<PAGE> 1

                   SECURITIES AND EXCHANGE COMMISSION
                         WASHINGTON, D.C.  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 MARCH 31, 1997


                     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  May  14,  1997, there were outstanding 54,813,417 shares  of  the
Registrant's Common Stock, no stated value.





<PAGE> 2

                    PARACELSUS HEALTHCARE CORPORATION
                                FORM 10-Q

                     FOR THE QUARTERLY PERIOD ENDED
                             MARCH 31, 1997


                                  INDEX

<TABLE>
<CAPTION>

                                                              PAGE REFERENCE
                                                                 FORM 10-Q
                                                              --------------
<S>                                                                 <C>
PRELIMINARY STATEMENT........................................       3

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

PART I.

  Item 1. FINANCIAL INFORMATION

          Financial Statements-- (Unaudited)

          Condensed Consolidated Balance Sheets--
               March 31, 1997 and December 31, 1996.........        5

          Consolidated Statements of Operations--
               Three Months Ended March 31, 1997 and 1996...        6
                                                                                            
          Condensed Consolidated Statements of Cash Flows--
               Three Months Ended March 31, 1997 and 1996...        7

          Notes to Interim Condensed Consolidated
               Financial Statements.........................        8
  
  Item 2. Management's Discussion and Analysis of Financial
               Condition and Results of Operations .........        12

PART II. OTHER INFORMATION..................................        17

SIGNATURE...................................................        18

</TABLE>











<PAGE> 3

PRELIMINARY STATEMENT
     In  October  1996,  the  Board  of  Directors  appointed  a  Special
Committee consisting  of  non-management members, to supervise and direct
the conduct of an inquiry by outside legal counsel regarding, among other
things, the Company's accounting  and  financial  reporting practices and
procedures for the periods prior to the quarter ended September 30, 1996.
As  a  result  of  the  inquiry,  the  Company  restated  its   financial
information for periods commencing with January 1, 1992 through the  nine
months  ended  September  30,  1996, as reflected in the Company's Annual
Report on Form 10-K for the year  ended December 31, 1996 (the "1996 Form
10-K"),   filed  with  the  Securities   and   Exchange  Commission  (the
"Commission")  on April 15, 1997. Adjustments and  reclassifications were
necessary   to  correct  errors  and  irregularities  relating   to   (i)
receivables due  from  Medicare and other government programs (ii) use of
corporate  reserves, (iii)  provisions  for  bad  debt  expense  relating
principally  to  two  of  the  Company's psychiatric hospitals in the Los
Angeles  area and (iv) deferral of  facility  closure  costs  which  only
affected the  1996  quarterly information (collectively, the "restatement
entries").   The  following   financial  statements  should  be  read  in
conjunction with the audited consolidated  financial statements and notes
thereto for the year ended December 31, 1996  included  in  the Company's
1996  Form 10-K.

     To  show  the  impact  of  the  restatement entries with respect  to
previously reported amounts for the quarter  ended  March  31,  1996, the
Company  has  provided  a  description  of the restatement entries and  a
reconciliation of historical results for  the  quarter  ended  March  31,
1996,  as previously reported in the filed quarterly report on Form 10-Q,
to the restated results for such quarterly period.

     The Company intends to file after the filing of this report, amended
quarterly  reports on Form 10-Q/A for each of the first three quarters in
1996 and the  transition  period  ending December 31, 1995, restating the
condensed financial statements previously  reported  and  filed  with the
Commission.

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;
the outcome of negotiations with  the  Company's  Senior Lenders; 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;
liability and other claims asserted against the Company; competition; the
loss  of  any significant  customer;  changes  in  business  strategy  or
development plans; the ability to attract and retain qualified personnel,
including physicians;  the  significant  indebtedness of the Company; and
the  availability  and  terms of capital to fund  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>
                                                   MARCH 31,       DECEMBER 31,
                                                     1997              1996
                                                   ---------       -----------
                                                  (Unaudited)        (Note 1)
<S>                                              <C>                <C>
ASSETS
Current assets:
    Cash and cash equivalents                    $  17,443          $   17,771
    Restricted cash                                  3,397               2,358
    Accounts receivable, net                        62,589              64,687
    Deferred income taxes                           27,957              28,739
    Refundable income taxes                         31,003              31,003
    Other current assets                            34,316              53,072
    Current assets of discontinued operations        4,667                  -
                                                    ------              ------
       Total current assets                        181,372             197,630

