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 SEPTEMBER 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 November 13, 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
                                     SEPTEMBER 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--
                September 30, 1998 and December 31, 1997                4

            Consolidated Statements of Operations--
                Three Months and Nine Months Ended September 30,
                1998 and 1997                                           5

            Condensed Consolidated Statements of Cash Flows--
                Nine Months Ended September 30, 1998 and 1997           6

            Notes to Interim Condensed Consolidated
                Financial Statements                                    7

   Item 2.  Management's Discussion and Analysis of Financial
                Condition and Results of Operations                    14

PART II.    OTHER INFORMATION                                          24
-------
SIGNATURE                                                              25




























<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;
      the impact of Year 2000  issues;  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>
                                                         SEPTEMBER 30,                DECEMBER 31,
                                                             1998                        1997
                                                         ------------                 -----------
                                                         (Unaudited)                   (Note 1)
<S>                                                        <C>                        <C>
ASSETS
Current assets:
   Cash and cash equivalents                               $   8,102                 $  28,173
   Restricted cash                                               631                     6,457
   Accounts receivable, net                                   76,676                    70,675
   Deferred income taxes                                      15,138                    25,818
   Other current assets                                       43,772                    42,884
                                                            --------                  --------
        Total current assets                                 144,319                   174,007

Property and equipment                                       518,984                   438,792
Less: Accumulated depreciation and amortization             (161,825)                 (130,728)
                                                            --------                  --------
                                                             357,159                   308,064

Investment in Dakota Heartland Health System (Note 3)             -                     48,499
Goodwill                                                     148,407                   123,104
Other assets                                                  72,286                    81,150
                                                            --------                  --------
        Total assets                                       $ 722,171                 $ 734,824
                                                            ========                  ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                        $  36,843                 $  46,722
   Accrued liabilities and other                              66,451                    83,698
   Current maturities of long-term debt                        6,345                     6,209
                                                            --------                  --------
        Total current liabilities                            109,639                   136,629

Long-term debt                                               524,268                   491,914
Other long-term liabilities                                   44,149                    64,278
Stockholders' Equity:
   Common stock                                              224,542                   224,475
   Additional paid-in capital                                    390                       390
   Unrealized gains on marketable securities                                                12
   Accumulated deficit                                      (180,817)                 (182,874)
                                                            --------                  --------
        Total stockholders' equity                            44,115                    42,003
                                                            --------                  --------
        Total Liabilities and Stockholders' Equity         $ 722,171                 $ 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             NINE MONTHS ENDED
                                             SEPTEMBER 30,                  SEPTEMBER 30,
                                   ---------------------------------------------------------------
                                       1998                1997           1998              1997
                                   ----------           ---------       ---------        ---------
<S>                               <C>                  <C>             <C>              <C>
Net revenue                        $  157,169          $  166,661      $  520,744       $  502,407
Costs and expenses:
Salaries and benefits                  68,955              67,781         216,846          205,041
Other operating expenses               63,831              67,689         209,813          203,162
Provision for bad debts                10,368              12,688          30,248           33,449
Interest                               13,108              13,236          38,782           34,715
Depreciation and amortization           9,490               7,067          27,616           23,047
Equity in earnings of Dakota
   Heartland Health System                                 (2,598)                          (7,824)
Unusual items                          (6,967)                             (6,989)           5,978
(Gain) loss on sale of facilities         275                              (6,825)
                                    ---------           ---------        --------         --------
Total costs and expenses              159,060             165,863         509,491          497,568
                                    ---------           ---------        --------         --------
Income (loss) before minority
   interest, income taxes,
   discontinued operations and
   extraordinary charge                (1,891)                798          11,253            4,839
Minority interests                        113                (440)         (3,173)          (1,421)
                                    ---------           ---------        --------         --------
Income (loss) before income
   taxes, discontinued operations
   and extraordinary charge            (1,778)                358           8,080            3,418
Income tax provision (benefit)           (111)                220           2,424            1,129
                                    ---------           ---------        --------         --------
Income (loss) before discontinued
   operations and extraordinary
   charge                              (1,667)                138           5,656            2,289
Loss on discontinued operations        (2,424)                             (2,424)
                                    ---------           ---------        --------         --------
Income (loss) before
   extraordinary loss                  (4,091)                138           3,232            2,289
Extraordinary charge on
   extinguishment of debt, net                                             (1,175)
                                    ---------           ---------        --------         --------
Net income (loss)                  $   (4,091)         $      138      $    2,057        $   2,289
                                    =========           =========        ========         ========
Income (loss) per share - basic
and assuming dilution (Note 1):
   Income (loss) before
   discontinued operations and
   extraordinary charge            $    (0.03)         $     0.00      $     0.10        $    0.04
   Net income (loss) per share     $    (0.07)         $     0.00      $     0.04        $    0.04
</TABLE>

                                               See accompanying notes.














<PAGE> 6

                                PARACELSUS HEALTHCARE CORPORATION
                          CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                          ($ in 000's)
                                           (Unaudited)
<TABLE>
<CAPTION>
                                                                     Nine Months Ended
                                                                       September 30,
                                                                 ------------------------
                                                                     1998          1997
                                                                 ---------     ----------
<S>                                                              <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                                       $   2,057     $   2,289
Non-cash expenses and changes in operating assets
   and liabilities                                                  (9,704)       (9,309)
                                                                  --------      --------
Net cash used in operating activities                               (7,647)       (7,020)
                                                                  --------      --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of DHHS, net of cash acquired                          (59,278)
Proceeds from sales of facilities, net of expenses                  36,398        12,201
Sale of marketable securities                                                     19,284
Additions to property and equipment, net                           (14,428)      (12,617)
Increase in other assets, net                                       (6,928)       (2,282)
                                                                  --------      --------
Net cash provided by (used in) investing activities                (44,236)       16,586
                                                                  --------      --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock                              67
Borrowings under Revolving Credit Facility                          74,528        38,000
Repayments under Revolving Credit Facility                         (34,485)      (34,593)
Repayments of debt, net                                             (4,314)       (4,922)
Deferred financing costs                                            (3,984)
                                                                  --------      --------
Net cash provided by (used in) financing activities                 31,812        (1,515)
                                                                  --------      --------
(Decrease) increase in cash and cash equivalents                   (20,071)        8,051
Cash and cash equivalents at beginning of period                    28,173        17,771
                                                                  --------      --------
Cash and cash equivalents at end of period                       $   8,102     $  25,822
                                                                  ========      ========

Supplemental Cash Flow Information:
   Interest paid                                                 $  45,265     $  45,262
   Income taxes refunded                                         $    (440)    $ (23,911)

Noncash Investing Activities:
   Notes receivable from sale of hospitals                       $ (13,698)          -
   Debt assumed by purchaser of hospitals                        $   3,239           -
</TABLE>

                                   See accompanying notes.




















