SECURITIES AND EXCHANGE COMMISSION
                          WASHINGTON, DC  20549


                                FORM 10-Q

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

              FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998


                     Commission file number 1-12055


                    PARACELSUS HEALTHCARE CORPORATION
         (Exact name of registrant as specified in its charter)


                  CALIFORNIA                              95-3565943
       (State or other jurisdiction of                  (IRS Employer
        incorporation or organization)               Identification No.)


                  515 W. GREENS ROAD, SUITE 800, HOUSTON, TEXAS
                    (Address of principal executive offices)


                    77067                       (281) 774-5100
                 (Zip Code)       (Registrant's telephone number, including
                                                   area code)

Securities registered pursuant to Section 12(b) of the Act:

   COMMON STOCK, NO STATED VALUE                NEW YORK STOCK EXCHANGE
   -----------------------------           ------------------------------
         (Title of Class)                 (Name of each exchange on which 
                                                   registered)

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[   ]

As  of August 14, 1998, there were outstanding 55,118,330 shares  of  the
Registrant's Common Stock, no stated value.










<PAGE>  2

                    PARACELSUS HEALTHCARE CORPORATION
                                FORM 10-Q

                     FOR THE QUARTERLY PERIOD ENDED
                              JUNE 30, 1998

                                  INDEX

                                                           PAGE REFERENCE
                                                              FORM 10-Q
                                                           --------------

FORWARD-LOOKING STATEMENTS                                         3
--------------------------

   PART I.      FINANCIAL INFORMATION

    Item 1.     Financial Statements-- (Unaudited)

                Condensed Consolidated Balance Sheets--
                 June 30, 1998 and December 31, 1997               4

                Consolidated Statements of Operations--
                 Three Months and Six Months Ended June 30,        5
                 1998 and 1997

                Condensed Consolidated Statements of Cash Flows--  
                 Six Months Ended June 30, 1998 and 1997           6 

                Notes to Interim Condensed Consolidated            7
                 Financial Statements

    Item 2.     Management's Discussion and Analysis of Financial
                 Condition and Results of Operations              13

PART II.        OTHER INFORMATION                                 21

SIGNATURE                                                         23




















<PAGE>  3

FORWARD-LOOKING STATEMENTS

     Certain   statements   in   this   Form  10-Q  are  "forward-looking
statements" made pursuant to the safe harbor  provisions  of  the Private
Securities  Litigation  Reform  Act  of  1995. Forward-looking statements
involve a number of risks and uncertainties.  Factors which may cause the
Company's  actual results in future periods  to  differ  materially  from
forecast results  include,  but  are  not  limited  to:  the  outcome  of
litigation  pending  against  the Company and certain affiliated persons;
general economic and business conditions,  both  nationally  and  in  the
regions  in  which  the  Company operates; industry capacity; demographic
changes; existing government  regulations  and changes in, or the failure
to  comply  with  government  regulations;  legislative   proposals   for
healthcare  reform;  the  ability  to  enter  into  managed care provider
arrangements  on  acceptable  terms;  changes  in Medicare  and  Medicaid
reimbursement levels; revisions to amounts recorded for losses associated
with  the  impairment  of assets; liabilities and other  claims  asserted
against the Company; competition;  the  loss of any significant customer;
changes  in  business strategy, divestiture  or  development  plans;  the
ability to attract  and retain qualified personnel, including physicians;
costs to make the Company's  information  systems  Year  2000  compliant;
fluctuations   in   interest   rates   on  the  Company's  variable  rate
indebtedness; and the availability and terms  of  capital to fund working
capital  requirements  and  the  expansion  of  the  Company's  business,
including the acquisition of additional facilities.

































<PAGE>  4
PART I.   FINANCIAL INFORMATION
ITEM 1.   FINANCIAL STATEMENTS

                      PARACELSUS HEALTHCARE CORPORATION
                    CONDENSED CONSOLIDATED BALANCE SHEETS
                               ($ in 000's)
<TABLE>
<CAPTION>
                                                 JUNE 30,     DECEMBER 31,
                                                   1998           1997
                                              ------------    -----------
                                               (Unaudited)     (Note 1)
<S>                                              <C>           <C>
ASSETS
Current assets:
    Cash and cash equivalents                    $ 10,291    $  28,173
    Restricted cash                                 9,855        6,457
    Accounts receivable, net                       57,952       70,675
    Deferred income taxes                          24,999       25,818
    Other current assets                           43,664       42,884
                                                  -------      -------
        Total current assets                      146,761      174,007

Property and equipment                            414,027      438,792
Less: Accumulated depreciation and amortization  (123,789)    (130,728)
                                                  -------      ------- 
                                                  290,238      308,064

Investment in Dakota Heartland 
  Health System (Note 3)                          116,708       48,499
Goodwill                                          112,522      114,404
Other assets                                       84,184       89,850
                                                  -------      ------- 
        Total assets                            $ 750,413    $ 734,824 
                                                  =======      =======  
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Accounts payable                            $  35,054    $  46,722
    Accrued liabilities and other                  76,803       83,698
    Current maturities of long-term debt            7,276        6,209
                                                  -------      ------- 
        Total current liabilities                 119,133      136,629

Long-term debt                                    521,916      491,914
Other long-term liabilities                        61,158       64,278
Stockholders' Equity:
    Common stock                                  224,542      224,475
    Additional paid-in capital                        390          390
    Unrealized gains on marketable securities                       12
    Accumulated deficit                          (176,726)    (182,874)
                                                  -------      -------
        Total stockholders' equity                 48,206       42,003
                                                  -------      -------  
Total Liabilities and Stockholders' Equity      $ 750,413    $ 734,824
                                                  =======      ======= 
</TABLE>
                                      See accompanying notes.


<PAGE>  5
                    PARACELSUS HEALTHCARE CORPORATION
                  CONSOLIDATED STATEMENTS OF OPERATIONS
                   ($ in 000's, except per share data)
                               (Unaudited)

<TABLE>
<CAPTION>
                                THREE MONTHS ENDED      SIX MONTHS ENDED
                                      JUNE 30,              JUNE 30,
                                ------------------------------------------
                                  1998       1997       1998        1997
                                --------   --------   --------    -------- 
<S>                             <C>        <C>        <C>         <C>
Net revenue                     $151,148   $167,256   $311,558    $335,746

