<PAGE> 1
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
                                 ___________

                                 FORM 10-Q/A

                               AMENDMENT NO. 1

                                     TO

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

             For the quarterly period ended March 31, 1996


                     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         77067
                  (Address of principal executive offices)          (Zip Code)


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


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 March 31, 1996, there were 450 shares of the Registrant's Common Stock,
no stated value, outstanding.

-------------------------------------------------------------------------------
-------------------------------------------------------------------------------





<PAGE> 2


                          PARACELSUS HEALTHCARE CORPORATION

                                     FORM 10-Q/A

                           For the Quarterly Period Ended
                                   March 31, 1996

                                        INDEX
                                                                      Page
                                                                    Reference
                                                                   FORM 10-Q/A
                                                                   -----------
PRELIMINARY STATEMENT                                                       3


PART I.   FINANCIAL INFORMATION

Item 1.   Financial Statements

          Condensed Consolidated Balance Sheets -
          March 31, 1996 and September 30, 1995                             4

          Consolidated Statements of Operations -
          Three and six months ended March 31, 1996 and 1995                5

          Condensed Consolidated Statements of Cash Flows -
          Six months ended March 31, 1996 and 1995                          6

          Notes to Interim Condensed Consolidated Financial Statements      7

Item 2.   Management's Discussion and Analysis of Financial
          Condition and Results of Operations                              15

PART II.  OTHER INFORMATION                                                21

SIGNATURE                                                                  22




















<PAGE> 3
PRELIMINARY STATEMENT

     Paracelsus Healthcare Corporation (the "Company") is filing this report on
Form  10-Q/A   to  amend  and restate the Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996, filed with the Securities and Exchange Commission
(the "Commission") on May 15, 1996.

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,
filed with 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  Annual  Report  on  Form  10-K  for such period, which  include
restated financial results for calendar years 1992  through  1995  and  for the
quarterly 1995 and 1996 periods.

     To  show  the impact of the restatement entries with respect to previously
reported amounts  for  the three months and six months ended March 31, 1996 and
1995, the Company has provided  a  description of the restatement entries and a
reconciliation of historical results  for the three months and six months ended
March 31, 1996 and 1995, as previously  reported  in the filed quarterly report
on Form 10-Q, to the restated results.

     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:  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
                            (Dollars in thousands)
                                  (Unaudited)
                                                  Restatement - See Note 2
                                                  ------------------------
                                                    March        September
                                                      31,            30,
                                                     1996           1995
                                                  ---------      ---------
<TABLE>
<CAPTION>
<S>                                                <C>           <C>
ASSETS
Current Assets:
   Cash and cash equivalents                       $  3,149       $   2,949
   Marketable securities                             10,051          10,387
   Accounts receivable, net                          52,105          46,247
   Other current assets                              26,610          27,437
   Deferred income taxes                             45,978          32,580
                                                   --------          ------
     Total current assets                           137,893         119,600

Property and equipment                              275,577         268,412
   Less: Accumulated depreciation and
      amortization                                 (109,848)       (102,746)
                                                   --------         -------
                                                    165,729         165,666

Other assets                                         46,524          40,533
                                                   --------         -------
     Total Assets                                  $350,146       $ 325,799
                                                   ========         =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
   Accounts payable and other current liabilities  $ 82,849       $  69,401
   Current maturities of long-term debt               5,186           8,658
                                                     ------          ------
     Total current liabilities                       88,035          78,059

Long-term debt                                      139,475         113,070
Other long-term liabilities                          25,827          25,176
Deferred income taxes                                25,583          24,619
Minority interest                                       141             126
Stockholder's equity
   Common stock                                       4,500           4,500
   Additional paid-in capital                           390             390
   Unrealized gains on marketable securities             42             137
   Retained earnings                                 66,153          79,722
                                                     ------          ------
     Total stockholder's equity                      71,085          84,749
                                                    -------          ------
     Total Liabilities and Stockholder's Equity   $ 350,146       $ 325,799
                                                    =======         =======
</TABLE>
                            See accompanying notes.
<PAGE> 5

                       PARACELSUS HEALTHCARE CORPORATION
                       CONSOLIDATED STATEMENTS OF INCOME
                            (Dollars in thousands)
                                  (Unaudited)