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

                           September 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 17 hospitals with 1,957 licensed
beds and four skilled nursing  facilities  with  232  licensed  beds in 9
states, of which 12 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 a complete  set of 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 nine months ended September 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,
the 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  as  of  December  31,  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  nine  months  ended  September  30,  1997,  have  been  restated  in
accordance with Statement of  Financial  Accounting  Standards  No.  128,
"Earnings per Share":

<TABLE>
<CAPTION>
                                           THREE MONTHS  THREE MONTHS   NINE MONTHS   NINE MONTHS
                                                ENDED         ENDED        ENDED        ENDED
                                           SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
                                                1998           1997        1998         1997
                                           ------------------------------------------------------
<S>                                         <C>           <C>          <C>          <C>
Numerator(a):
Income (loss) before discontinued
   operations  and extraordinary charge     $  (1,667)    $     138    $   5,656    $   2,289
Loss on discontinued operations                (2,424)                    (2,424)
Extraordinary charge                                                      (1,175)
                                             --------      --------     --------     --------
Net income (loss)                           $  (4,091)    $     138    $   2,057    $   2,289
                                             ========      ========     ========     ========
Denominator:
Weighted average shares used for
   basic earnings per share                    55,116        55,016       55,104       54,892
Effect of dilutive securities:
   Employee stock options                       2,428         2,694        2,440        2,769
                                             --------      --------     --------     --------
   Dilutive potential common shares             2,428         2,694        2,440        2,769
                                             --------      --------     --------     --------
Shares used for diluted
   earnings per share                          57,544        57,710       57,544       57,661
                                             ========      ========     ========     ========
Earnings per share - basic and
assuming dilution:
   Income (loss) before discontinued
   operations and extraordinary charge      $   (0.03)    $    0.00    $    0.10    $    0.04
   Loss on discontinued operations              (0.04)                     (0.04)
   Extraordinary charge                                                    (0.02)
                                             --------      --------     --------     --------
   Net income (loss)                        $   (0.07)    $    0.00    $    0.04    $    0.00
                                             ========      ========     ========     ========


</TABLE>
-------------------------
(a) Amount  is  used  for  both basic and diluted earnings per share 
computations since there is no earnings effect related to dilutive
securities.

      Options to purchase 4,883,469  shares  of the Company's common stock
at a weighted average exercise price of $7.43  per share were outstanding
during the three and nine months ended September  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.


















<PAGE>  9

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. 130 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. Total comprehensive loss for  the
quarter ended September 30,  1998 is the same amount as net loss for that
period  or $4.1 million as compared  to  total  comprehensive  income  of
$130,000 for the comparable period in the prior year. For the nine months
ended September 30, 1998 and 1997, total comprehensive income amounted to
$2.0 million and $2.1 million, respectively.


NOTE 2.    UNUSUAL ITEMS

     In September  1998, the Company announced that it has taken a series
of strategic actions  designed  to lower cost structures of its hospitals
as  the  result  of the deteriorating  reimbursement  environment.  These
actions included a  combination  of  staff  and wage reductions and other
cost  cutting  measures.  As a result of these initiatives,  the  Company
recognized  a  charge of $300,000  for  severance  costs.   Additionally,
unusual items included  $233,000  relating  to a settlement of litigation
(see Note 4).

     On August 31, 1998, the Company reached a settlement with PacifiCare
regarding a dispute over administration of a  1996  capitation agreement.
That agreement had resulted in losses to the Company in 1996 and 1997 and
the  eventual closure of PHC Regional Hospital and Medical  Center  ("PHC
Regional")  in June 1997, as discussed further below. On August 20, 1997,
PacifiCare and  the  Company  agreed to a specific mechanism to determine
amounts  owed  to each other as the  result  of  amending  the  agreement
effective July 1,  1997.  Following  the  completion  of  this process in
August  1998,  the  Company  paid  PacifiCare  $5.5  million  as a  final
settlement  under  the  capitation  agreement. The Company had previously
recorded a loss contract charge based on a study conducted by the Company
and independent third party consultants.  Unusual  items  for the quarter
and  nine  months  ended September 30, 1998 include a $7.5 million  gain,
which represents the  excess  of  the  loss  contract  accrual  over  the
settlement payment.

     In  June 1998, the Company recognized unusual charges of $731,000 to
restructure   home  health  operations,  at  certain  of  its  hospitals,
including in some  cases  the  closure  of  these  operations, and a $1.1
million charge to settle a 1995 dispute over certain contract services at
Dakota Heartland Health Systems ("DHHS"). Such charges  were  offset by 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 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.
















<PAGE>  10

NOTE 3.    ACQUISITIONS AND DISPOSITIONS

     On  September  30,   1998,   the   Company  completed  the  sale  of
substantially all of the assets of the eight  hospitals (one of which had
been   previously   closed)   located   in   metropolitan   Los   Angeles
(collectively, "LA Metro") to Alta Healthcare  System  LLC,  a California
limited  liability company and certain subsidiaries thereof (collectively
"Alta Healthcare").   The  purchase price of approximately $33.7 million,
which included the purchase  of  net  working  capital,  was  arrived  at
through an arms length negotiation and was paid by a combination of $16.5
million  in  cash,  the assumption of approximately $3.2 million in debt,
and issuance by the purchaser of $9.9 million of secured promissory notes
and an additional secured  second lien subordinated note in the principal
amount of $3.8 million.  This  subordinated  note may be adjusted for any
increase   or  decrease  of  net  working  capital  and   certain   other
adjustments.   The  transaction  resulted  in a $4.2 million reduction in
amounts  outstanding under the Company's Amended  and  Restated  Reducing
Revolving  Credit  Facility  (the  "Credit  Facility"),  a  $9.3  million
reduction  in  amounts  outstanding under the Company's off balance sheet
receivable financing program,  and  the  assumption  by  the purchaser of
approximately  $3.2  million  in  other  secured  debt.  The Company  had
previously   recorded   impairment   charges  related  to  the  LA  Metro
facilities; accordingly, the Company recorded  no  gain  or  loss  on the
sale.