Costs and expenses:
  Salaries and benefits           62,463     68,248    127,893     137,260
  Other operating expenses        62,683     68,967    128,161     135,274
  Provision for bad debts          8,739     10,597     18,431      20,761
  Interest                        13,295     10,698     25,674      21,678
  Depreciation and amortization    7,656      8,276     15,844      15,980
  Equity in earnings of Dakota
    Heartland Health System       (1,976)    (2,667)    (5,061)     (5,226)
  Unusual items                   (1,072)     5,978     (1,072)      5,978
  Gain on sale of facilities      (7,100)               (7,100)
                                 -------    -------    -------     -------
    Total costs and expenses     144,688    170,097    302,770     331,705
                                 -------    -------    -------     -------
Income (loss) before minority
  interest, income taxes and
  extraordinary charge             6,460     (2,841)     8,788       4,041
Minority interests                   916       (640)       855        (981)
                                 -------    -------    -------     -------
Income (loss) before income
  taxes and extraordinary charge   7,376     (3,481)     9,643       3,060
Provision (benefit) for 
  income taxes                     1,678       (464)     2,320         909
                                 -------    -------    -------     -------
Income (loss) before 
  extraordinary charge             5,698     (3,017)     7,323       2,151
Extraordinary charge on
  extinguishment of debt, net                           (1,175)
                                 -------    -------    -------     -------
Net income  (loss)              $  5,698   $ (3,017)  $  6,148    $  2,151
                                 =======    =======    =======     =======  
Income (loss) per share - basic
  and assuming dilution:
   Income (loss) before
    extraordinary charge        $   0.10   $  (0.05)  $   0.13    $   0.04
   Extraordinary charge on
    extinguishment of debt                               (0.02)
                                 -------    -------    -------     -------  
Net income (loss) per share     $   0.10   $  (0.05)  $   0.11    $   0.04
                                 =======    =======    =======     ======= 
</TABLE>

                                      See accompanying notes.

<PAGE> 6
                    PARACELSUS HEALTHCARE CORPORATION
             CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                               ($ in 000's)
                               (Unaudited)
                                                   Six Months Ended
                                                       June 30,
                                                  ----------------- 
                                                    1998      1997
                                                  -------   -------   
<TABLE>
<S>                                               <C>       <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                        $ 6,148   $ 2,151
Non-cash expenses and changes in operating
  assets and liabilities                           (1,929)  (10,572)
                                                   ------    ------ 
Net cash provided by (used in) operating
 activities                                         4,219    (8,421)
                                                   ------    ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in DHHS                                (64,816)
Proceeds from sale of facilities, net of           
  expenses                                         22,998    12,201
Sale of marketable securities                                19,284
Additions to property and equipment, net           (9,198)   (8,352)
Decrease (increase) in other assets, net            1,763      (954)
                                                   ------    ------
Net cash provided by (used in) investing          
  activities                                      (49,253)   22,179
                                                   ------    ------ 
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock             67
Borrowings under Revolving Credit Facility         64,528
Repayments under Revolving Credit Facility        (30,275)  (10,000)
Repayments of debt, net                            (3,184)     (763)
Deferred financing costs                           (3,984)
                                                   ------    ------ 
Net cash provided by (used in) financing           
activities                                         27,152   (10,763) 
                                                   ------    ------
(Decrease) increase in cash and cash              
  equivalents                                     (17,882)    2,995 
Cash and cash equivalents at beginning of          
  period                                           28,173    17,771
                                                   ------    ------
Cash and cash equivalents at end of period      $  10,291  $ 20,766
                                                   ======    ======
Supplemental Cash Flow Information:
  Interest paid                                 $  24,568  $ 22,995
  Income taxes (refunded) paid                  $    (415) $    702
</TABLE>

                         See accompanying notes.






<PAGE>  7
                      PARACELSUS HEALTHCARE CORPORATION
      NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               (Unaudited)

                              June 30, 1998

NOTE 1.    ORGANIZATION AND BASIS OF PRESENTATION

ORGANIZATION  -  Paracelsus  Healthcare Corporation (the  "Company")  was
incorporated in November 1980  for  the  principal  purpose of owning and
operating  acute  care  and  related  healthcare businesses  in  selected
markets.  The Company presently operates 24 hospitals with 2,484 licensed
beds and four skilled nursing facilities  with  232  licensed  beds  in 9
states  (including  two psychiatric hospitals with 113 licensed beds), of
which 19 are owned and five are leased.

BASIS OF PRESENTATION - The accompanying unaudited condensed consolidated
financial statements of the Company have been prepared in accordance with
generally   accepted  accounting   principles   for   interim   financial
information and  with the instructions to Form 10-Q. Accordingly, they do
not include all of  the  information  and  notes  required  by  generally
accepted  accounting  principles for annual financial statements. In  the
opinion of management,  all  adjustments  considered necessary for a fair
presentation have been included. The balance  sheet at December 31, 1997,
has been derived from the audited financial statements  at  that date but
does  not  include  all  of  the  information  and footnotes required  by
generally   accepted   accounting   principles  for  complete   financial
statements. The Company's business is  seasonal  in nature and subject to
general  economic  conditions  and other factors. Accordingly,  operating
results for the quarter and six  months  ending  June  30,  1998, are not
necessarily indicative of the results that may be expected for  the  year
ending  December  31,  1998. These financial statements should be read in
conjunction with the audited  consolidated financial statements and notes
thereto for the year ended December  31,  1997, included in the Company's
1997 Form 10-K.

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management  to make estimates and
assumptions  that affect the reported amounts of assets  and  liabilities
and disclosure  of   contingent assets and liabilities at the date of the
financial statements and   the  reported amounts of revenues and expenses
during the reporting period.  Actual  results  could  differ  from  those
estimates.

     Certain account balances for the three and six months ended June 30,
1997,  have  been  reclassified  to  conform  to  the  Company's  current
presentation.












<PAGE>  8
EARNINGS  PER  SHARE - The following table sets forth the computation  of
basic and diluted earnings per share before extraordinary charge (dollars
in thousands, except  per share amounts). Per share amounts for the three
and six months ended June 30, 1997, have been restated in accordance with
Statement  of Financial  Accounting  Standards  No.  128,  "Earnings  per
Share":

<TABLE>
<CAPTION>
                                   THREE     THREE     SIX      SIX 
                                   MONTHS    MONTHS   MONTHS   MONTHS
                                   ENDED     ENDED    ENDED    ENDED 
                                   JUNE 30,  JUNE 30, JUNE 30, JUNE 30,
                                   1998      1997     1998     1997
                                  --------   -------  -------  -------
<S>                               <C>       <C>      <C>      <C>
Numerator (a):
 Income(loss) before 
   extraordinary charge           $ 5,698   $(3,017) $ 7,323  $ 2,151
                                   ======    ======   ======   ======
Denominator:
 Weighted average shares used for
  basic earnings per share         55,103    54,879   55,098   54,846
 Effect of dilutive securities:
  Employee stock options            2,445         -    2,446    1,428
                                   ------    ------   ------   ------    
 Dilutive potential common shares   2,445         -    2,446    1,428
                                   ------    ------   ------   ------
 Shares used for diluted earnings
  per share                        57,548    54,879   57,544   56,274
                                   ======    ======   ======   ======
 Basic earnings per share before
  extraordinary charge            $  0.10   $ (0.05) $  0.13  $  0.04
                                   ======    ======   ======   ======
 Diluted earnings per share
  before extraordinary charge     $  0.10   $ (0.05) $  0.13  $  0.04
                                   ======    ======   ======   ======
</TABLE>
______________________
(a)   Amount  is  used  for  both  basic  and  diluted earnings per share
computations since there is no earnings effect related  to  the  dilutive
securities.