                                         Restatement - See Note 2
                              -----------------------------------------------
                              Three Months Ended         Six Months Ended
                                   March 31,                 March 31,
                              ---------------------      -------------------
                                  1996      1995            1996      1995
                              ----------  ---------      --------   --------
<TABLE>
<CAPTION>
<S>                           <C>         <C>             <C>        <C>
Net Revenue                   $128,484    $128,002        $258,645   $255,133
Costs and expenses:
  Salaries and benefits         57,617      54,843         113,162    108,114
  Other operating expenses      54,208      47,650         107,384    104,041
  Provision for bad debts       10,579      10,479          20,191     19,283
  Interest                       3,834       3,936           7,685      7,652
  Depreciation and amortization  3,984       4,394           7,972      8,734
  Settlement costs              22,356           -          22,356          -
                               -------      ------         -------    -------
Total costs and expenses       152,578     121,302         278,750    247,824
Income (loss) before minority
  interests and income taxes   (24,094)      6,700         (20,105)     7,309
Minority interests                (340)       (511)           (909)    (1,204)
                               -------     -------          ------      -----
Income (loss) before
  income taxes                 (24,434)      6,189         (21,014)     6,105
Provision (benefit) for
  income taxes                 (10,085)      2,538          (8,683)     2,504
                               -------     -------           -----      -----
Net income (loss)             $(14,349)   $  3,651        $(12,331)  $  3,601
                               =======     =======          ======      =====
</TABLE>











                              See accompanying notes.








<PAGE> 6
                       PARACELSUS HEALTHCARE CORPORATION
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (Dollars in thousands)
                                  (Unaudited)

                                                  Restatement - See Note 2
                                                  -------------------------
                                                       Six Months Ended
                                                           March 31,
                                                  -------------------------
                                                      1996          1995
                                                  -----------     ---------
<TABLE>
<CAPTION>
<S>                                               <C>             <C> 
Cash Flows from Operating Activities:
Net income (loss)                                 $  (12,331)     $  3,601
Non-cash expenses and changes in operating 
  assets and liabilities                               5,565         1,006
                                                      ------         -----
Net cash (used in) provided by operating activities   (6,766)        4,607
                                                      ------         -----

Cash Flows from Investing Activities:
Purchase of marketable securities                     (2,246)       (2,470)
Purchase of property and equipment, net               (7,123)       (5,322)
Decrease in minority interests                          (894)         (739)
Increase in other assets                              (4,466)       (2,003)
                                                      ------         -----
Net cash used in investing activities                (14,729)      (10,534)
                                                      ------        ------

Cash Flows from Financing Activities:
Borrowings under Credit Facility                      31,500        23,500
Repayments under Credit Facility                      (8,000)      (14,500)
Repayment of long-term debt, net                        (567)         (778)
Dividends to stockholder                              (1,238)       (1,640)
                                                       -----         -----
Net cash provided by financing activities             21,695         6,582
                                                      ------         -----
Increase in cash and cash equivalents                    200           655
Cash and cash equivalents at beginning of period       2,949         1,452
                                                      ------         -----
Cash and cash equivalents at end of period         $   3,149      $  2,107
                                                      ======         =====
Supplementary cash flow information:
     Interest paid                                 $   7,534      $  7,041
     Income taxes paid                                 5,048         5,977
Unrealized (losses) gains on marketable
  securities:
     Marketable securities                              (145)            5
     Deferred taxes                                      (50)            2
                                                       -----          ----
Increase (decrease) in stockholder's equity        $     (95)     $      3
                                                       ======         ====
</TABLE>

                            See accompanying notes.
<PAGE> 7


                       PARACELSUS HEALTHCARE CORPORATION

        NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                (Unaudited)

                               March 31, 1996

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.  As  of  March 31, 1996, the Company
operated  21  hospitals with 1,888 licensed beds in 8 states  (including  three
psychiatric hospitals with 218 licensed beds), of which 14 were owned and seven
were leased.