     On  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 for $64.5 million, inclusive
of working capital, 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. The transaction was accounted for
as  a step purchase acquisition. As the result of this change in control,
the Company  has  recast  its  consolidated  statements  of operations to
account  for DHHS under the consolidated method of accounting  as  though
the transaction had occurred at the beginning of the year. The results of
operations for the nine months ended September 30, 1998, reflect minority
interest of $ 4.1 million for the six-month period prior to the change in
control. The  accompanying  financial  statements reflect the preliminary
allocation of purchase price, as the purchase  price  allocation  has not
been finalized pending the results of a third-party appraisal. The excess
of  the  purchase  price  over the net assets acquired approximated $28.1
million and is being amortized  over  twenty  years. The Company does not
expect the final purchase price allocation to have  a  material impact on
the consolidated financial statements.

     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  and  related  letter  of credit. The  Company
recognized a pretax gain of $7.1 million on the disposition.

     The following unaudited pro forma financial information for the nine
months  ended September 30, 1998 and 1997 (dollars in  thousands,  except
per share  amounts)  assumes  the  disposition  of the LA Metro and Chico
hospitals  and  the  acquisition  of DHHS occurred on  January  1,  1997.
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 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





<PAGE>  11

measure  of  liquidity,  cash  flow  or  operating income under generally
accepted accounting principles.

<TABLE>
<CAPTION>
                                        FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
                      ------------------------------------------------------------------------
                                          Chico
                                         Hospital        DHHS       LA Metro
                           As           Pro Forma     Pro Forma     Pro Forma      Company
                        Reported(a)       Adj.(b)      Adj.(c)        Adj.(d)      Pro Forma
                        ----------     ----------    ----------     ---------      ----------
<S>                    <C>            <C>            <C>            <C>           <C>
Net revenue             $  520,744    $  (18,850)    $        -     $ (57,972)    $  443,922
                         =========     =========      =========      ========      =========
Adjusted EBITDA         $   60,664    $   (3,560)    $    4,141     $   1,189     $   62,434
                         =========     =========      =========      ========      =========
Income before
   income taxes,
   discontinued
   operations and
   extraordinary charge $    8,080    $   (8,645)    $    1,036     $   1,943     $    2,414
                         =========     =========      =========      ========      =========
Income before
   extraordinary  loss
   and discontinued
   operations           $    5,656    $   (6,673)    $      829     $   1,555     $    1,367
                         =========     =========      =========      ========      =========
Net income              $    2,057    $   (6,673)    $      829     $   3,979     $      192
                         =========     =========      =========      ========      =========
Income per share
basic and assuming
dilution:
   Income  before
   discontinued
   operations and
   extraordinary charge $     0.10                                                $     0.02
                         =========                                                 =========
   Net income per share $     0.04                                                $     0.00
                         =========                                                 =========
</TABLE>
-------------------------
(a) Excluding the $7.1 million gain on sale of facilities, income before
extraordinary loss and discontinued operations was $135,000, or break-even 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.
(c) As reported amounts reflect DHHS on the consolidated method of accounting
as though the acquisition had occurred at the beginning of the year. Pro
forma adjustments to adjusted EBITDA reflect the reversal of minority 
interest.
(d) Pro forma adjustments to reflect the disposition of the LA Metro hospitals,
including $1.0 million in interest income on notes receivable and the removal
of the $2.4 million loss from discontinued operations from certain of those
facilities (see Note 4).


















<PAGE>  12

<TABLE>
<CAPTION>
                                    FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
                      -------------------------------------------------------------------------
                                          Chico
                                         Hospital        DHHS       LA Metro
                           As           Pro Forma      Pro Forma    Pro Forma       Company Pro
                         Reported         Adj.(a)       Adj.(b)       Adj.(c)          Forma
                         ----------     ---------      ---------    ---------       -----------
<S>                   <C>              <C>             <C>          <C>             <C>
Net revenue           $ 502,407        $ (25,783)      $   74,877   $ (70,827)      $ 480,674
                       ========         ========        =========    ========        ========
Adjusted EBITDA       $  67,158        $  (1,930)      $   10,501   $  (3,357)      $  72,372
                       ========         ========        =========    ========        ========
Income before income
   taxes              $   3,418        $     745       $    2,426   $  (2,554)      $   4,035
                       ========         ========        =========    ========        ========
Net income            $   2,289        $     610       $    1,987   $  (2,092)      $   2,794
                       ========         ========        =========    ========        ========
Net income per
share - basic and
assuming dilution:    $    0.04                                                     $    0.05
                       ========                                                      ========
</TABLE>
-----------------------
(a) Pro forma adjustments to reflect the dispositions of the Chico hospitals.
(b) Pro forma adjustments to reflect DHHS acquisition.
(c) Pro forma adjustments to reflect the dispositions of the LA Metro
hospitals, including $1.0 million in interest income on notes receivable.


NOTE 4.    LOSS FROM DISCONTINUED OPERATIONS

Loss  from  discontinued  operations reflects a $2.4 million charge (net of
tax  benefit  of $1.7 million)  relating  to  a  settlement  of  litigation
concerning alleged violations of certain Medicare rules filed by two former
employees ("the  relators") in October 1995. Concurrent with the settlement
of this litigation, previously reported in the Company's 1997 Annual Report
filed on Form 10-K,  the United States Government intervened in the case as
to certain of the claims against the Company and other related entities and
individuals. The claims  primarily  concerned LA Metro psychiatric hospital
facilities  and  one  LA  Metro  acute care  facility.  The  United  States
dismissed  the  claims  with  prejudice   and  released  the  Company,  its
subsidiaries, its current and former directors  and  employees, and related
others from civil or administrative monetary actions related to the claims.
In  return,  the  Company agreed to pay the Government $7.3  million,  $4.0
million of which was  paid on the execution of the settlement agreement and
the balance of which will  be paid over a one-year period. The Company also
reached a complete and final  resolution of all issues in a settlement with
the relators, which included a  dismissal with prejudice by the relators of
the entire complaint to the Company  and others. See Part II. Item 1- Legal
Proceedings for further discussion on  the  terms  of  the  settlement. The
Company  reported  the excess of the settlement over the related  liability
accrued at December 31, 1997, as loss from discontinued operations.



