Property and equipment                             426,070             420,697
Less: Accumulated depreciation and amortization   (115,571)           (109,862)
                                                   -------             -------
                                                   310,499             310,835

Long-term assets of discontinued operations         16,587              18,499
Assets held for sale                                22,218              22,095
Goodwill                                           117,227             118,168
Other                                              107,973             105,605
                                                   -------             -------
       Total assets                              $ 755,876          $  772,832
                                                   =======             =======

</TABLE>
         
















<PAGE>  5   
                    PARACELSUS HEALTHCARE CORPORATION
                    CONDENSED CONSOLIDATED BALANCE SHEETS
                              ($ in 000's)
                               (Unaudited)
<TABLE>
<CAPTION>
                                                    MARCH 31,     DECEMBER 31,
                                                      1997            1996
                                                    --------       ----------
                                                    (Unaudited)     (Note 1)
<S>                                              <C>                <C>

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Accounts payable                             $  44,476          $   40,408
    Accrued liabilities and other                   96,843             118,781
    Current maturities of long-term debt             4,704               4,679
                                                    ------             -------
       Total current liabilities                   146,023             163,868

Long-term debt                                     490,916             491,057
Other long-term liabilities                         65,468              69,420
Stockholders' Equity:
    Common stock                                   224,472             224,472
    Additional paid-in capital                         390                 390
    Unrealized (losses) gains on marketable
      securities                                       (86)                100
    Accumulated deficit                           (171,307)           (176,475)
                                                   -------             -------
       Total stockholders' equity                   53,469              48,487
                                                   -------             -------
Total Liabilities and Stockholders' Equity       $ 755,876          $  772,832
                                                   =======             =======
</TABLE>
                                  See accompanying notes.























<PAGE>  6
                    PARACELSUS HEALTHCARE CORPORATION

                  CONSOLIDATED STATEMENTS OF OPERATIONS
                   ($ in 000's, except per share data)
                               (Unaudited)

<TABLE>
<CAPTION>
                                                     THREE MONTHS ENDED
                                                           MARCH 31,
                                                 --------------------------
                                                     1997           1996
                                                 ------------   -----------
                                                               (Restated-See
                                                                  Note 2)
<S>                                              <C>            <C>
Net revenue                                      $  168,490     $  115,323

Costs and expenses:
  Salaries and benefits                              69,012         53,513
  Other operating expenses                           66,432         49,588
  Provision for bad debts                            10,164          6,911
  Interest                                           10,855          3,819
  Depreciation and amortization                       7,704          3,789
  Equity in earnings of Dakota Heartland 
     Health System                                   (2,559)             -
  Unusual charge                                          -          2,438
                                                    -------         ------
     Total costs and expenses                       161,608        120,058

  Income (loss) from continuing operations
     before minority interest and 
     income taxes                                     6,882         (4,735)
  Minority interests                                   (341)          (340)
                                                    -------        -------
  Income (loss) from continuing operations
     before income taxes                              6,541         (5,075)
  Provision (benefit) for income taxes                1,373         (2,148)
                                                    -------        -------
  Income (loss) from continuing operations            5,168         (2,927)
  Loss from operations of discontinued
     operations, net                                     -         (11,422)
                                                    -------        -------
  Net income (loss)                              $    5,168     $  (14,349)
                                                    =======        =======
  Income (loss) per share:
     Continuing operations                       $     0.09     $    (0.10)
     Discontinued operations                              -          (0.38)
                                                    -------        -------
  Income (loss) per share                        $     0.09     $    (0.48)
                                                    =======        =======

  Weighted average common and common
     equivalent shares                               57,668         29,772

</TABLE>
                            See accompanying notes.