Basis of Presentation
---------------------
The accompanying  unaudited  condensed  consolidated  financial  statements 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 Company's business is seasonal
in  nature  and  subject to general  economic  conditions  and  other  factors.
Accordingly, operating  results  for  the quarterly and six month periods ended
March 31, 1996 are not indicative of the  results  that may be expected for the
annual period. 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 Annual Report on Form 10-K
for such period, which  include  restated  financial results for calendar years
1992 through 1995 and for 1995 and 1996 quarterly periods.

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 1995 periods have been reclassified to conform
to the Company's current presentation.

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.

<PAGE> 8     
     The need for prior period restatements was the result of accounting errors
and  irregularities  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 quarterly and  six  month  periods  ended  March  31,  1996 and 1995 is
summarized  in  the  following  tables.  A reconciliation has been included  to
reconcile to the reported amounts as shown  in  the  Consolidated Statements of
Operations for each respective period.














































<PAGE> 9

QUARTER ENDED MARCH 31, 1996

                                          As
                                      Previously     Adjustments        As
                                        Reported         to          Restated
                                        Quarter       Quarter         Quarter
                                         Ended         Ended            Ended
                                       March 31,       March 31,      March 31,
                                         1996            1996            1996
                                       ---------      ----------     ----------
(IN 000'S)
<TABLE>
<CAPTION>
<S>                                    <C>            <C>            <C>
Net revenue                            $131,916       $ (3,432)      $ 128,484

Costs and expenses:
   Salaries and benefits                 57,617                         57,617
   Other operating expenses              48,879          5,329          54,208
   Provision for bad  debts              10,579                         10,579
   Interest                               3,834                          3,834
   Depreciation and  amortization         3,984                          3,984
   Settlement costs                      22,356                         22,356
                                         ------          -----          ------
Total costs and  expenses               147,249          5,329         152,578
Loss before minority
   interests and income taxes           (15,333)        (8,761)        (24,094)
Minority interests                         (503)           163            (340)
                                         ------          -----          ------
Loss before income taxes                (15,836)        (8,598)        (24,434)
Income tax benefit                       (6,493)        (3,592)        (10,085)
                                         ------          -----          ------
Net loss                               $ (9,343)     $  (5,006)      $ (14,349)
                                         ======          =====          ======
</TABLE>






















<PAGE> 10

QUARTER ENDED MARCH 31, 1995

                                          As
                                      Previously     Adjustments        As
                                        Reported         to          Restated
                                        Quarter       Quarter         Quarter
                                         Ended         Ended            Ended
                                       March 31,       March 31,      March 31,
                                         1995            1995          1995
                                      ---------      ----------     ----------
(IN 000'S) 
<TABLE>
<CAPTION>
<S>                                    <C>            <C>            <C>
Net revenue                            $128,233       $   (231)      $ 128,002

Costs and expenses:
   Salaries and benefits                 54,929            (86)         54,843
   Other operating expenses              47,564             86          47,650
   Provision for bad  debts              10,479                         10,479
   Interest                               3,936                          3,936
   Depreciation and  amortization         4,394                          4,394
                                       --------            ----        -------
Total costs and  expenses               121,302               -        121,302
Income before minority
   interests and income taxes             6,931            (231)         6,700
Minority interests                        (511)                           (511)
                                        -------            ----        -------
Income before income taxes               6,420             (231)         6,189
Provision for income taxes               2,631              (93)         2,538
                                        -------            ----        -------
Net income                            $  3,789        $    (138)     $   3,651
                                        =======            ====        =======
</TABLE>























<PAGE> 11

SIX MONTHS ENDED MARCH 31, 1996
-------------------------------
                                         As
                                      Previously     Adjustments        As
                                        Reported         to          Restated
                                       Six Months     Six Months    Six Months
                                         Ended         Ended            Ended
                                       March 31,       March 31,      March 31,
                                         1996            1996          1996
                                      ---------      ----------     ----------
(IN 000'S) 
<TABLE>
<CAPTION>
<S>                                    <C>            <C>            <C>

Net revenue                            $260,590       $ (1,945)      $ 258,645

Costs and expenses:
  Salaries and benefits                 113,162                        113,162
  Other operating expenses              100,443           6,941        107,384
  Provision for bad  debts               20,191                         20,191
  Interest                                7,685                          7,685
  Depreciation and  amortization          7,972                          7,972
  Settlement costs                       22,356                         22,356
                                         ------           -----         ------
Total costs and  expenses               271,809           6,941        278,750