<PAGE>  13

NOTE  5.    CONTINGENCIES

IMPACT OF YEAR 2000 - As with most other industries, hospitals and health
care systems use information systems that may misidentify dates beginning
January   1,  2000,  and  result  in  system  or  equipment  failures  or
miscalculations.  Information systems include computer programs, building
infrastructure components  and  computer-aided  biomedical equipment. The
Company has a Year 2000 strategy for its hospitals  that  includes phases
for education, inventory and assessment of applications and  equipment at
risk,  analysis and planning, testing, conversion/remediation/replacement
and post-implementation.  The  Company  can  provide  no  assurances that
applications and equipment the Company believes to be Year 2000 compliant
will not experience difficulties, or that the Company will not experience
difficulties obtaining resources needed to make modifications  to correct
or replace the Company's affected systems and equipment. Failure  by  the
Company  or  third parties on which it relies to resolve Year 2000 issues
could  have  a material  adverse  effect  on  the  Company's  results  of
operations and its ability to provide health care services. Consequently,
the Company can  give no assurances that issues related to Year 2000 will
not have a material  adverse  effect on the Company's financial condition
or results of operations. See "Management's  Discussion  and  Analysis of
Financial Condition and Results of Operations" for further discussion.

PENDING LITIGATION - The Company is a party to pending litigation in
connection with several stockholder related matters and a suit involving
insurance carriers.  See "Item 2 - Pending Litigation."















































<PAGE>  14
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 exclude (i) the
Company's LA Metro hospitals, which were sold on September 30,  1998, and
otherwise  consist  of acute care hospitals owned and operated throughout
the periods for which  comparative  results  are  presented and corporate
expenses.   Accordingly,  such designation excludes DHHS  (acquired  June
1998), Chico hospitals sold in June 1998 and PHC Regional Hospital, which
the Company closed in June 1997 (see Notes 2 and 3).

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

     Net revenue for the quarter  ended  September  30,  1998, was $157.2
million, a decrease of $9.5 million, or 5.7%, from $166.7 million for the
same  period  of 1997.  Net revenue for the 1998 quarter increased  $25.0
million as a result  of  the  July  1, 1998 acquisition of DHHS with such
increase  offset  by   (i)  a  $9.5  million   decrease  in  net  revenue
attributable to the Chico hospitals (ii) a $4.4  million  decrease in net
revenue  at  the  Company's  LA  Metro  hospitals and (iii) $1.5  million
decrease  in net revenue attributable to the  closure  of  PHC  Regional.
DHHS was accounted  for  under  the  equity  method for the quarter ended
September 30, 1997.  The remaining decline in net revenue occurred at the
Company's "same hospitals," as discussed below.

     Net revenue at "same hospitals" for the quarter  ended September 30,
1998 was $112.8 million compared to $132.0 million, a decrease  of  $19.2
million,  or  14.6%,  over  the  comparable  period  in 1997 due to (i) 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"), (ii) the restructuring of  home  health
operations at certain of the Company's hospitals in the second quarter of
1998,  including  in  some cases the closing of such operations (see Note
2), (iii) an overall decline  in  volume  at  the hospitals and continued
tightening of payment levels by managed care plans.  Net  revenue  at the
Company's  Tennessee market hospitals, which have significant home health
operations,  decreased $5.1 million, or 38.1%, from $13.4 million in 1997
to $8.3 million  in  1998.  Excluding  Tennessee, "same hospital" revenue
declined  by $14.0 million, or 11.9%, from  $118.5  million  in  1997  to
$104.5 million  in 1998. The reductions in net revenue resulting from the
enactment of the  1997 Budget Act, the Company's restructuring of certain
of its home health  operations  and downward payment pressures from third
party payors are likely to continue throughout 1998 and into 1999.

         The Company's "same hospitals"  experienced  a  4.9% decrease in
inpatient  admissions  from  12,470  in  1997  to  11,853 in 1998.   Same
hospital patient days decreased 5.6% from 54,873 in  1997  to  51,790  in
1998.   The  decrease  in  admissions  and patient days are due to volume
declines at the hospitals and to a lesser  extent,  improved  utilization
review  procedures  at  certain  facilities.  Outpatient visits in  "same
hospitals" decreased 34.2% from 396,587  in  1997  to  261,040  in  1998,
primarily  as  a  result  of a significant decline in home health visits.
Excluding  home health visits,  outpatient  visits  in  "same  hospitals"
increased 4.5%  from  139,647  in 1997 to 145,960 in 1998. The decline in
home health visits was primarily  due  to  stricter utilization standards
under the 1997 Budget Act effective October  1, 1997, the closure of home
health  operations at certain facilities, and to  a  lesser  extent,  the
cancellation  of  a  contract  for  home  health  services  at one of the
Company's Tennessee hospitals. Over one half of the Company's  decline in
home health visits occurred in the Tennessee market hospitals.











<PAGE>  15

     Operating expenses (salaries and benefits, other operating  expenses
and  provision  for bad debts) decreased $5.0 million from $148.2 million
in 1997 to $143.2  million in 1998. The quarter ended September 30, 1998,
included  DHHS  operating   expenses  of  $20.2  million,  which  offsets
decreases in operating expenses  directly  related  to  declines  in  net
revenue  and  from  closed/  sold  facilities.  Excluding DHHS, operating
expenses  for  the  quarter  ended  September 30, 1998,  decreased  $25.2
million  as  compared  to the same period  in  1997.  This  decrease  was
attributable to (i) $7.6  million  decrease  from  the  sale of the Chico
hospitals,   (ii)  a  $3.2  million  reduction  in  general  and  medical
professional liability  costs  as  a  result  of  revisions  of actuarial
estimates  and  (iii) management's effort to reduce costs in response  to
reductions in net  revenue resulting from the 1997 Budget Act. On a "same
hospital" basis, operating  expenses  expressed  as  a  percentage of net
revenue  increased  from  88.0%  in 1997 to 91.0% in 1998, and  operating
margin  decreased  from  12.0% to 9.0%,  respectively.  The  increase  in
operating expenses as a percent  of  net  revenue is due to the impact of
the  aforementioned  stricter  utilization standards  and  reductions  in
reimbursement rates under the 1997  Budget  Act. Thus, the decline in net
revenue has outpaced management's efforts to  reduce costs. In the fourth
quarter  of  1998, the Company undertook a series  of  strategic  actions
designed to lower  the  Company's  cost  structure  as  the result of the
deteriorating  reimbursement  environment  (see  Note  2). These  actions
included a combination of staff and wage reductions as well as other cost
cutting  measures.  Management believes that the cost savings  associated
with these initiatives  will  impact  the Company's results of operations
starting  in  the  fourth  quarter of 1998.  However,  there  can  be  no
assurance that the Company will  achieve  its  desired  cost structure or
that  any  cost  reductions  will be sufficient to offset present  and/or
future  government  initiatives   or   reduction  in  current  levels  of
utilization.