<PAGE> 7
                    PARACELSUS HEALTHCARE CORPORATION

             CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                               ($ in 000's)
                               (Unaudited)

<TABLE>
<CAPTION>
                                                       Three Months Ended
                                                            March 31,
                                                -----------------------------
                                                    1997             1996
                                                ------------     ------------
                                                                 (Restated -
                                                                  See Note 2)
<S>                                             <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)                               $   5,168          $ (14,349)
Non-cash expenses and changes in
  operating assets and liabilities                (15,817)            12,266
                                                  -------             ------
Net cash used in operating activities             (10,649)            (2,083)
                                                  -------             ------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities                       -             (2,168)
Sale of marketable securities                      19,284                  -
Additions to property and equipment, net           (5,200)            (1,870)
Increase in other assets, net                      (3,420)            (3,190)
                                                   ------             ------
Net cash provided by (used in) 
  investing activities                             10,664             (7,228)
                                                   ------             ------

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under Revolving Credit Facility              -             15,000
Repayments under Revolving Credit Facility              -             (5,500)
Repayments of debt, net                              (343)              (341)
Dividends to stockholder                                -             (1,117)
                                                   ------             ------
Net cash (used in) provided by financing
  activities                                         (343)             8,042
                                                   ------             ------
Decrease in cash and cash equivalents                (328)            (1,269)
Cash and cash equivalents at beginning of year     17,771              4,418
                                                   ------             ------
Cash and cash equivalents at end of period      $  17,443          $   3,149
                                                   ======             ======

Supplemental Cash Flow Information:
  Interest paid                                  $ 19,124          $   1,984
  Income taxes paid                                   198              4,094

</TABLE>


                             See accompanying notes.

<PAGE>  8
                      PARACELSUS HEALTHCARE CORPORATION
      NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               (Unaudited)

                             March 31, 1997

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  28  hospitals  with  2,915
licensed  beds  in  9 states (including two  psychiatric  hospitals  with
113 licensed beds), of  which  21  are owned, including two through a 50%
owned partnership interest, and seven 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 (see Note 2). The
balance sheet at December 31, 1996 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  three  months ending March 31, 1997 are not 
necessarily indicative of  the results that may be expected for the year
ending December 31, 1997. These financial statements  should  be  read
in  conjunction  with the audited consolidated  financial statements and
notes thereto for the year  ended December 31, 1996 included in the
Company's 1996 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 months ended March 31, 1996 have
been reclassified to  conform  to  the  Company's  current  presentation,
including  the  reclassification of operating results of the discontinued
psychiatric  hospitals   to   "Loss   from   operations  of  discontinued
operations, net" in the Consolidated Statements of Operations.

NET INCOME (LOSS) PER SHARE - Net income (loss)  per share is computed by
dividing net income (loss) by the weighted average  number  of common and
common equivalent shares outstanding. Fully diluted net income (loss) per
share  is  not  presented because it was anti-dilutive. Weighted  average
number of common shares outstanding for  the quarter ended March 31, 1996
have been adjusted  to  reflect  the  66,159.426-for-one  stock  split in
conjunction   with   the  merger  with  Champion  Healthcare  Corporation
("Champion")  in August 1996.
<PAGE>  9

In February 1997, the Financial Accounting Standards Board issued
Statement of Accounting Standards ("SFAS")  No. 128, "Earnings per Share,"
which is required to be adopted on December 31, 1997. At that time, the
Company will be required to change the method currently used to compute
earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect
of stock options will be excluded. The impact will not result in a material
change in primary earnings (loss) per share for the quarters ended March 31,
1997 and 1996. The impact of SFAS No. 128 on the calculation of fully
diluted earnings (loss) per share for these quarters is also not expected
to be material.

NOTE 2.    RESTATEMENT OF FINANCIAL STATEMENTS

     In  October  1996,  the  Board  of  Directors  appointed  a  Special
Committee consisting  of  non-management members, to supervise and direct
the conduct of an inquiry by outside legal counsel regarding, among other
things, the Company's accounting  and  financial  reporting practices and
procedures for the periods prior to the quarter ended September 30, 1996.
Such inquiry resulted in the Company restating its  financial  statements
for the periods commencing January 1, 1992 through the nine months  ended
September  30,  1996, as reflected in the Company's 1996 Form 10-K, filed
with the Commission on April 15, 1997.

     The need for  prior period restatements was the result of accounting
errors and irregularities  at  pre-merger  Paracelsus  in four areas: (i)
overstatement  of  receivables  due  from  Medicare and other  government
programs; (ii) use of corporate reserves; (iii)  provisions  for bad debt
expense   relating  principally  to  two  of  the  Company's  psychiatric
hospitals in  the Los Angeles area; and (iv) deferral of facility closure
costs which only affected the 1996 quarterly information.