Loss before minority
  interests and income taxes            (11,219)         (8,886)       (20,105)
Minority interests                       (1,072)            163           (909)
                                         ------           -----         ------
Loss before income taxes                (12,291)         (8,723)       (21,014)
Income tax benefit                       (5,040)         (3,643)       ( 8,683)
                                         ------           -----         ------
Net loss                               $ (7,251)      $  (5,080)     $ (12,331)
                                         ======           =====         ======
</TABLE>




















<PAGE> 12

SIX MONTHS ENDED MARCH 31, 1995
-------------------------------
                                          As
                                      Previously     Adjustments        As
                                        Reported         to          Restated
                                       Six Months     Six Months    Six Months
                                         Ended         Ended            Ended
                                       March 31,       March 31,      March 31,
                                         1995            1995          1995
                                      ---------      ----------     ----------
(IN 000'S) 
<TABLE>
<CAPTION>

<S>                                    <C>            <C>            <C>

Net revenue                            $252,356       $  2,777       $ 255,133

Costs and expenses:
  Salaries and benefits                 108,575           (461)        108,114
  Other operating expenses               96,280          7,761         104,041
  Provision for bad  debts               19,283                         19,283
  Interest                                7,652                          7,652
  Depreciation and  amortization          8,734                          8,734
                                        -------          -----          ------
Total costs and  expenses               240,524          7,300         247,824
Income before minority
  interests and income taxes             11,832         (4,523)          7,309
Minority interests                       (1,204)                        (1,204)
                                         ------          -----           -----
Income before income taxes               10,628         (4,523)          6,105
Provision for income taxes                4,357         (1,853)          2,504
                                         ------          -----           -----
Net income                             $  6,271      $  (2,670)       $  3,601
                                         ======          =====           =====
</TABLE>






















<PAGE> 13

NOTE 3. MARKETABLE SECURITIES

In  November  1995,  in  concurrence  with  the  adoption  of   "A   Guide   to
Implementation  of  Statement  of  Financial  Accounting  Standards  No. 115 on
Accounting for Certain Investments in Debt and Equity Securities," the  Company
transferred  certain  of its held-to-maturity debt securities to the available-
for-sale category. The  amortized  cost  of  those  securities  at  the time of
transfer  was  $2.0  million and the gross  unrealized loss on those securities
was immaterial.

NOTE 4. EXCHANGE, ACQUISITION & CLOSURE

On November 28, 1995, the Company entered into an Asset Exchange Agreement and
a Stock Purchase Agreement  to  acquire  the 139-bed Pioneer Valley Hospital in
West  Valley  City, Utah, the 120-bed Davis  Hospital  and  Medical  Center  in
Layton, Utah and  the 129-bed Santa Rosa Medical Center in Milton, Florida from
another  healthcare  company  (collectively,  the  "Acquired  Hospitals").   In
exchange,  the other party will receive the Company's 119-bed Peninsula Medical
Center  in Ormond  Beach,  Florida,  the  135-bed  Elmwood  Medical  Center  in
Jefferson,  Louisiana,  the  190-bed Halstead Hospital in Halstead, Kansas, and
$38.5 million in cash, net of  a working capital differential. The Company also
will purchase the real property  of  Elmwood  and  Halstead  from a real estate
investment trust ("REIT"), exchange the Elmwood and Halstead real  property for
the Pioneer real property and then sell the Pioneer real property to  the REIT.
The  acquisition  of the Acquired Hospitals will be accounted for as a purchase
transaction, with no  material  gain  or  loss to be recognized therefrom.  The
Company will finance the acquisition from borrowings  under  its revolving line
of credit.

On  April  11,  1996, the Company entered into an Asset Purchase  Agreement  to
acquire the 125-bed PHC Regional Hospital and Medical Center in Salt Lake City,
Utah for approximately  $70.0  million  in cash. The transaction is expected to
close in May 1996.