     Depreciation and amortization increased  34.3%  to  $9.5  million in
1998 from $7.1 million for the same period of 1997, primarily due  to the
acquisition  of DHHS, which was accounted for under the equity method  of
accounting in  the  comparable  period  in  1997,  and  from current year
additions to property and equipment.

     Income  (loss)  before  income  taxes,  discontinued operations  and
extraordinary charge for the quarter ended September  30,  1998, included
$3.1  million  attributable  to income from DHHS on a consolidated  basis
(see Note 3), compared to $2.6  million of reported equity in earnings in
the prior period.  Income before  income  taxes,  discontinued operations
and  extraordinary  charge  also included a $7.5 million  gain  from  the
settlement of a contract dispute with PacifiCare (see Note 2), a $233,000
unusual charge relating to a settlement of litigation and a $275,000 loss
from sale of home health operations at one of the Company's facilities.

     The Company's effective  tax  benefit was 6.2% for the quarter ended
September 30, 1998, as compared to effective  tax  rate  of 61.5% for the
comparable period in 1997. The reduced tax benefit for 1998 resulted from
an increase in the valuation allowance related to unrealized  tax  assets
and from nondeductible goodwill amortization expense.

     The  Company  recorded  a  loss from discontinued operations of $2.4
million (net of tax of $1.7 million), or $0.04 per diluted share, in 1998
to  reflect  the settlement of the  1995  litigation  concerning  alleged
violations of certain Medicare rules. The claims related substantially to
the  LA  Metro  psychiatric   facilities  which  have  been  reported  as
discontinued operations since the  Company  adopted  a  plan  to exit the
psychiatric  hospital  business  in  1996.  See  Part  II.  Item1.  Legal
Proceedings,  for  additional  discussion  of the terms of the litigation
settlement.










<PAGE>  16

     Net loss for the quarter ended September 30, 1998, was $4.1 million,
or  $0.07 per diluted share, compared to a net  income  of  $138,000,  or
$0.00  per  diluted share, for the same period of 1997.  Weighted average
common and common equivalent shares outstanding decreased to 55.1 million
in 1998 from  57.7  million  in  1997,  primarily due to the exclusion of
dilutive securities from the calculation of net loss per share in 1998.


RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1998
COMPARED WITH NINE MONTHS ENDED SEPTEMBER 30, 1997

     Net revenue for the nine months ended September 30, 1998, was $520.7
million,  an  increase of $18.3 million, or 3.6%, from $502.4 million for
the same period  of 1997. Net revenue for 1998 increased $77.0 million as
a result of the July  1, 1998 acquisition of DHHS. The Company recast its
1998 consolidated statement  of  operations  to  reflect  DHHS  under the
consolidated  method of accounting as though the acquisition occurred  on
January 1, 1998  (See  Note  3).  DHHS was accounted for under the equity
method for the nine months ended  September  30,  1997. The increase from
DHHS net revenue was offset by (i) a $6.9 million decrease in net revenue
attributable  to the sale of the Chico facilities (ii)  a  $12.7  million
decrease in net revenue at the Company's LA Metro due primarily to volume
declines, and (iii) $6.7 million decrease in net revenue attributable PHC
Regional. The remaining  decline in net revenue occurred at the Company's
"same hospitals," as discussed below.

     Net revenue at "same hospitals"  for the nine months ended September
30, 1998, was $366.2 million compared to  $398.5  million,  a decrease of
$32.3 million, or 8.3%, primarily as a result of the 1997 Budget Act, the
Company's  restructuring of home health operations and continued  pricing
pressures from  third  party  payors, as discussed above, and to a lesser
extent, an overall decline in volumes  at  certain hospitals. Net revenue
at the Company's Tennessee market hospitals,  which have significant home
health operations, decreased $14.5 million, or  31.4%, from $46.2 million
in  1997  to $31.7 million in 1998. Excluding Tennessee  from  the  "same
hospital" comparison,  net  revenue  declined  by $17.8 million, or 5.1%,
from $352.3 million in 1997 to $334.5 million in  1998.  This decline was
largely  due  to  a  decrease of 156,378 home health visits  in  1998  as
compared to 1997. The  reductions  in  net  revenue  associated  with the
enactment  of the 1997 Budget Act, the Company's restructuring of certain
of its home  health  operations and downward payment pressures from third
party payors are likely to continue throughout 1998 and into 1999.

     The  Company's  "same  hospitals"  experienced  a  4.3%  decrease in
inpatient admissions from 38,901 in 1997 to 37,232 in 1998.  Patient days
decreased 5.5% from 174,746 in 1997 to 165,131 in 1998. The decreases  in
admissions  and  patient days are due primarily to volume declines at the
Company's Tennessee  market  hospitals  and  the  closings of home health
operations  at  certain  other  facilities. Outpatient  visits  in  "same
hospitals" decreased 26.1% from 1,228,069  in  1997  to  907,757 in 1998,
primarily  as  a  result of a significant decline in home health  visits.
Excluding home health  visits,  outpatient  visits  in  "same  hospitals"
increased  2.1%  from 427,684 in 1997 to 436,576 in 1998. The decline  in
home health visits  was  due  primarily to stricter utilization standards
under the 1997 Budget Act effective  October 1, 1997, the closure of home
health operations at certain facilities,  and  to  a  lesser  extent, the
cancellation  of  a  contract  for  home  health  services  at one of the
Company's Tennessee hospitals.















<PAGE>  17

     Excluding  the  Tennessee market hospitals from the "same hospitals"
comparison, inpatient  admissions  decreased  2.4% from 33,759 in 1997 to
32,964  in 1998.  Patient days decreased 2.8% from  148,002  in  1997  to
143,816 in  1998.  Outpatient visits decreased 17.2% from 819,691 in 1997
to 678,505 in 1998,  primarily  as a result of the significant decline in
home  health  visits  discussed above.   Excluding  home  health  visits,
outpatient visits increased 4.0% from 378,418 in 1997 to 393,610 in 1998.

     Operating  expenses (salaries and benefits, other operating expenses
and provision for  bad debts) increased $15.2 million from $441.7 million
in 1997 to $456.9 million in 1998. The increase is primarily attributable
to the inclusion of DHHS operating expenses of $59.4 million for the nine
months ended September  30,  1998,  which  offsets decreases in operating
expenses directly related to declines in net revenue and from closed/sold
facilities. Excluding DHHS, operating expenses  for the nine months ended
September 30, 1998 decreased $44.2 million as compared to the same period
in 1997. This decrease was attributable to (i) $8.6 million decrease from
the sale of the Chico hospitals, (ii) a $9.4 million  decrease  from  the
closing  of  PHC  Regional  in  1997,  (iii)  a $3.2 million reduction in
general and medical professional liability costs as a result of revisions
of actuarial estimates and (iv) management's effort  to  reduce  costs in
response  to  reductions  in  net revenues resulting from the 1997 Budget
Act.  On  a  "same  store"  basis,  operating  expenses  expressed  as  a
percentage of net revenue increased from  86.7% in 1997 to 87.9% in 1998,
and  operating  margin  decreased  from  13.3% to  12.1%.  Excluding  the
Tennessee market hospitals, "same hospital"  operating  margin  decreased
from 13.1% in 1997 to 12.6% in 1998.