     The impact  of  the  restatement  entries on the Company's financial
results for the three months ended March  31,  1996  is summarized in the
following table.  Due to the reclassification of operating results of the
psychiatric   hospitals   from   continuing  operations  to  discontinued
operations, a reconciliation has been  included in the following table to
reconcile to the reported amounts as shown in the Consolidated Statements
of Operations for such period.




















<PAGE> 10
<TABLE>
<CAPTION>                                                                     Restated
                             As Previously    Adjustments       (a)          Discontinued    As Restated
                               Reported           to         As Restated      Operations    and Adjusted
(In 000's, except per      Quarter Ended    Quarter Ended  Quarter Ended   Quarter Ended   Quarter Ended
 share data)                 Mar. 31, 1996   Mar.31, 1996   Mar.31, 1996    Mar.31, 1996     Mar.31,1996
 ------------------------      ----------     ------------   ------------     -------------    ----------
<S>                           <C>             <C>            <C>              <C>              <C> 
Net revenue                   $ 131,916       $  (3,432)     $  128,484       $  (13,161)      $ 115,323
Costs and expenses:
  Salaries and benefits          57,617                          57,617           (4,104)         53,513
  Other operating expenses       48,879           5,329          54,208           (4,620)         49,588
  Provision for bad  debts       10,579                          10,579           (3,668)          6,911
  Interest                        3,834                           3,834              (15)          3,819
  Depreciation and amortization   3,984                           3,984             (195)          3,789
  Unusual charge                 22,356                          22,356          (19,918)          2,438
                                -------           ------         ------           ------          -----
Total costs and  expenses       147,249           5,329         152,578          (32,520)        120,058
Loss from continuing operations
  before minority interests
  and income taxes              (15,333)         (8,761)        (24,094)          19,359          (4,735)
Minority interests                 (503)            163            (340)             -              (340)
                                 ------           ------         ------            -----          ------
Loss from continuing operations
  before income taxes           (15,836)         (8,598)        (24,434)          19,359          (5,075)
Income tax benefit               (6,493)         (3,592)        (10,085)           7,937          (2,148)
                                 ------           ------          -----            -----          ------
Loss from continuing operations  (9,343)         (5,006)        (14,349)          11,422          (2,927)
Loss  from operations of
  discontinued  psychiatric
  hospitals, net                      -               -               -          (11,422)        (11,422)
                                 ------           -----           -----           ------          ------
Net Loss                      $  (9,343)       $ (5,006)     $  (14,349)      $        -       $ (14,349)
                                 ======           =====          ======           ======          ======
Loss per share:
 Continuing operations        $   (0.31)       $  (0.17)     $    (0.48)      $     0.38       $   (0.10)
 Discontinued  operations             -               -               -            (0.38)          (0.38)
                                  -----           -----           -----            -----           -----
Loss per share                $   (0.31)       $  (0.17)     $    (0.48)      $        -       $   (0.48)
                                  =====           =====           =====            =====           ===== 
Weighted average shares 
 outstanding                     29,772          29,772          29,772           29,772          29,772
(a) Reflects impact of restatement entries before reclassification of discontinued operations.
</TABLE>





<PAGE>  11

The Company intends to file after the filing of this report, amended
quarterly reports on Form 10-Q/A for the 1996 quarters and the transition
period  ending December 31, 1995, restating  the  condensed  consolidated
financial statements previously reported and filed with the Commission.

NOTE 2.    UNUSUAL CHARGE

     In March  1996, the Company recognized a charge for settlement costs
totaling $22.4 million regarding two lawsuits, of which $19.9 million was
related to a case  involving  the  operation of its psychiatric programs.
The $19.9 million is reflected as "Loss  from  operations of discontinued
operations, net," with the remaining $2.5 million  as an unusual charge
in the Consolidated Statement of Operations.

NOTE 3.    DISPOSITION AND CLOSURE OF HOSPITALS

     On  January  31,  1997, the Company closed the 104-bed Orange County
Community Hospital of Orange  and  consolidated  services into the 53-bed
Orange County Hospital of Buena Park.

     On April 28, 1997, the Company completed the  sale of two of its six
psychiatric  facilities,  the  149-bed  Lakeland  Regional   Hospital  in
Springfield,  Missouri  and  the  70-bed Crossroads Regional Hospital  in
Alexandria, Louisiana. No gain or loss  was  recognized in connection with
such divestiture.