On April 12, 1996, the Company entered into  an  Agreement  and  Plan of Merger
("the Merger Agreement") with Champion Healthcare Corporation ("Champion"). The
Merger Agreement provides for, among other things, the merger (the "Merger") of
PC Merger Sub., Inc., a wholly owned subsidiary of the Company, with  and  into
Champion. Prior to the effective date of the Merger, the Company's Common Stock
will  be  split. At the effective date of the Merger, the holders of Champion's
Common Stock  and  Preferred  Stock will receive the right to receive one share
and  two shares of the Company's  Common  Stock,  respectively.  Following  the
Merger,  the  Company's  sole  stockholder  will  own  approximately 60% of the
Company's Common Stock, and Champion's stockholders will own the remaining 40%.
The  Merger must be approved by Champion's stockholders.  Concurrent  with  the
Merger  Agreement,  the  Company  will enter into a Dividend and Note Agreement
which will provide a dividend distribution  to  the Company's sole stockholder,
who  will  in  turn  loan to the Company a portion of  the  proceeds  from  the
dividend distribution.  The  Merger  will  be  accounted for using the purchase
method of accounting and is expected to close in August 1996.

On  March  15,  1996,  the Company closed the 123-bed  Desert  Palms  Community
Hospital in Palmdale, California.



<PAGE> 14

NOTE 5 - LONG-TERM DEBT

On December 8, 1995, the  Company  entered  into  a Second Amended and Restated
Credit Agreement (the "Credit Facility") which provides for a revolving line of
credit in the amount of $230.0 million. The Credit  Facility  is  available for
working capital purposes, to fund acquisitions and for the issuance  of letters
of credit. Borrowings under the Credit Facility bear interest at a base rate or
an  offshore  dollar  rate,  as defined in the Agreement, plus a margin ranging
from  0.25% to 0.75% or 0.75% to  1.125%,  respectively.  The  Credit  Facility
requires  annual  fees ranging from 0.75% to 1.25% of the outstanding amount of
the letters of credit.  The  Company  is  also  required to pay commitment fees
ranging from 0.20% to 0.375% of the unused portion of the Credit Facility.

The Credit Facility expires on November 1998, at  which  time,  the Company can
elect  to  convert  the  then  outstanding balance into a four-year term  loan,
payable in 16 equal quarterly installments, commencing in December 1998.

NOTE 6. SETTLEMENT COSTS

During March 1996, the Company settled  two  lawsuits  in  connection primarily
with the operation of its psychiatric programs. The Company recognized a charge
for  settlement  costs  totaling $22.4 million in the quarter ended  March  31,
1996, consisting primarily of settlement payments, legal fees and the write off
of certain psychiatric accounts receivable. The Company did not admit liability
in either case but resolved  its  dispute  through  the settlements in order to
facilitate the Champion acquisition, re-establish a business  relationship  and
avoid further legal costs in connection with the disputes.

NOTE 7. CONTINGENCIES

The  Company is subject to claims and suits in the ordinary course of business,
including  those  arising  from  care  and  treatment afforded at the Company's
facilities.  It  maintains  insurance  and, where  appropriate,  reserves  with
respect to  the  possible  liability arising from such  claims.  Although  the
Company believes that its insurance  and  loss  reserves  are adequate, there
can be no assurance that such insurance and loss reserves will cover all
potential claims that  may  be  asserted and that the outcome of such claims
will  not  have  a material effect  on the Company's financial position,
results of operations and cash flows.


















<PAGE> 15

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

General
-------
Following changes  in the Company's management which became effective as of the
merger with Champion  Healthcare Corporation on August 16, 1996 (the "Merger"),
management determined that  there  were  financial  performance  and accounting
issues with the pre-merger operating results of the Company.  In October  1996,
the  Company  announced  that  its third quarter results would be substantially
lower than expected.  At the same time, the Board of Directors formed a Special
Committee of non-management members  to  supervise the conduct of an inquiry by
outside legal counsel as to the nature and  reasons  for the earnings shortfall
and investigate the accounting and financial reporting practices and procedures
in periods prior to September 30, 1996.  As a result of  its investigation, the
Special Committee recommended to the Board that the Company  restate  its prior
period  financial  statements.   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 restatements on
the quarterly and six months periods ended March 31, 1996 and 1995 ($ in 000's).