     Options  to purchase 4,988,000 shares of the Company's common  stock
at a weighted average  exercise price of $7.37 per share were outstanding
during the three and six  months  ended  June  30,  1998,  but  were  not
included  in the computation of diluted EPS because the options' exercise
price was greater than the average market price of the common shares.

COMPREHENSIVE  INCOME  -  Effective  January 1, 1998, the Company adopted
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income."  SFAS 130 establishes standards for the reporting and disclosure
of comprehensive income and its components  in  the financial statements.
Comprehensive income as defined by SFAS No. 30 is  net income (loss) plus
direct adjustments from non stockholder sources to stockholders'  equity.
Unrealized  gains  or losses on marketable securities are the only direct
adjustments recorded  by the Company.  During the quarters ended June 30,
1998 and 1997, total comprehensive income (loss) amounted to $5.7 million

<PAGE>  9
and ($3.0) million, respectively.   During  the six months ended June 30,
1998 and 1997, total comprehensive income amounted  to  $6.2  million and
$2.0 million, respectively.

NOTE 2.    UNUSUAL ITEMS

     In  June 1998, the Company recognized an unusual charge of  $731,000
to restructure  home  health  operations  at  certain  of  its hospitals,
including   in   some   cases  the  closure  of  these  operations.   The
restructuring  charge  consisted  primarily  of  employee  severance  and
related costs, and to a lessor extent, costs associated with certain non-
cancelable operating leases.  Additionally,  in  April  1998, the Company
recorded  a  $1.8  million  gain  to  settle  litigation  related  to  an
unconsummated  hospital  acquisition  by  Champion Healthcare Corporation
prior to its merger with the Company in August 1996.

     In May 1997, the Company recognized unusual  charges  totaling  $6.0
million, consisting of $3.5 million related to the closure of the 125-bed
PHC  Regional  Hospital  and  Medical Center ("PHC Regional Hospital") in
Salt  Lake  City,  Utah,  and  $2.5   million   related  to  a  corporate
reorganization.  Such charges consisted primarily  of  employee severance
and  related  costs,  and  to a lessor extent, certain other  contractual
termination costs.

NOTE 3.    ACQUISITIONS AND DISPOSITIONS

     On June 30, 1998, the Company  completed  the  sale of substantially
all  of the assets of Chico Community Hospital, Inc.,  which  included  a
123-bed  acute  care  hospital and a 60-bed rehabilitation hospital, both
located in Chico, California,  (collectively,  the "Chico hospitals") for
$25.0  million  in  cash plus working capital and the  termination  of  a
facility operating lease. Proceeds of the transaction (net of transaction
costs of $2.0 million)  were used to reduce amounts outstanding under the
Company's revolving credit  facility and its off balance sheet receivable
financing program. The working  capital  component  of the transaction is
subject  to  a post-closing settlement. The Company recognized  a  pretax
gain of $7.1 million on the disposition.

     Effective July 1, 1998, the Company completed the purchase of Dakota
Medical Foundation's  50%  partnership  interest in a general partnership
operating as Dakota Heartland Health System  ("DHHS")  for $64.5 million,
inclusive of working capital, thereby giving the Company  100%  ownership
of  DHHS.  DHHS  owns  and  operates a 218-bed tertiary care hospital  in
Fargo, North Dakota.  Although the Company did not assume control of DHHS
until  July  1,  1998, the Company  funded  the  purchase  of  DHHS  with
borrowings under its  revolving  credit  facility  on June 30, 1998.  The
Company  has reflected such amount as an increase in  its  investment  in
DHHS at June  30,  1998.  Prior to the purchase, the Company owned 50% of
DHHS and accounted for its investment under the equity method.  Beginning
July 1, 1998, the Company  will  account  for DHHS under the consolidated
method of accounting.

     The following selected unaudited pro forma financial information for
the six months ended June 30, 1998 and 1997,  assumes  the disposition of
the Chico hospitals and the acquisition of DHHS occurred  on  January  1,
1998  and  1997,  respectively.  Accordingly,  the  pro forma information
excludes  the $7.1 million gain recognized by the Company  in  connection
with the disposition  of  the  Chico  hospitals.  The unaudited pro forma

<PAGE>  10

financial information below does not purport  to  present  the  financial
position   or  results  of  operations  of  the  Company  had  the  above
transactions  occurred  on  the dates specified, nor are they necessarily
indicative of results of operations  that  may be expected in the future.
Earnings  before  extraordinary  charge, interest,  taxes,  depreciation,
amortization, unusual items and gain on the sale of facilities ("Adjusted
EBITDA")  has been included because  it  is  a  widely  used  measure  of
internally  generated  cash  flow  and is frequently used in evaluating a
company's performance.  Adjusted EBITDA  is  not an acceptable measure of
liquidity,  cash  flow  or  operating  income  under  generally  accepted
accounting principles.
                             
<TABLE>
<CAPTION>
                              FOR THE SIX MONTHS ENDED JUNE 30, 1998
                         --------------------------------------------------
                                      Chico     Pro Forma
                                     Hospital    Chico     DHHS
                            As       Pro forma   Dispo-  Pro Forma  Company
                        Reported(a)   Adj.(b)    sition  Adj.(c)  Pro Forma
                         --------    ---------  --------  -------  --------
<S>                      <C>         <C>        <C>       <C>      <C>
Net revenue              $311,558    $(18,850)  $292,708  $52,017  $344,725
                         ========    ========   ========  =======  ========
Adjusted EBITDA          $ 42,989    $ (3,560)  $ 39,429  $ 6,638  $ 46,067
                         ========    ========   ========  =======  ========
Income before income
 taxes and extraordinary
 loss                    $  9,643    $ (8,645)  $    998  $ 1,251  $  2,249
                         ========    ========   ========  =======  ========
Income before 
 extraordinary loss      $  7,323    $ (6,630)  $    693  $   729  $  1,422
                         ========    ========   ========  =======  ========
Net income (loss)        $  6,148    $ (6,630)  $   (482) $   729  $    247
                         ========    ========   ========  =======  ========

Income per share -
 basic and assuming
 dilution:
   Income  before
    extraordinary charge $   0.13               $   0.01           $   0.02
                         ========               ========           ========
   Net income per share  $   0.11               $  (0.01)          $     -
                         ========               ========           ========