NOTE 4.     LONG-TERM DEBT

     Effective April 14, 1997, the Company entered  into  an amendment to
the  existing  five-year Reducing Revolving Credit Facility (the  "Credit
Facility")(the "Credit Agreement"), which provides among other things (i)
a reduction in the  credit  commitment  from  $400.0  million  to  $200.0
million, (ii) interest rates which generally increase effective April 14,
1997  by  .50%  on  a monthly basis until such increase reflects an 8.00%
increase as compared  to  rates  otherwise  in  effect prior to April 14,
1997,  (iii)  a  limitation  of $20.0 million in unrestricted  additional
borrowings under the amended Credit  Agreement  for  purposes  other than
Permitted Acquisitions, as defined in the agreement, (iv) a limitation of
$20.0  million  in additional borrowings for Permitted Acquisitions,  (v)
the right by lenders  to  a first priority lien in the Company's real and
personal properties; however, total collateral value based upon appraised
fair market value cannot exceed  133.0% of the aggregate principal amount
of the commitments, (vi) proceeds  of  asset dispositions must be applied
as  a  permanent  reduction  of  the debt outstanding  under  the  Credit
Agreement and (vii) additional restrictive financial covenants.

NOTE 5.    CONTINGENCIES

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







<PAGE>   12


ITEM 2.                 MANAGEMENT'S DISCUSSION AND ANALYSIS
               OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESTATEMENT OF FINANCIAL INFORMATION FOR QUARTER ENDED MARCH 31, 1996

     As  a  result  of  the  Special  Committee's  investigation  of  the
accounting and financial reporting practices  and  procedures  in periods
prior   to  September  30,  1996,  the  Company  restated  its  financial
information  for periods commencing with January 1, 1992 through the nine
months ended September  30, 1996, as reflected in the Company's 1996 Form
10-K, filed with the Commission  on  April  15,  1997.   The need for the
restatement  of  prior  period  financial  statements  was the result  of
accounting   errors  and  irregularities  at  pre-merger  Paracelsus   as
discussed in Item 1 - Note 2.

     The following  table  presents  a  summary  of  the  impact  of  the
restatement.  See Item 1 - Note 2 for a more expanded presentation of the
impact of the restatement  and  the reclassification of operating results
of the discontinued psychiatric hospitals  to  "Loss  from  operations of
discontinued operations, net." The restated financial information  should
be read in conjunction with the Company's 1996 Form 10-K.

<TABLE>
<CAPTION>
                              As Previously                     (a)
                               Reported                     As Restated
                             Quarter Ended                 Quarter Ended
                                Mar. 31,                       Mar. 31,
                                 1996         Adjustments      1996
                              ------------  -----------   -------------- 
(IN 000'S, EXCEPT PER SHARE DATA)
<S>                          <C>            <C>           <C>
Net Revenue                  $ 131,916      $  (3,432)    $    128,484
Loss from continuing
 operations before
 minority interests and
 income taxes                  (15,333)        (8,761)         (24,094)
Net loss                        (9,343)        (5,006)         (14,349)
Loss per share               $   (0.31)     $   (0.17)    $      (0.48)
</TABLE>
______________
(a)    Reflects    impact   of   restatement   entries   before
       reclassification of discontinued operations.

     The  1996  adjustments  consisted   primarily   of   (i)  additional
deductions from revenue of $2.3 million for receivables from Medicare and
other government programs, (ii) an increase in operating expenses of $4.6
million  from the reversal of corporate reserves, (iii) a charge  to  net
revenue of $1.2 million for certain bad debt expense that was deferred at
two of the  psychiatric  hospitals  and  (iv)  an  increase  in operating
expenses of $697,000 for certain deferred closure costs. The Company does
not  believe  that  the  adjustments  regarding  the Medicare receivables
resulted from improper patient billing procedures under that program.


<PAGE>   13

RESULTS OF OPERATIONS

     The  Company  made  numerous  acquisitions  and  divestitures  since
April 1996, including the merger with Champion.  Additionally,  in August
1996,  the  Company  completed  its public offering of the $325.0 million
senior subordinated notes (the "Notes")  and a sale of 5.2 million shares
of its common stock.  Accordingly, the Company's  financial  position and
portfolio of operating hospitals during the quarter ended March  31, 1997
was  significantly  different  from  that  of the comparable 1996 period.
"Same hospitals" as used in the following discussion,  where appropriate,
consist  of  acute care hospitals owned throughout the periods  of  which
comparative operating  results  are  presented.  Operating results of the
Company's psychiatric hospitals have been  segregated  from  those of the
acute  care  hospitals  and  are  reflected under the caption "Loss  from
operations  of  discontinued  operations,   net"   in   the  Consolidated
Statements of Operations.