     Depreciation  and  amortization increased 19.8% to $27.6 million  in
1998 from $23.0 million for the same period of 1997, primarily due to the
acquisition of DHHS, which  was  accounted for under the equity method of
accounting  in the comparable period  in  1997,  and  from  current  year
additions to property and equipment.

     Interest  expense  increased $4.1 million from $34.7 million in 1997
to $38.8 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  and  increased  amounts
outstanding  under  the  Credit  Facility  and other debt.  Amounts taken
against the loss contract represented interest  charges  on borrowings to
finance the acquisition of PHC Regional Hospital.

     Income    before   income   taxes,   discontinued   operations   and
extraordinary charge  included  $8.2  million  (net  of  $4.1  million of
minority  interest) attributable to income from DHHS as consolidated  for
the nine months  ended  September 30, 1998 (see Note 3), compared to $7.8
million of reported equity in earnings in the prior period. DHHS earnings
for 1998 included a $1.1  million  payment  to settle a 1995 dispute over
certain contract services. The following table  presents pro forma impact
on  the Company's net revenue and Adjusted EBITDA  for  the  nine  months
ended  September  30,  1998  and  1997, as if the acquisition of DHHS had
occurred on January 1, 1997 ($ in thousands).





















<PAGE>  18

<TABLE>
<CAPTION>
                                             PRO FORMA
                                               DHHS
                    AS CURRENTLY             RESULTS OF             PRO FORMA
                     REPORTED(a)            OPERATIONS(a)            INCREASE
                    ------------            ------------            -----------
<S>                 <C>                      <C>                    <C>
1998
Net revenue         $  76,981                $  76,981              $     - -
Adjusted EBITDA        13,394                   17,535                  4,141

1997
Net revenue         $       0                $  74,877              $  74,877
Adjusted EBITDA         7,824                   18,325                 10,501
</TABLE>
----------------------
(a)   Adjusted  EBITDA  for  the  nine  months  ended September 30, 1998,
excludes  a  $1.1  million charge to settle a 1995 dispute  over  certain
contract services.


     Income   before   income    taxes,   discontinued   operations   and
extraordinary  charge  for the nine  months  ended  September  30,  1998,
included a net gain of $6.8  million  on  sale of the Chico hospitals and
other  unrelated  operations  and unusual items  totaling  $7.0  million.
Unusual  items  included a $7.5 million  gain  on  the  settlement  of  a
contract dispute  with  PacifiCare  and  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. These  gains
were  offset  by  severance  charges  of $300,000 from the cost reduction
initiatives implemented in the fourth quarter  of  1998,  a  $1.1 million
charge in connection with the settlement of a contract dispute at DHHS as
discussed  above,  a  $233,000  charge  relating  to  the  settlement  of
litigation and a $731,000 charge to restructure home health operations at
certain of the Company's hospitals (see Note 2).

      Results of operations for the nine months ended September 30, 1997,
included $6.0 million in unusual charges relating to the closure  of  PHC
Regional  Hospital  in  May  1997  and to a corporate reorganization also
completed in May 1997.  Results of operations  for  the nine months ended
September  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 30.0% for the nine months ended
September  30,  1998,  as compared to 33.0% 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   offset  by  nondeductible  goodwill
amortization expense.

     Loss from discontinued operations  of  $2.4  million  (net of tax of
$1.7  million), $0.04 per diluted share, in 1998 reflects the  settlement
of the  1995 litigation concerning alleged violations of certain Medicare
rules by  the  LA Metro psychiatric facilities. See Part II. Item1. Legal
Proceedings, for  additional  discussion  of  the terms of the litigation
settlement.

     Net income for the nine months ended September  30,  1998,  was $2.1
million,  or  $0.04  per  diluted  share,  compared to net income of $2.3
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 57.7 million for the nine months ended
September 30, 1998 and 1997, respectively.






<PAGE>  19

OPERATING PERFORMANCE OF LA METRO HOSPITALS

     On  September  30,  1998,  the   Company   completed   the  sale  of
substantially all of the assets of the LA Metro hospitals (see  Note  3).
The  LA Metro acute care hospitals recorded an EBITDA deficit of $637,000
and $144,000  for  the  quarter and nine months ended September 30, 1998,
respectively, as compared  to EBITDA of $566,000 and $4.5 million for the
quarter and nine months ended  September  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 $2.7  million  and
$4.4  million  for  the quarter and nine months ended September 30, 1998,
respectively, as compared  to  $565,000  and $859,000 for the quarter and
nine months ending September 30, 1997, respectively.

LIQUIDITY AND CAPITAL RESOURCES

     Net cash used in operating activities  for  the  nine  months  ended
September  30,  1998,  was $7.6 million, compared to $7.0 million for the
same period in 1997. Net  cash  used  in  investing  activities was $44.0
million  during  1998,  as  compared  to net cash provided  by  investing
activities of $16.6 million during 1997.   The  $60.8 million decrease in
cash was primarily attributable to the Company's  $59.3  million purchase
(net of cash acquired) of its partner's 50% interest in DHHS (see Note 3)
in  1998  and  a  decrease  in  $19.3  million  of proceeds from sale  of
marketable securities in 1997 offset by a net increase  of  $24.2 million
in  net  proceeds  from  the  sales  of hospitals (see Note 3). Net  cash
provided by financing activities during  1998 was $31.8 million, compared
to cash used of $1.5 million during 1997.  The  $33.3 million increase in
cash  provided  by  financing  activities was primarily  attributable  to
borrowings under the Company's Amended  Credit  Agreement  to finance the
purchase  of  its  partner's  50%  interest  in DHHS partially offset  by
repayments under the Credit Facility and other  borrowings  and  deferred
financing  costs  of  $4.0  million  associated  with the Credit Facility
entered into in March 1998.