</TABLE>












<PAGE>  11

<TABLE>
<CAPTION>
                              FOR THE SIX MONTHS ENDED JUNE 30, 1997
                         --------------------------------------------------
                                      Chico     Pro Forma
                                     Hospital    Chico     DHHS
                            As       Pro forma   Dispo-  Pro Forma  Company
                        Reported      Adj.(b)    sition  Adj.(c)  Pro Forma
                         --------    ---------  --------  -------  --------
<S>                      <C>         <C>        <C>       <C>      <C>
Net revenue              $335,746   $(16,281)   $319,465  $49,525  $368,990
                         ========    ========   ========  =======  ========
Adjusted EBITDA          $ 46,696   $      8    $ 46,704  $ 6,992  $ 53,696
                         ========    ========   ========  =======  ========
Income before income
 taxes                   $  3,060   $  1,739    $  4,799  $ 1,605  $  6,404
                         ========    ========   ========  =======  ========
Net income               $  2,151   $  1,422    $  3,573  $   894  $  4,467
                         ========    ========   ========  =======  ========
Net income per share
 - basic and assuming
   dilution:             $   0.04               $   0.06           $   0.08
                         ========               ========           ========
</TABLE>
                          _____________________
(a)  Excluding the $7.1 million gain on sale of facilities, income before
     extraordinary loss was $1.7 million, or $0.3 per share.
(b)  Pro forma adjustments to reflect the disposition of the Chico
     hospitals, including the removal of the $7.1 million gain on sale of
     such facilities for the six months ended June 30, 1998.
(c)  Pro forma adjustments to reflect DHHS acquisition.  Adjusted EBITDA
     for the six months ended    June 30, 1998, includes a $1.1 million
     payment to settle a 1995 dispute over certain contract services.

NOTE 4.  LONG-TERM DEBT

On  June  15,  1998, the Company entered into the First Amendment of
the  Amended  and  Restated   Credit   Agreement   (the  "Amended  Credit
Agreement"), whereby it increased principal amounts outstanding under its
Term  Loan  Facilities from $75.0 million to $115.0 million  and  reduced
amounts  outstanding   under  the  five-year  Reducing  Revolving  Credit
Facility by $40.0 million  (collectively,  the  "Facilities").  The total
commitment under the Reducing Revolving Credit Facility was reduced  from
$180.0  million  to  $140.0 million (the "$140.0 million Facility").  The
$115.0 million in Term  Loan Facilities (the "$115.0 million Facilities")
consist of a five-year $45.0  million  Term  Loan  Facility  ("Tranche  A
Facility")  and  a  six-year $70.0 million Term Loan Facility ("Tranche B
Facility").   The  $140.0  million  Facility  is  available  for  general
corporate purposes,  including  funding  working capital needs, permitted
acquisitions and capital expenditures and  the  issuance  of  letters  of
credit  up  to  $25.0  million.  It  is  subject  to  mandatory quarterly
reductions of $9.5 million, commencing on March 31, 2001,  and a limit of
$50.0  million  available  for  working  capital  needs.   The Tranche  A
Facility  is  payable in quarterly installments ranging from $600,000  to
$2.5 million with  a  final balloon payment of $22.5 million due on March
31, 2003. The Tranche B  Facility  is  payable  in annual installments of
$500,000 with a final balloon payment of $67.5 million  due  on March 31,
2004. The Company is further required to make mandatory prepayments under
<PAGE>  12

the  Facilities  equal  to  100%  of (i) net cash proceeds from permitted
asset sales, (ii) debt issuances and  (iii)  equity issuances, subject to
certain  allowable exclusions for debt and equity  as  described  in  the
Amended Credit  Agreement.   Such prepayments are generally to be applied
ratably to the $140.0 million  Facility,  the  Tranche A Facility and the
Tranche B Facility, but in certain circumstances may be applied solely as
prepayments of the $140.0 million Facility.  Prepayments under the $140.0
million  Facility  do  not result in a mandatory reduction  in  borrowing
capacity under such facility,  but  prepayments  under the $115.0 million
Facilities do result in a mandatory permanent reduction.   The Company is
subject   to   certain  fees  in  the  event  targeted  levels  of  asset
dispositions are  not achieved by November 30, 1998. Borrowings under the
$140.0 million Facility  and  the Tranche A Facility bear interest at the
Company's option, at (i) LIBOR  plus a margin ranging from 1.25% to 2.75%
or  (ii)  the  prime  rate plus a margin  ranging  from  0.0%  to  1.25%.
Borrowings under the Tranche B Facility bear interest at LIBOR plus 2.75%
and may be reduced in certain  circumstances.  The Company is required to
pay  annual  commitment  fees ranging from .25% to  .50%  of  the  unused
portion of the $140.0 million  Facility.  Letters  of credit issued under
the $140.0 million Facility require annual fees equal  to  the  effective
LIBOR margin and are to be paid quarterly in arrears.

NOTE  5.    CONTINGENCIES

     The  Company  is  a  party  to pending litigation in connection with
several stockholder related matters.  See "Item 2 - Pending Litigation."
































<PAGE> 13
ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
  CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

     "Same  hospitals"  as  used  in  the   following  discussion,  where
appropriate  consist  of  acute  care hospitals operated  throughout  the
periods for which comparative operating results are presented.  Operating
results of the Company's psychiatric  hospitals are charged to a disposal
loss accrual established in September 1996; accordingly, such results are
not reflected in the Consolidated Statement of Operations.

RESULTS OF OPERATIONS - QUARTER ENDED JUNE 30, 1998
COMPARED WITH QUARTER ENDED JUNE 30, 1997

     Net revenue for the quarter ended June 30, 1998, was $151.1 million,
a decrease of $16.2 million, or 9.6%, from  $167.3  million  for the same
period  of 1997. In general, this decline was attributable to (i)  volume
declines  at  the  Company's  LA  Metro  hospitals,  (ii)  a  decline  in
utilization  and reimbursement rates for home health and other healthcare
operations related  to  the  enactment of the Balanced Budget Act of 1997
(the "1997 Budget Act"), (iii)  the  closure  of certain under performing
operating  units  and (iv) the closure of PHC Regional  Hospital  in  May
1997.  Net revenue  at  the  Company's  Los  Angeles  area hospitals ("LA
Metro")  decreased  $7.4  million  from  $25.0 million in 1997  to  $17.6
million  in 1998, primarily as a result of  reduced  volumes  at  certain
facilities.   Net  revenue  at  the Company's Tennessee market hospitals,
which have significant home health  operations,  decreased  $5.4  million
from  $16.3 million in 1997 to $10.9 million in 1998. The closure of  PHC
Regional  Hospital  in May 1997 resulted in a $1.4 million decline in net
revenue as compared to  the current period. The reductions in net revenue
associated with the enactment  of  the  1997  Budget  Act  are  likely to
continue  throughout  1998.   Furthermore,  in  June  1998,  the  Company
restructured  the  home  health  operations  of certain of its hospitals,
including  in  some cases the closing of such operations  (see  Note  2).
These actions will  likely result in additional reductions in home health
net revenue in future periods.