QUARTER ENDED MARCH 31, 1996
----------------------------
<TABLE>
<CAPTION>

<S>                     <C>                 <C>                <C>
                        As Previously
                          Reported                             As Restated
                           Quarter                               Quarter
                            Ended                                 Ended
                          March 31,                             March 31,
                            1996             Adjustments          1996 
                        ------------         -----------       -----------
Net Revenue             $131,916             $ (3,432)           $128,484
Income(loss) before
  minority interests and
  income taxes           (15,333)              (8,761)            (24,094)
Net income (loss)         (9,343)              (5,006)            (14,349)

</TABLE>













<PAGE> 16

QUARTER ENDED MARCH 31, 1995
----------------------------
<TABLE>
<CAPTION>
<S>                     <C>                 <C>                <C>
                        As Previously                             
                          Reported                             As Restated
                           Quarter                               Quarter
                            Ended                                 Ended
                          March 31,                             March 31,
                            1995             Adjustments           1995
                        -----------          -----------       -----------
Net Revenue             $128,233             $   (231)           $128,002
Income(loss) before
  minority interest and
  income taxes             6,931                 (231)              6,700
Net income (loss)          3,789                 (138)              3,651

</TABLE>

SIX MONTHS ENDED MARCH 31, 1996
-------------------------------
<TABLE>
<CAPTION>
<S>                     <C>                 <C>                <C>
                        As Previously                             
                          Reported                             As Restated
                         Six Months                            Six Months
                           Ended                                 Ended
                          March 31,                             March 31,
                            1996             Adjustments          1996
                        -----------          -----------       -----------
Net Revenue             $260,590             $  (1,945)           $258,645
Income(loss) before
  minority interest and 
  income taxes           (11,219)               (8,886)            (20,105)
Net income (loss)         (7,251)               (5,080)            (12,331)
</TABLE>

SIX MONTHS ENDED MARCH 31, 1995
-------------------------------
<TABLE>
<CAPTION>
<S>                     <C>                 <C>                <C>
                        As Previously                             
                          Reported                             As Restated
                        Six Months                             Six Months
                           Ended                                 Ended
                          March 31,                             March 31,
                            1995             Adjustments          1995
                        -----------          -----------       -----------
Net Revenue             $252,356             $   2,777            $255,133
Income(loss) before
  minority interest and 
  income taxes            11,832                (4,523)              7,309
Net income (loss)          6,271                (2,670)              3,601
</TABLE>

<PAGE> 17

  The adjustments consisted primarily of:

                                                       Three Months Ended
                                                             March 31,
                                                       ---------------------
                                                        1996           1995
                                                       --------       ------
<TABLE>
<CAPTION>
<S>                                                    <C>            <C>
(i)   Increase in deductions from
      revenue for receivables from Medicare and
      other government programs                       $ (2,281)       $ (1,095)
(ii)  Increase in operating expenses from the
      reversal of corporate reserves                    (4,632)              -
(iii) Decrease in net revenue for certain bad
      debt expense that was deferred at two of
      the psychiatric hospitals                         (1,151)            864
(iv)  Increase in operating expenses for
      deferred facility closure costs                     (697)              -
                                                       -------          -------
      Total pre-tax adjustments before minority
          interests                                   $ (8,761)       $   (231)
                                                       =======          =======

</TABLE>


                                                         Six Months Ended
                                                             March 31,
                                                       ---------------------
                                                        1996           1995
                                                       --------       ------
<TABLE>
<CAPTION>
<S>                                                    <C>            <C>
(i)   (Increase) decrease in deductions from
      revenue for receivables from Medicare and
      other government programs                       $ (  516)       $  1,049
(ii)  Increase in operating expenses from the
      reversal of corporate reserves                    (6,231)         (7,300)
(iii) Decrease in net revenue for certain bad
      debt expense that was deferred at two of
      the psychiatric hospitals                         (1,429)          1,728
(iv)  Increase in operating expenses for
      deferred facility closure costs                     (710)              -
                                                       -------          -------
      Total pre-tax adjustments before minority
          interests                                   $ (8,886)       $ (4,523)
                                                       =======          =======