     Net  working  capital  was $34.7 million at September  30,  1998,  a
decrease of $2.7 million from  $37.4  million  at  December 31, 1997. The
decrease was primarily due to the repayment of amounts  outstanding under
the  Credit Facility from available cash, as well as the reclassification
of $2.0  million  in  principal  amounts outstanding under the term loans
from long term to current pursuant to an amendment to the Credit Facility
effective March 1998.  Working capital  also decreased as a result of the
sale of working capital associated with the Chico and LA Metro hospitals,
from  which proceeds were used to reduce amounts  outstanding  under  the
Company's  off  balance  sheet receivable financing program (see Note 3).
The Company's long-term debt  as a percentage of total capitalization was
92.2 % at September 30, 1998, compared to 92.1% at December 31, 1997.

     As of November 13, 1998, the  Company  had  $38.1  million available
under the revolver portion of its Credit Facility 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  Credit  Facility  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.









<PAGE>  20

YEAR 2000 COMPLIANCE

     The  Securities  and  Exchange  Commission  (the   "SEC")   recently
published  additional  guidance  on  Year  2000  disclosures. In order to
comply  with that guidance, the Company is supplementing  the  Year  2000
disclosures made in previously filed annual and quarterly reports.

     The  Company  has  implemented a seven-phase project plan at each of
its hospitals and corporate  office  to  assess and address the Year 2000
issue.  Additionally,  the Company has contracted  with  a  company  that
specializes in Year 2000  issues  to assist in implementing the Company's
Year 2000 plan. As part of the program,  the  Company  is  contacting its
principal suppliers, vendors and payors to assess whether their Year 2000
issue,  if  any,  will  affect the Company. The first phase of the  plan,
which has been completed,  focused  on  raising  awareness  among  senior
management,  hospital  executives  and  managers,  and  external business
partners on the potential Year 2000 impact on the Company. Phase one also
included   forming   of   the   Year   2000   team,  defining  roles  and
responsibilities, and establishing the project  timing  and deliverables.
Phase  two  entails  a  complete  inventory  assessment  to identify  and
document  all  affected  systems  and  equipment  and  to prioritize  all
inventoried items by criticality to patient care and business operations.
In  phase  two,  all  hospitals  are  required to identify all  principal
suppliers and to estimate costs and timing  for all non-compliant systems
and equipment. Phase two is substantially completed. Phase three involves
obtaining vendor certification of compliance  and  developing contingency
plans for vendors who are no longer in business or who  do  not  respond.
Phase three has begun and should be substantially completed in the fourth
quarter of this year. Phase four, scheduled to be completed in the  first
quarter  of  fiscal  1999,  includes developing test plans and compliance
criteria for all patient care critical and operations critical items. The
fifth phase, which includes testing  and identifying non-compliant items,
is scheduled for completion in the second quarter of fiscal 1999. Patient
care and operations critical non-compliant  systems and equipment will be
converted  and/or  taken  out  of  service,  and  contingency  plans  for
potential  system  failure will be developed in the sixth  phase  of  the
project plan targeted  for  completion in the third quarter of next year.
Phase seven focuses on identifying  and correcting any malfunction in the
systems and equipment. In this phase,  which will be conducted throughout
the  fourth  quarter  of  1999, the Company  will  establish  a  disaster
recovery team and prepare and assist system users to initiate contingency
plans in the event of malfunctions. While the Company's Year 2000 plan is
a  multiphase  project, the plan  does  allow  for  different  phases  to
progress simultaneously.

     Based on the  information currently available, the Company is in the
process of estimating  the total cost for addressing all Year 2000 issues
and plans to complete its  initial estimate in the first quarter of 1999.
This  estimate  will  include projected  costs  associated  with  capital
projects that would have  been  undertaken not withstanding the Year 2000
compliance project plan but the timing  was  accelerated  in light of the
plan.  Year 2000-related remediation  costs incurred in 1998 have not been
material to the Company's results of operations.


     The  Company  relies  heavily  on third  parties  in  operating  its
business. In addition to its reliance  on  software,  hardware  and other
equipment  vendors to verify Year 2000 compliance of their products,  the
Company also  depends  on  (i) fiscal intermediaries which process claims
and make payments for the Medicare/  Medicaid  programs,  (ii)  insurance
companies,  HMOs  and other private payors, (iii) utilities which provide
electricity,  water,  natural  gas  and  telephone  services  (iv)  local
community services  such  as  "911"  emergency,  police, fire, and sewage
treatment,  (v) vendors of medical supplies and pharmaceuticals  used  in
patient care  and  (vi)  other service providers such as banks, insurance
companies and transfer agents.  As  a part of its Year 2000 strategy, the
Company intends to seek assurances from these parties that their services
and products will not be interrupted  or malfunction due to the Year 2000





<PAGE>  21

problem. If third parties fail to resolve  their  Year  2000 issues, such
failure  could have a material adverse effect on the Company's  financial
condition and results of operations.

     The Company  will develop contingency plans to address any Year 2000
issues that may arise  and anticipates completing its initial contingency
plans in the third quarter  of 1999.  Such plans will entail, but are not
limited  to,  outlining  procedures  for  compliance  certification  from
vendors  who  are  no longer  in  business  or  who  refuse  to  respond,
developing manual procedures for all patient care critical and operations
critical processes,  and  reviewing  and  supplementing existing disaster
plans at each of the hospitals. However, there  is  no assurance that the
Company will be able to develop all contingency plans timely or that when
developed  such  plans will successfully mitigate all Year  2000  issues.
Accordingly, failure  of  such  contingency  plans  could have a material
adverse effect on the Company.

    The  SEC's  recent  guidance for Year 2000 disclosure also calls  on
companies to describe their  most  likely worst case Year 2000 scenarios.
While a scenario in which medical equipment  fails  as a result of a Year
2000 problem could lead to serious injury or death, the  Company does not
believe  that  such a scenario is likely to occur.  As noted  above,  any
piece of patient  care and operations critical equipment that is not Year
2000 compliant will  be made compliant, replaced or taken out of service.
Furthermore, there will  be  a  back-up  plan  for patient and operations
critical equipment in case it unexpectedly fails.  The  most likely worst
case  scenario  is  that  the  Company will have to add additional  staff
and/or reassign existing staff during  the  time period leading up to and
immediately following December 31, 1999, in order  to  address  any  Year
2000 issues that unexpectedly arise.

     The foregoing assessment is based on information currently available
to the Company. The Company will revise  its  assessment as it implements
its  Year  2000  strategy.  The Company can provide  no  assurances  that
applications and equipment the Company believes to be Year 2000 compliant
will not experience difficulties  or that the Company will not experience
difficulties  obtaining resources needed  to  make  modifications  to  or
replace the Company's  affected  systems  and  equipment.  Failure by the
Company or third parties on which it relies to resolve Year  2000  issues
could  have  a  material  adverse  effect  on  the  Company's  results of
operations and its ability to provide health care services. Consequently,
the Company can give no assurances that issues related to Year 2000  will
not  have  a material adverse effect on the Company's financial condition
or results of operations.