         The Company's  "same  hospitals"  experienced a 9.5% decrease in
inpatient  admissions  from  17,060  in 1997 to  15,444  in  1998.   Same
hospital patient days decreased 11.2%  from  81,026  in 1997 to 71,947 in
1998.  The decrease in admissions and patient days are  primarily  due to
volume declines at the Company's LA Metro and Tennessee market hospitals.
Outpatient  visits  in  "same  hospitals" decreased 27.0% from 407,220 in
1997 to 297,155 in 1998, primarily  as  a result of a significant decline
in  home  health visits.  This decrease was  due  primarily  to  stricter
utilization  standards  as  a  result  of  new regulations under the 1997
Budget  Act  effective  October  1, 1997, and to  a  lesser  extent,  the
cancellation  of  a contract for home  health  services  at  one  of  the
Company's Tennessee  hospitals.  Excluding home health visits, outpatient
visits in "same hospitals" increased 4.1% from 163,738 in 1997 to 170,522
in 1998.

     Excluding the LA Metro and Tennessee market hospitals from the "same
hospitals" comparison,  inpatient  admissions  were  11,729  in  1998 and
11,952  in  1997,  a  decline  of 1.9%.  Patient days decreased 2.4% from
54,140 in 1997 to 52,823 in 1998,  and  outpatient visits decreased 18.0%
from 258,116 in 1997 to 211,630 in 1998, primarily due to the significant
decline  in home health visits discussed above.   Excluding  home  health
<PAGE> 14

visits, outpatient  visits increased 9.0% from 135,842 in 1997 to 148,087
in 1998.

     Operating expenses  (salaries and benefits, other operating expenses
and provision for bad debts)  decreased $13.9 million from $147.8 million
in 1997 to $133.9 million in 1998.   Expressed  as  a  percentage  of net
revenue,  operating  expenses  increased  from  88.4% in 1997 to 88.6% in
1998, and operating margin decreased from 11.6% to  11.4%,  respectively.
The increase in operating expenses as a percent of net revenue  is due to
the impact of the aforementioned reductions in reimbursement rates  under
the  1997  Budget  Act,  particularly  with respect to the Company's home
healthcare businesses in Tennessee, and  a  decline in volumes at certain
LA  Metro  hospitals.  Excluding  the  LA  Metro  and   Tennessee  market
hospitals, "same hospital" operating margins improved to 14.7% in 1998 as
compared  to  12.4%  in 1997.  The increase in operating margin  was  due
principally to (i) efficiency  and  productivity gains resulting from the
implementation  of  operating standards  and  benchmarks  on  a  hospital
department level and (ii) management's efforts to control overhead costs.

     Interest expense  increased  $2.6 million from $10.7 million in 1997
to $13.3 million in 1998, due in part to $1.3 million of interest charges
in 1997 taken against a loss contract  established in December 1996, with
respect to the now closed PHC Regional Hospital.  Such amount represented
interest charges on borrowings to finance the acquisition of PHC Regional
Hospital.  Additionally, interest expense  was  higher due to an increase
in interest rates and amounts outstanding under the Company's senior bank
credit facility and other debt.

     Depreciation and amortization decreased 7.5% to $7.7 million in 1998
from $8.3 million for the same period of 1997, primarily  due to a change
in estimated asset lives made in the third quarter of 1997  with  respect
to  certain  assets  acquired  in  the  August  1996 merger with Champion
Healthcare Corporation.

     Income (loss) before income taxes and extraordinary  charge included
$2.0  million  attributable  to  the Company's equity in the earnings  of
Dakota Heartland Health System for  the  quarter  ended  June  30,  1998,
compared  to  $2.7 million for the prior period.  The decline in earnings
was due primarily to a $1.1 million payment to settle a 1995 dispute over
certain contract services.  Effective July 1, 1998, the Company purchased
Dakota Medical  Foundation's  50%  partnership interest in DHHS for $64.5
million, inclusive of working capital,  thereby  giving  the Company 100%
ownership of DHHS (see Note 3). Commencing in the third quarter  of 1998,
the  Company  will  account  for  DHHS  under  the consolidated method of
accounting.

The following table presents pro forma net revenue  and  earnings  before
extraordinary   charge,   interest,  taxes,  depreciation,  amortization,
unusual items and gain on the  sale of facilities ("Adjusted EBITDA") for
the quarters ended June 30, 1998  and 1997, as if the acquisition of DHHS
had occurred on January 1, 1998 and 1997, respectively ($ in thousands).







<PAGE> 15

<TABLE>
<CAPTION>
                                   Reverse
                                  Equity in       DHHS           
                  As Currently   Earnings of    Results of          
                  Reported (a)      DHHS        Operation(b)    Pro Forma
                   --------      ----------     -----------     ---------
<S>                <C>           <C>            <C>             <C>  
1998
  Net revenue      $151,148      $      0       $  25,544       $176,692
  Adjusted EBITDA    20,155        (1,976)          6,017         24,196
                                                                  
1997
  Net revenue      $167,256      $      0       $  24,842       $192,098
  Adjusted EBITDA    21,471        (2,667)          6,287         25,091
</TABLE>
(a)  Adjusted EBITDA for the quarter ended June 30, 1998, excludes a $7.1
million  gain  on  sale  of  facilities  and  the positive impact of $1.1
million in unusual items (see Note 2).  Adjusted  EBITDA  for the quarter
ended June 30, 1997, excludes $6.0 million in unusual charges.
(b)  Adjusted EBITDA for the quarter ended June 30, 1998, excludes a $1.1
million payment to settle a 1995 dispute over certain contract services.

     Income before income taxes and extraordinary charge for  the quarter
ended  June  30, 1998, included a $7.1 million gain on sale of the  Chico
hospitals (See Note 3) and unusual items of $1.1 million, consisting of a
$1.8 million gain  to  settle  litigation  related  to  an  unconsummated
hospital  acquisition  by  Champion Healthcare Corporation prior  to  its
merger with the Company in August  1996,  offset  by a $731,000 charge to
restructure home health operations at certain of the  Company's hospitals
(see Note 2).  Results of operations for the quarter ended June 30, 1997,
included  $6.0  million  in unusual charges, consisting of  $3.5  million
relating to the closure of  PHC  Regional  Hospital in May 1997, and $2.5
million  relating to a corporate reorganization  also  completed  in  May
1997.  Results  of  operations  for  the  quarter  ended  June  30, 1997,
excluded a $5.2 million loss attributable to PHC Regional Hospital, which
was  charged  to  the  loss contract accrual established at December  31,
1996.