</TABLE>





<PAGE> 18

  The following discussion analyzes the results, as restated, for the quarterly
and  six month periods ended March 31, 1996, as compared to the  quarterly  and
six month  periods ended March 31, 1995, respectively. "Same hospitals" as used
in the following  discussion  consist of hospitals owned throughout the periods
of  which  comparative  operating   results   are   presented.   The  following
information  should  be  read  in  conjunction with the consolidated  financial
statements  of the Company, and the related  notes  thereto,  included  in  the
Annual Report on Form 10-K for the year ended December 31, 1996, which included
restated financial results for certain periods prior thereto.

Results of Operations
---------------------

Quarter ended March 31, 1996 compared with Quarter ended March 31, 1995
-----------------------------------------------------------------------

Net revenue for  the  three  months ended March 31, 1996 was $128.5 million, an
increase of $500,000, or 0.4%, over $128.0 million for the same period of 1995.
The increase included $9.4 million from "same hospitals" not located in the Los
Angeles metropolitan ("LA metro")  area,  offset  by a decrease of $2.8 million
attributable to the LA metro "same hospitals" and a  decrease  of  $6.1 million
attributable to hospitals and healthcare related businesses that were closed or
sold  since  April  1995.  The  $9.4  million  increase  in  non-LA metro "same
hospitals"  net  revenue was attributable to an increase of $3.7  million  from
additional home health  business  at  hospitals located primarily in Tennessee,
with the remaining $5.7 million increase  resulting  primarily  from additional
services  offered  and  medical  staff development efforts.  The  $2.8  million
decrease in net revenue at the LA  metro  hospitals  consisted  of  a  (i) $2.1
million  decrease at the psychiatric hospitals as a result of the negative
impact on admission resulting from a lawsuit that  was  settled  in  March 1996
(see Item 1- Note 6) and increasing difficulties in collecting psychiatric
accounts receivable and (ii) an $800,000 decrease at the remaining LA metro
acute care hospitals as a result of a change in payor mix from private
insurance to managed care and Medicare/Medicaid and a decline in acuity level.

Expressed  as a percentage of net revenue,  operating  expenses  (salaries  and
benefits, other operating expenses, and provision for bad debts) increased from
88.3% in 1995  to  95.3%  in  1996 and operating margin decreased from 11.7% to
4.7%. The 7.0% decrease in operating  margin in 1996 was primarily due to (i) a
deterioration in the operating performance at the LA metro hospitals due to the
reasons noted above,(ii) an increase during  1996  in salaries and benefits and
purchased services, as a percentage of net revenue,  as  a result of additional
home health business which was profitable but produced lower margins than other
types of services and (iii) a deterioration in the operating  performance  of a
hospital closed in March 1996, as well as additional costs incurred during 1996
to close this facility.

Depreciation  and  amortization  decreased  to  $4.0  million in 1996 from $4.4
million  for  the  same  period  of 1995. The $400,000 decrease  was  primarily
attributable to facilities and healthcare  related  businesses  sold  or closed
since April 1995.

During  March  1996, the Company recognized a charge for the settlement of  two
lawsuits totaling  $22.4 million. Such charge consisted primarily of settlement
payments,  legal fees  and  the  write  off  of  certain  psychiatric  accounts
receivable. See Item 1 - Note 6 for additional information.

<PAGE> 19

Net loss for the quarter ended March 31, 1996 was $14.3 million, as compared to
net income of  $3.7  million  for  the  quarter ended March 31, 1995. The $18.0
million decrease was due primarily to the  settlement  charge recorded in March
1996 and a deterioration in operating performance at the LA metro hospitals.


