
                                                                          Page 4

      As indicated at the outset of this letter, we are delighted that you will
begin as our new chief financial officer on Monday, 1 February 1999. There is
much to be done, so we eagerly look forward to your joining us with a high
degree of energy and commitment; in this regard, we reaffirm our understanding
that you, after an initial period of general orientation, will formulate and
work in accordance with a work schedule which gives mutual consideration to the
demands of the job and your preferences with regard to your times of travel and
work out of the office.

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

                                          Sincerely yours,

                                          Paul J. Kerz
                                          President

cc:   Lewis D. Levetown, HMS

Enclosures

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