     The Company's effective  ongoing  tax rate was 22.7% for the quarter
ended June 30,  1998,  as  compared to a 13.3% benefit rate in 1997.  The
reduced tax rates for 1998 resulted from  a $1.7 million reduction in the
valuation allowance related to the recognition of previously devalued tax
assets.  The income tax benefit rate for 1997  was  reduced by a $600,000
increase   in   the   valuation  allowance  and  nondeductible   goodwill
amortization expense.

     Net income for the  quarter ended June 30, 1998 was $5.7 million, or
$0.10 per diluted share, compared to a net loss of $3.0 million, or $0.05
per diluted share, for the  same period of 1997.  Weighted average common
and common equivalent shares  outstanding  increased  to  57.5 million in
1998  from  54.9  million  in  1997,  primarily  due to the exclusion  of
dilutive securities from the calculation of net loss per share in 1997.





<PAGE> 16
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1998
COMPARED WITH SIX MONTHS ENDED JUNE 30, 1997

     Net  revenue  for  the six months ended June 30,  1998,  was  $311.6
million, a decrease of $24.1  million,  or  7.2%, from $335.7 million for
the  same  period of 1997. In general, the decline  in  net  revenue  was
attributable  to (i) volume declines at the Company's LA Metro hospitals,
(ii) a decline in utilization and reimbursement rates for home health and
other healthcare  operations  related to the enactment of the 1997 Budget
Act, (iii) the closure of certain  under  performing  operating units and
(iv) the closure of PHC Regional Hospital in May 1997.   Net  revenue  at
the  Company's  LA  Metro  hospitals  decreased  $8.4  million from $48.0
million  in  1997  to  $39.6  million in 1998, primarily as a  result  of
reduced volumes at certain facilities.   Net  revenue  of  the  Company's
Tennessee   market   hospitals,   which   have  significant  home  health
operations, decreased $9.4 million from $32.8  million  in  1997 to $23.4
million  in  1998.  The  closure  of  PHC Regional Hospital on May  1997,
accounted for $5.1 million of the decline  in  net revenue.  Furthermore,
in  June  1998, the Company restructured the home  health  operations  of
certain of  its  hospitals,  including  in some cases the closing of such
operations (see Note 2).

     The  Company's  "same  hospitals" experienced  a  8.3%  decrease  in
inpatient admissions from 34,819 in 1997 to 31,937 in 1998.  Patient days
decreased 10.0% from 167,621 in 1997 to 150,824 in 1998. The decreases in
admissions and patient days are  primarily  due to volume declines at the
Company's LA Metro and Tennessee market hospitals.  Outpatient  visits in
"same hospitals" decreased 23.1% from 811,706 in 1997 to 624,250 in 1998,
primarily  as  a  result  of a significant decline in home health visits.
This decrease was due primarily  to  stricter  utilization standards as a
result of new regulations under the 1997 Budget  Act effective October 1,
1997, and to a lesser extent, the cancellation of  a  contract  for  home
health  services  at one of the Company's Tennessee hospitals.  Excluding
home health visits,  outpatient visits in "same hospitals" increased 4.2%
from 326,168 in 1997 to 339,985 in 1998.

     Excluding the LA Metro and Tennessee market hospitals from the "same
hospitals" comparison, inpatient admissions decreased 2.1% from 24,487 in
1997 to 23,961 in 1998.  Patient days decreased 3.7% from 113,583 in 1997
to 109,413 in 1998. Outpatient  visits  decreased  15.2%  from 508,568 in
1997 to 431,274 in 1998, primarily as a result of the significant decline
in  home  health  visits discussed above.  Excluding home health  visits,
outpatient visits increased 8.5% from 270,046 in 1997 to 292,978 in 1998.

     Operating expenses  (salaries and benefits, other operating expenses
and provision for bad debts)  decreased $18.8 million from $293.3 million
in 1997 to $274.5 million in 1998.   Expressed  as  a  percentage  of net
revenue,  operating  expenses  increased  from  87.4% in 1997 to 88.1% in
1998, and operating margin decreased from 12.6% to  11.9%.   The increase
in operating expenses as a percent of net revenue is due to the impact of
the  aforementioned  reductions  in  reimbursement  rates under the  1997
Budget  Act, particularly with respect to the Company's  home  healthcare
businesses  in  Tennessee,  and  a decline in volumes at certain LA Metro
hospitals. Excluding the LA Metro  and  Tennessee market hospitals, "same
hospital" operating margins improved to 14.2%  in  1998  as  compared  to
12.7%  in 1997.  The increase in operating margins was due principally to
(i) efficiency  and  productivity gains resulting from the implementation
of operating standards  and benchmarks on a hospital department level and
(ii) management's efforts to control overhead costs.
<PAGE> 17

     Interest expense increased  $4.0  million from $21.7 million in 1997
to $25.7 million in 1998, due in part to $2.7 million of interest charges
in 1997 taken against a loss contract established  in December 1996, with
respect to the now closed PHC Regional Hospital.  Such amount represented
interest charges on borrowings to finance the acquisition of PHC Regional
Hospital.  Additionally, interest expense was higher  due  to an increase
in interest rates and amounts outstanding under the Company's senior bank
credit facility and other debt.

     Income  before  income taxes and extraordinary charge included  $5.1
million attributable to  the  Company's  equity in the earnings of Dakota
Heartland Health System for the six months  ended June 30, 1998, compared
to $5.2 million for the prior period.  DHHS earnings  for 1998 included a
$1.1  million  payment  to  settle  a 1995 dispute over certain  contract
services.  Effective July 1, 1998, the  Company  purchased Dakota Medical
Foundation's  50%  partnership  interest  in  DHHS  for   $64.5  million,
inclusive  of working capital, thereby giving the Company 100%  ownership
of DHHS (see  Note  3).   Commencing  in  the  third quarter of 1998, the
Company  will  account  for  DHHS  under  the  consolidated   method   of
accounting.  The  following  table  presents  pro  forma  net revenue and
Adjusted EBITDA for the six months ended June 30, 1998 and  1997,  as  if
the  acquisition  of  DHHS  had  occurred  on  January  1, 1998 and 1997,
respectively ($ in thousands).

<TABLE>
<CAPTION>
                                   Reverse
                                  Equity in        DHHS
                  As Currently   Earnings of    Results of
                  Reported (a)      DHHS        Operations(b)   Pro Forma
                   --------      ----------     -----------     ---------
<S>                <C>           <C>            <C>             <C>
1998
  Net revenue      $311,558      $      0       $52,017         $363,575
  Adjusted EBITDA    42,989        (5,061)       12,749           50,677
1997
  Net revenue      $335,746      $      0       $49,525         $385,271
  Adjusted EBITDA    46,696        (5,226)       12,218           53,688
</TABLE>

(a)   Adjusted  EBITDA for the six months ended June 30, 1998, excludes a
$7.1 million gain  on  sale of facilities and the positive impact of $1.1
million in unusual items  (see  Note  2).   Adjusted  EBITDA  for the six
months ended June 30, 1997, excludes $6.0 million in unusual charges.
(b)   Adjusted EBITDA for the six months ended June 30, 1998, excludes  a
$1.1 million payment to settle a 1995 dispute over contract services.