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  amended to add a
claim against the Company under section 10(b) of the Securities  Exchange
Act   of  1934.   The  Court  recently  dismissed  that  claim,  allowing
plaintiffs  an  opportunity  to  replead.  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





<PAGE>  22

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  and
derivative  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.

     The Company  previously reported on its Form 10-K an action filed on
September 10, 1997,  by twelve health care insurers and/or administrators
encaptioned BLUE CROSS  AND  BLUE  SHIELD  UNITED  OF WISCONSIN ET AL. V.
PARACELSUS HEALTHCARE CORPORATION, Case No. 97-6760  SVW  (RCx),  in  the
United  States  District  Court  for  the  Central District of California
against the Company and two of its subsidiaries.  Plaintiffs alleged that
over many years the Company fraudulently induced  them  to  make payments
under  their  members'  plans  through  a  variety  of allegedly improper
practices,  principally in connection with certain psychiatric  treatment
programs previously  operated  at  certain  of  the Company's psychiatric
hospitals in the Los Angeles area. Plaintiffs asserted  claims  under the
Racketeer  Influenced  and  Corrupt  Organizations  Act  ("RICO") and the
Employee Retirement Income Security Act ("ERISA"), as well  as for fraud,
negligent misrepresentation, unjust enrichment, and conversion.  On March
10,  1998, Plaintiffs filed their First Amended Complaint restating  each
of their causes of action seeking damages exceeding $30.5 million, treble
damages  under  RICO,  restitution  under ERISA, together with reasonable
attorneys' fees and various costs and expenses.

     Since the Company reported on this  litigation  on its Form 10-K for
the fiscal year ended December 31, 1997, the Company and  the  Plaintiffs
have  reached  a settlement to the litigation. The Company has agreed  to
pay the Plaintiffs a total of $995,000 on or before November 17, 1998, in
full settlement  of all claims. The Plaintiffs have agreed to dismiss the
suit with prejudice  and  to  release the Company from any and all claims
arising out of or based upon the  subject matter of the suit. The Company
denied the allegations asserted in  the  complaint  but elected to settle
the  case  to avoid the costs and burdens of protracted  litigation.  The
Company previously  recorded  a liability relating to this litigation and
expects that the settlement will  have no impact on the Company's results
of operations.

























<PAGE>  23

PART II.     OTHER INFORMATION

ITEM 1.       LEGAL PROCEEDINGS

     In  September  1998,  the Company  reached  a  final  settlement  of
litigation concerning alleged  violations  of  certain Medicare rules. As
the Company has previously reported in its 1997  Annual  Report  filed on
Form  10-K  ,  the  Medicare litigation concerned a civil complaint filed
under seal in federal  court in Los Angeles in October 1995 by two former
hospital employees (the  "relators").  The  relators  filed  the  case on
behalf  of  the  United  States  Government  and  the State of California
against  the  Company  and  others (the "defendants") alleging  that  the
defendants violated the U.S.  and California False Claims Acts by failing
to comply with certain Medicare and Medicaid regulations.

     Concurrent  with  the  settlement,   the  United  States  Government
intervened in the case as to certain of the  claims  against  the Company
and   other  related  entities  and  individuals.  The  claims  primarily
concerned  psychiatric  hospital  facilities  and one acute care facility
operated by the Company in Southern California  and  involved allegations
narrower than those in the relators' initial complaint. The United States
dismissed  the  claims  with  prejudice  and  released  the Company,  its
subsidiaries, its current and former directors and employees, and related
others  from  civil  or  administrative monetary actions related  to  the
claims. In turn, the Company  agreed  to pay the Government $7.3 million,
$4.0  million  of  which  was  paid on the execution  of  the  settlement
agreement and the balance of which  will  be paid over a one-year period.
The Company also agreed that it would not contest  or appeal certain cost
report adjustments related to the claims asserted by  the  Government. In
addition, the Office of the Inspector General of the Department of Health
and  Human Services ("OIG") agreed not to seek permissive exclusion  from
the Medicare,  Medicaid,  and other federal health care programs of those
entities and individuals relating  to  these  claims.  The  Company  also
entered  into  a  separate  corporate  integrity  agreement  with the OIG
applicable to the affected facilities. The sale of the LA Metro hospitals
to Alta Healthcare (see Note 3) included the affected facilities  and  an
agreement  by  Alta  to  abide by the corporate integrity agreement. Alta
Healthcare  rather  than  the   Company   therefor   has   the  principal
responsibility for complying with the agreement.

     Finally,  the  settlement  includes  a  separate agreement with  the
relators reaching a complete and final resolution of all issues with them
and a dismissal with prejudice by the relators of the entire complaint as
to the Company and other related entities and individuals.

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
























<PAGE>  24


ITEM 2.       CHANGE IN SECURITIES

None.

ITEM 3.       DEFAULTS UPON SENIOR SECURITIES

None.

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

None

ITEM 5.       OTHER INFORMATION

None.

ITEM 6.       EXHIBIT AND REPORTS ON FORM 8-K

(a) Exhibits

10.71     Settlement Agreement between the (a) United States of America, acting
through  the United States Department of Justice and on behalf of the Office of
Inspector  General  of the Department of Health and Human Services; (b) Timothy
Hill and Alan Leavitt; (c) Paracelsus Healthcare Corporation, Lincoln Community
Medical Limited Liability  Company,  Lincoln Community Medical Corporation, dba
Orange County Community Hospital and Bellwood Medical Corporation, dba Bellwood
General Hospital; and (d) individual defendant Joseph Sharp.


27        Financial Data Schedule.

(b)  Reports on Form 8-K

The  Company  filed on October 15, 1998, a Current Report  on  Form  8-K,
dated September  30,  1998, reporting pursuant to Item 2, the sale by the
Company effective September  30, 1998, of substantially all of the assets
of eight hospitals (one of  which had been previously closed) located in 
metropolitan Los Angeles to Alta Healthcare System  LLC,  a  California
limited   liability   company   and  certain subsidiaries thereof.



































<PAGE>  25

                                 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: November 13, 1998                    By:  /s/James G. VanDevender
                                               --------------------------
                                                  James G. VanDevender
                                            Senior Executive Vice President,
                                                Chief Financial Officer
                                                       & Director