RESULTS OF OPERATIONS - QUARTER ENDED MARCH 31, 1997
COMPARED WITH QUARTER ENDED MARCH 31, 1996

     Net revenue for the quarter ended March 31, 1997 was $168.5 million,
an increase of $53.2 million, or 46.1%, from $115.3 million  for the same
period of 1996.  The $53.2 million increase was primarily attributable to
an  increase  of  $54.3  million contributed by hospitals acquired  since
April 1996, net of divested  hospitals,  and  a  decrease of $1.1 million
from "same hospitals." Of the $1.1 million decrease  in  "same  hospital"
net   revenue,   $1.6   million  was  attributable  to  the  Los  Angeles
metropolitan ("LA metro")  hospitals  as a result of management's closing
underperforming operating units and eliminating or reducing  unprofitable
services at certain hospitals, in addition to a continuing change in payor
mix from private insurance to managed care and Medicare/Medicaid.

     The Company's acute care hospitals experienced a 50.4 %  increase in
inpatient admissions from 12,753 in 1996 to 19,178 in 1997.  Patient days
increased  from  66,738  in  1996  to  89,724 in 1997.  Outpatient visits
(including home health) increased 43.5%  from  271,900 in 1996 to 390,280
in 1997.  Admissions in "same hospitals" decreased from 10,213 in 1996 to
9,713  in  1997,  as  a  result  of management's closing  underperforming
operating  units  and  eliminating or reducing unprofitable services   at
certain hospitals.

     Expressed  as  a  percentage  of  net  revenue,  operating  expenses
(salaries  and  benefits, other operating expenses and provision for  bad
debts)  decreased  from   95.4  % in 1996 to 86.4 % in 1997 and operating
margin increased from 4.6% to 13.6%.  Such  increase  was  due  to higher
operating  margins  at  hospitals  acquired  since April 1996 as well  as
improved  operating  margins at "same hospitals,"  as  a  result  of  (i)
management's efforts to  control  costs, (ii) efficiency and productivity
gains  resulting  from the implementation   of  operating  standards  and
benchmarks on a hospital  department level, (iii) management's closing of
underperforming operating units  and eliminating or reducing unprofitable
services, specifically at the LA metro hospitals and (iv) divestiture  or
closure of underperforming facilities. Management expects to further 
reduce operating costs through a corporate reorganization which will
result in reduced corporate overhead costs.
<PAGE>   14

     Interest expense increased $7.1 million from $3.8 million in 1996 to
$10.9  million  in  1997, primarily due to (i) an increase in outstanding
indebtedness from the issuance of the Notes in August 1996 and additional
borrowings under the  Credit Facility to finance acquisitions and to fund
Champion  merger  costs,   working   capital   requirements  and  capital
expenditures,  (ii)  an  increase  in  the interest rate  on  the  Credit
Facility during 1997, net of (iii) the redemption in August 1996 of $75.0
million  of  senior  subordinated notes. Approximately  $1.3  million  of
interest expense incurred in 1997, which related to borrowings to finance
the acquisition of PHC Regional Hospital and Medical Center ("PHC Regional
Hospital"), was  offset  against  the  loss contract accrual   previously
established   at   December  31,  1996. Accordingly,  such amount was not
reflected as interest  expense  in  the 1997 Consolidated Statement of
Operations.

     Depreciation and amortization increased to $7.7 million in 1997 from
$3.8 million for  the same period of 1996.  Of the $3.9 million increase,
$4.7 million was primarily  attributable  to  the  facilities acquired or
divested  since  April  1996,  including  amortization  of   goodwill  of
$941,000,  offset  by  a decrease of $790,000 at the acute care LA  metro
hospitals held for sale,  as  a  result  of  not  recording  depreciation
expense on these facilities, commencing on October 1, 1996, in accordance
with Statement of Financial Accounting Standards No. 121 "Accounting  for
the  Impairment  of  Long-Lived  Assets  and  for Long-Lived Assets to Be
Disposed Of."