     Income  before  income  taxes  and  extraordinary charge for the six
months ended June 30, 1998, included a $7.1  million  gain on sale of the
Chico  hospitals  (see Note 3) and unusual items totaling  $1.1  million,
consisting of a $1.8  million  gain  to  settle  litigation related to an
unconsummated  hospital  acquisition  by Champion Healthcare  Corporation
prior to its merger with the Company in August 1996, offset by a $731,000
charge to restructure home health operations  at certain of the Company's
hospitals (see Note 2).  Results of operations  for  the six months ended
June  30, 1997, included $6.0 million in unusual charges,  consisting  of
$3.5 million  relating  to  the  closure  of PHC Regional Hospital in May
1997,  and  $2.5  million  relating  to a corporate  reorganization  also
<PAGE> 18

completed in May 1997.  Results of operations  for  the  six months ended
June 30, 1997, excluded a $10.9 million loss attributable to PHC Regional
Hospital,  which was charged to the loss contract accrual established  at
December 31, 1996.

     The Company's  effective tax rate was 24.1% for the six months ended
June 30, 1998,  as  compared  to 29.7% for the comparable period in 1997.
The  reduced  tax  rates  for 1998  and  1997,  resulted  primarily  from
reductions in the valuation  allowance  related  to  the  recognition  of
previously  devalued  tax  assets  of  $2.4  million  and  $1.1  million,
respectively, offset by nondeductible goodwill amortization expense.

     Net  income for the six months ended June 30, 1998 was $6.1 million,
or $0.11 per  diluted  share,  compared to net income of $2.2 million, or
$0.04 per diluted share, for the  same  period  in  1997.   The  1998 net
income includes an extraordinary charge on extinguishment of debt of $1.2
million  (net  of  tax benefits of $817,000), or $0.02 per diluted share.
Weighted average common  and  common  equivalent  shares outstanding were
57.5 million and 56.3 million for the six months ended  June 30, 1998 and
1997, respectively.


LIQUIDITY AND CAPITAL RESOURCES

     Net cash provided by operating activities for the six  months  ended
June  30,  1998,  was  $4.2  million,  compared  to net cash used of $8.4
million for the same period in 1997. The $12.6 million  increase  in  net
cash  provided  by  operating  activities was mainly attributable to non-
recurring cash payments during 1997  for  accrued  (i) 1996 health claims
related  to  PHC  Regional Hospital (ii) costs and fees  related  to  the
Special Committee's  investigation, and (iii) Champion merger costs.  Net
cash used in investing  activities  was  $49.3  million  during  1998, as
compared  to  net  cash provided by investing activities of $22.2 million
during 1997.  The $71.5  million  decrease  was primarily attributable to
the Company's $64.8 million purchase (including transaction costs) of its
partner's 50% interest in DHHS (Note 3) in 1998, and to a net decrease in
proceeds from sales of marketable securities and facilities.  In addition
to the DHHS purchase, investing activities for  the six months ended June
30, 1998, included $23.0 million in net proceeds  from  the  sale  of the
Chico  hospitals  (see  Note 3).  Investing activities for the six months
ended June 30, 1997, included $12.2 million in net proceeds received from
the  sale  of certain hospitals  and  $19.3  million  received  from  the
liquidation  of  marketable securities held by the Company's wholly-owned
subsidiary, Hospital  Assurance  Company,  Ltd.   Net  cash  provided  by
financing activities during 1998 was $27.1 million, compared to cash used
of $10.8 million during 1997. The $37.9 million increase in cash provided
by  financing  activities  was primarily attributable to borrowings under
the  Company's Amended Credit  Agreement  to  finance  the  purchase  its
partner's  50% interest in DHHS, partially offset by repayments under the
Amended Credit Agreement of $30.3 million and deferred financing costs of
$4.0 million associated with the Amended Credit Agreement entered into in
March 1998.

     Net working  capital  was $27.6 million at June 30, 1998, a decrease
of $9.8 million from $37.4 million at December 31, 1997. The decrease was
primarily due to the repayment  of  amounts outstanding under the Amended
Credit Facility from available cash,  as  well of the reclassification of
$2.0  million  in  principal  amounts outstanding  under  the  Term  Loan
<PAGE> 19

Facilities  from long term to current  pursuant  to  the  Amended  Credit
Facility entered into in March 1998.  Working capital also decreased as a
result  of  the  sale  of  working  capital  associated  with  the  Chico
hospitals, of  which $3.1 million in proceeds were used to reduce amounts
outstanding under  the  Company's  off balance sheet receivable financing
program.  Such amount was reflected  in restricted cash at June 30, 1998,
and paid on July 1, 1998. The Company's long-term debt as a percentage of
total capitalization was 91.5%  at June  30,  1998,  compared to 92.1% at
December 31, 1997.

     As of August 14, 1998, the Company had $54.8 million available under
the  revolver  portion  of  its Amended Credit Agreement to  fund  future
capital expenditures, working  capital  requirements  and the issuance of
letters of credit. The Company anticipates that internally generated cash
flows  from  earnings,  proceeds  from  divestiture  of  certain  assets,
proceeds  from  the  sale  of  hospital  accounts  receivable  under  the
Company's  off  balance sheet receivable financing program,  Federal  and
state income taxes  refunds,  and  available borrowings under its Amended
Credit Agreement will be sufficient  to meet funding requirements through
1999.  There can be no assurance that future developments in the hospital
industry  or  general  economic  trends will  not  adversely  affect  the
Company's operations or its ability  to  meet  such funding requirements.
See "Pending Litigation" of this Item for a discussion  regarding certain
pending  litigation, the resolution of which could adversely  affect  the
Company's liquidity and its future operating results.

OPERATING PERFORMANCE OF LA METRO HOSPITALS

     The Company's  LA  Metro  acute  care  hospitals  recorded an EBITDA
deficit of $645,000 for the quarter ended June 30, 1998,  and  EBITDA  of
$492,000  for  the six months ended June 30, 1998,  as compared to EBITDA
of $1.4 million  and  $3.9  million  for the quarter and six months ended
June  30,  1997,  respectively.  Losses before  interest,  income  taxes,
depreciation and amortization  for  the  LA  metro psychiatric hospitals,
which   were   offset  against  the  disposal  loss  accrual   previously
established in September 1996, were $1.6 million and $1.7 million for the
quarter and six  months ended June 30, 1998, respectively, as compared to
$142,000 and $175,000  for  the  quarter  and  six months ending June 30,
1997, respectively. Management does not believe  the  LA  Metro hospitals
will  have  a material adverse effect on the Company's liquidity  through
their estimated disposition date.

YEAR 2000 COMPLIANCE

     As discussed  in  the  Company's Form 10-K for the fiscal year ended
December 31, 1997, the Company  has  initiated a comprehensive assessment
of all equipment, systems and services,  as  well as embedded systems and
other  applications  that  control   medical  and  related  equipment  to
determine whether such items are Year 2000 compliant.   As  part  of this
effort,   the   Company  engaged  an  outside  consultant  to  assist  in
implementing an extensive  pilot  program  at  one  of  its  hospitals to
compile a data base for use in evaluating Year 2000 compliance  at all of
its  hospitals.   As a result of this pilot program, the Company and  its
outside consultant  have  implemented  a  multiphase  plan  at all of its
hospitals  to  determine and execute the necessary actions to make  their
various embedded  systems,  medical  devices, related facility equipment,
and  other  third  party  supplied  equipment   and  services  Year  2000
compliant.  The Company expects to complete an assessment  by  year  end.
<PAGE> 20

At  this  time, the Company is not able to determine whether the costs of
bringing such  embedded  systems  and  other applications into compliance
will  have a material impact on the Company's  liquidity  or  results  of
operations.   As  previously  reported,  the  Company  expects  its  core
information  systems  to  be  Year  2000 compliant as a result of ongoing
efforts to standardize and upgrade such systems.

PENDING LITIGATION

     The  Company has previously reported  the  filing  of  a  number  of
putative class  and  derivative  action complaints relating to the August
1996  merger  of  the Company and Champion  Healthcare  Corporation.   As
previously reported,  two  of  these  actions  have  been  active:  IN RE
PARACELSUS  CORP.  SECURITIES  LITIGATION,  Master File No. H-96-3464, in
which a number of federal class action complaints  were consolidated, and
CAVEN V. MILLER No. H-96-4291, in which two derivative  action complaints
have  been  consolidated.   The  federal  class action complaint  asserts
claims  against the  Company  under  sections  11  and  12(a)(2)  of  the
Securities  Act  of  1933, and claims against certain existing and former
officers  and  directors  of  the Company under sections 11 and 15 of the
Securities Act of 1933. In addition,  the  complaint was recently amended
to add a claim against the Company under section  10(b) of the Securities
Exchange Act of 1934.  The Company has moved to dismiss  the  claim.  The
derivative action asserts  various state law claims  against the Company,
certain  of  its  existing and former  officers and directors  or   their
affiliates, and other persons.

     Since the Company  reported  on this litigation on its Form 10-K for
the fiscal year ended December 31,  1997,  one  of  the  California state
court  actions,  GAONKAR  V.  KRUKEMEYER  ET  AL., Case No BC158899,  was
dismissed without prejudice on motion of the plaintiffs,  and  the  other
California  state  court  action  previously  consolidated  with GAONKAR,
PRESCOTT  V.  PARACELSUS  HEALTHCARE  CORP., Case No. BC158979, has  been
ordered to proceed separately.

     As previously reported, in light of  the  Company's  restatement  of
financial  information  contained  in the various registration statements
and  prospectuses  relating  to  the  merger,  the  Company  believes  an
unfavorable outcome is probable for at  least some of the claims asserted
in  the  stockholder class action.  Efforts  to  settle  the  stockholder
claims are  ongoing.   Absent  such  a  settlement  within  the Company's
financial  resources, the Company will continue to defend the  litigation
vigorously.   Many  factors  will  ultimately  affect  and  determine the
results of the litigation, and the Company can provide no assurance  that
the results will not have a material adverse effect on the Company.













<PAGE>  21

PART II.     OTHER INFORMATION

ITEM 1.       LEGAL PROCEEDINGS

     See  Part  I  -  Item  2  "Pending  Litigation"  for  an  update  of
developments on the pending stockholders' litigation previously disclosed
in the Company's 1997 Form 10-K.

ITEM 2.       CHANGE IN SECURITIES

None.

ITEM 3.       DEFAULTS UPON SENIOR SECURITIES

None.

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

At the Company's annual meeting of stockholders on May 14, 1998, the
stockholders approved the following:

1.  The election of Messrs.  James G. VanDevender, Daryl J. White and Dr.
Heiner Meyer zu Losebeck to serve as Class II directors for a three-year
term, and the election of Mr. Nolan Lehmann to serve as a Class I
director for a two-year term and the election of Mr. Christian A. Lange
to serve as a Class III director for a one-year term.  Each nominee
received the following votes:

                                          FOR           WITHHELD
                                       ----------       --------
     Nolan Lehmann                     47,854,654        666,961
     James G. VanDevender              48,375,053        146,562
     Daryl J. White                    47,751,854        769,761
     Dr. Heiner Meyer zu Losebeck      48,395,295        126,319
     Christain A. Lange                48,392,885        128,730


2.  The ratification of the appointment of Ernst & Young LLP as the
Company's auditors for 1998.

     For       18,712,768
     Against       28,172
     Abstain   29,780,674















<PAGE>22
ITEM 5.       OTHER INFORMATION

None.

ITEM 6.        EXHIBIT AND REPORTS ON FORM 8-K


(a) Exhibits

10.7 The First Amendment to Amended and Restated Credit Agreement,
     effective June 15, 1998, by and among Paracelsus Healthcare
     Corporation, Paribas, Toronto Dominion (Texas), Inc. and Bank of
     Montreal.

27        Financial Data Schedule.

 (b)  Reports on Form 8-K

The  Company  filed on July 10, 1998, a Current Report on Form 8-K, dated
June 30, 1998,  reporting  pursuant to Item 2 (i) the sale by the Company
effective June 30, 1998, of  substantially  all  of  the  assets of Chico
Community  Hospital, Inc., which included a 123 licensed bed  acute  care
hospital and  a  60 licensed bed rehabilitation hospital, both located in
Chico, California, and (ii) the Company's purchase effective July 1, 1998
(through  its subsidiary,  Paracelsus  Healthcare  Corporation  of  North
Dakota, Inc.)  of Dakota Medical Foundation's 50% partnership interest in
a  general  partnership  operating  as  Dakota  Heartland  Health  System
("DHHS"), thereby giving the Company 100% ownership of DHHS. Prior to the
purchase, the  Company owned 50% of DHHS and accounted for its investment
under the equity  method.   DHHS  owns  and  operates  a 218 licensed bed
tertiary care hospital in Fargo, North Dakota.




























<PAGE>  23

                                                      SIGNATURE

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.


                                        Paracelsus Healthcare Corporation
                                                        (Registrant)



Dated: August 14, 1998                 By: /S/ JAMES G.VANDEVENDER
                                     --------------------------------
                                           James G. VanDevender
                                     Senior Executive Vice President,
                                            Chief Financial Officer
                                                    & Director