     Income  from  continuing  operations  before income  taxes  in  1997
included  $2.6  million  attributable  to  the Company's  equity  in  the
earnings of Dakota Heartland Health System but  excluded  a  loss of $5.7
million  attributable  to  PHC  Regional  Hospital.  Such loss was offset
against the loss contract accrual previously established  at December 31,
1996.

     Income before income taxes of the discontinued psychiatric hospitals
was $274,000 in  1997,  as  compared to $559,000 (excluding a charge  of
$19.9 million for settlement costs related to a lawsuit settled in March
1996) for the comparable period of 1996. In accordance with Accounting
Principles  Board  Opinion  No.  30, operating income from  discontinued
operations during 1997 was offset against the disposal loss accrual
previously established in September 1996. Accordingly, such amount was
not  reflected  in  the 1997 Consolidated Statement of Operations. After
income taxes, loss from  operations  of  discontinued operations for the
quarter ended March 31, 1996 was $11.4 million, of which $11.8 million
was related to a lawsuit settlement charge.

     The  Company's effective ongoing tax rate was 21.0%  for  the  three
months ended  March  31,  1997,  as  compared to 42.3% for the comparable
period in 1996. The reduced tax rate for  1997  resulted primarily from a
$1.7 million reduction in the valuation allowance related to the use of
previously unbenefited tax assets.

     Net income for the quarter ended March 31, 1997 was $5.2 million, or
$0.09 per share,  compared  to a net loss  of $14.3 million, or $0.48 per
share, for the same period of 1996.  Weighted  average  common and common
equivalent shares outstanding increased 93.7% from 29.8 million  in  1996
to  57.7  million  in  1997,  primarily from the issuance of 19.8 million
shares in connection with the merger  with  Champion  and from the public
<PAGE>   15

offering  of  5.2  million  shares  of the Company's common  stock,  both
completed in August 1996. Net loss for  the  three months ended March 31,
1996 included settlement costs of $ 13.2 million relating to two lawsuits
settled in  March 1996.

LIQUIDITY AND CAPITAL RESOURCES

     Net cash used in operating activities for  the  quarter  ended March
31, 1997 was $ 10.6 million, compared to $2.1 million for the same period
of  1996.   The  $8.5 million decrease in net cash used in operating
activities was mainly  attributable  to  incremental cash payments during
1997 for (i) interest expense on outstanding  indebtedness  (ii)  accrued
1996 health claims related to PHC Regional Hospital (iii) costs and  fees
related  to  the  Special  Committee's  investigation,  and (iv) Champion
merger costs. Net cash provided by investing activities was $10.7 million
during 1997, as compared to net cash used in investing activities of $7.2
million   during   1996.   The   $17.9  million  increase  was  primarily
attributable to the liquidation of  marketable  securities  held  by  the
Company's  wholly-owned  subsidiary,  Hospital   Assurance  Company Ltd.,
during  1997, offset by an increase in capital expenditures during  1997.
Net cash  used in financing activities during 1997 was $343,000, compared
to net cash provided by financing activities of $8.0 million during 1996.
The $8.3 million decrease was primarily attributable to net borrowings of
$9.5 million  during  1996  under  the  Company's  then revolving line of
credit, offset by cash dividends of $1.1 million paid  to the former sole
stockholder.

     Net working capital was $35.3 million at March 31, 1997, an increase
of $1.5 million from $ 33.8 million at December 31, 1996. The Company's 
long-term debt as a percentage of total capitalization was 90.2%  at
March 31, 1997, compared to 91.0% at December 31, 1996.

     As  of  May 14, 1997, the Company had $39.9 million available  under
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  the  sale  of  hospital  accounts receivable  under  the  Company's
commercial paper program, the Federal and state income taxes refunds, and
available borrowings under its Credit  Agreement  will  be  sufficient to
meet  funding requirements through 1997.  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 SALT LAKE CITY, UTAH HOSPITALS

     With  respect  to the Utah hospitals, The Company recorded  earnings
before interest, income  taxes,  depreciation and amortization ("EBITDA")
of $8.4 million, or 30.6% of the Company's consolidated hospitals' EBITDA,
for the three months ended March 31, 1997, after excluding an operating
loss  of  $4.4 million associated with the loss contract at PHC Regional
Hospital. Such loss, in addition to interest expense of $1.3 million
attributable to  borrowings to  finance the acquisition of PHC Regional
Hospital,  was  offset  against  the  loss  contract  accrual  previously
<PAGE >   16
established in 1996. Excluding the impact  of  the  loss  contract at PHC
Regional  Hospital,  the performance of the Salt Lake area hospitals  for
the three months ended  March  31,  1997 was as expected. The Company has
developed a consolidation plan that will likely result  in  closing PHC
Regional Hospital based on the option to redistribute the patient volume
from PHC Regional Hospital to the Company's remaining four hospitals.

OPERATING PERFORMANCE OF LA METRO HOSPITALS

     As a result of actions taken by management subsequent  to the merger
with Champion to stabilize the operating conditions and curtail losses at
the LA metro hospitals, including closing underperforming operating units
and eliminating or reducing unprofitable services, the Company recorded
EBITDA  of $2.5  million  on  the  LA metro acute care hospitals for the
three months ended  March  31, 1997, as  compared  to  a  loss  of 
$697,000  for  the comparable 1996  period. Loss before interest, income
taxes, depreciation and amortization for the LA metro psychiatric hospitals,
which was offset against the disposal  loss  accrual  previously
established in September 1996, was $33,000 in 1997.  Management expects
the LA metro  hospitals to generate positive cash flows through their
estimated disposition date.

PENDING LITIGATION

     Since the Company filed its 1996 Form 10-K with  the  Commission  on
April  15,  1997,  there  have  been  two amended complaints filed in the
stockholder  class  and  derivative  litigation described in  that  Form
10-K.  A Consolidated Class Action Complaint, captioned IN  RE  PARACELSUS
CORP. SECURITIES  LITIGATION,  Master  File  No.  H-96-3464,  was  filed
which consolidates and amends several class action complaints described
in  the 1996  Form  10-K.  A  First  Amended Derivative Complaint was
filed which amends the previously filed class and derivative action
captioned CAVEN V. MILLER No. H-96-4291. Both complaints now reflect
certain facts disclosed in the 1996  Form  10-K that were not alleged in
the previous complaints. The 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. The derivative action, which purports to be filed
on behalf of Champion Healthcare Corporation,  asserts  various state law
claims  against the Company, certain of its existing and former  officers
and directors  or  their  affiliates,  its  outside auditor, and the lead
underwriter for various securities offerings.

     As discussed in the Company's 1996 Form  10-K,  the Company believes
that the outcome of certain of the claims will probably be unfavorable to
the Company. The Company also believes that the stockholder class actions
asserted against the Company are likely to settle rather  than to proceed
to trial, judgment, and appeal and that, given the circumstances of these
cases, the terms of a settlement would be structured in a manner to avoid
causing  the  Company  to  seek  protection  under the Federal bankruptcy
reorganization laws. In any circumstances where  the  Company  could  not
structure  a  settlement of all claims within its financial resources, it
would vigorously  defend any attempt to establish the amount of liability
or to require payment  beyond its resources. Many factors will ultimately
affect and determine the  results  of  the  litigation,  however, and the
Company  can  provide  no  assurance  that  the results will not  have  a
significant adverse effect on it.
<PAGE>    17

REGULATORY MATTERS

      Healthcare reform legislation has been proposed at both Federal and
state levels. The Company cannot predict the effect that such reforms may
have on its business and there can be no assurance  that any such reforms
will not have a material adverse effect on the Company's  future revenues
or liquidity.


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 1996 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

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K

(a) Exhibits

10.9   First Amendment to  Credit Agreement, dated as of April 14,
       1997, among Paracelsus, Bank of America  National Trust and Savings
       Association, as agent, and other lenders named therein.

10.66  Letter Agreement between  R. J. Messenger and Paracelsus
       Healthcare Corporation dated April 11, 1997.

11.1   Statement regarding computation of per share earnings of
       Paracelsus.

27     Financial Data Schedule.

(b) Reports on Form 8-K

       None.





<PAGE>   18

                                  SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

   
                            Paracelsus Healthcare Corporation
                                    (Registrant)

                            

Dated: May 15, 1997            By: /s/ JAMES G. VANDEVENDER
                                -------------------------
                                    James G. VanDevender
                                   Executive Vice President,
                                    Chief Financial Officer
                                       & Director