Six Months ended March 31, 1996 compared with Six Months ended March 31, 1995
-----------------------------------------------------------------------------

Net  revenue  for the six months ended March 31, 1996 was  $258.6  million,  an
increase of $3.5  million,  or 1.4%, over $255.1 million for the same period of
1995. The increase included $15.6  million from "same hospitals" not located in
the Los Angeles metropolitan ("LA metro")  area,  offset  by a decrease of $2.4
million attributable to the LA metro "same hospitals" and a  decrease  of  $9.7
million  attributable  to  hospitals or healthcare related businesses that were
closed or sold since April 1995.  The  $15.6  million  increase in non-LA metro
"same  hospital" net revenue was attributable to an increase  of  $7.8  million
from additional  home  health  business  at  hospitals  located  primarily   in
Tennessee,  with  the remaining $7.8 million increase resulting primarily  from
additional services  offered  and  medical  staff development efforts. The $2.4
million  decrease  in  net  revenue  at the LA metro  hospitals  was  primarily
attributable to the psychiatric hospitals  as  a  result  of  the negative
impact on admission resulting from a lawsuit  that  was  settled  in  March
1996 (see Item 1- Note 6) and increasing difficulties in collecting psychiatric
accounts receivable.

Expressed  as  a percentage of net revenue, operating  expenses  (salaries  and
benefits, other operating expenses, and provision for bad debts) increased from
90.7% in 1995 to  93.1%  in  1996  and  operating margin decreased from 9.3% to
6.9%. The 2.4% decrease in operating margin  in 1996 was primarily due to (i) a
deterioration  in  the  operating  performance  at  the  LA  metro  psychiatric
hospitals  due  to  the reasons noted above,(ii) an  increase  during  1996  in
salaries and benefits  and  purchased services, as a percentage of net revenue,
as  a  result of additional home  health  business  which  was  profitable  but
produced  lower  margins than other types of services and (iii) a deterioration
in the operating performance  of  a  hospital  closed in March 1996, as well as
additional costs incurred during 1996 to close this facility.

Depreciation  and amortization decreased to $8.0  million  in  1996  from  $8.7
million for the  same  period  of  1995.  The  $700,000  decrease was primarily
attributable  to facilities and healthcare related businesses  sold  or  closed
since April 1995.

During March 1996,  the  Company  recognized a charge for the settlement of two
lawsuits totaling $22.4 million. Such  charge consisted primarily of settlement
payments,  legal  fees  and  the  write  off of  certain  psychiatric  accounts
receivable. See Item 1 - Note 6 for additional information.

Net loss for the six months ended March 31, 1996 was $12.3 million, as compared
to net income of $3.6 million for the six  months  ended  March  31,  1995. The
$15.9  million decrease was due primarily to the settlement charge recorded  in
March  1996   relating  to  two  lawsuits  and  a  deterioration  in  operating
performance at the LA metro hospitals.




<PAGE> 20

Liquidity and Capital Resources
-------------------------------
Net cash used in  operating  activities for the six months ended March 31, 1996
was $6.8 million, compared to net cash provided by operating activities of $4.6
million for the same period of  1995.  The  $11.4  million decrease in cash was
primarily attributable to net losses recorded for the  six  months  ended March
31, 1996 and an increase in deferred tax assets resulting from such losses,  as
compared  to  net income recorded for the comparable 1995 period. Net cash used
in investing activities  increased  $4.2  million  to $14.7 million during 1996
from $10.5 million in 1995, primarily from an increase  in  a  use  of  cash to
finance  capital expenditures, purchases of clinics and expanded services.  Net
cash provided  by financing activities increased $15.1 million to $21.7 million
during 1996 from  $6.6  million  for  the  same  1995  period, due primarily to
incremental borrowings of $14.5 million under the Revolving  Credit Facility to
finance capital expenditures and working capital requirements.

Net working capital was $49.9 million, an increase of $8.4 million  from  $41.5
million  at  September  30,  1995.  The  increase  mainly  resulted from (i) an
increase in deferred tax assets resulting from net losses recorded for  the six
months ended  March  31, 1996, (ii) an increase in accounts receivable from 
additional revenue generated  during  the  quarter  ended  March 31, 1996, net
of (iii) an increase in accounts payable and accrued expenses  related to the
settlement of two  lawsuits.  The  Company's  long-term  debt  as  a percentage
of  total capitalization was 66.2% at March 31, 1996, compared to 57.2% at
September  30, 1995.  The  increase  was  primarily  attributable  to  net
borrowings of $23.5 million  under  the  Credit Facility to finance capital
expenditures  and  fund working capital requirements during the six months
ended March 31, 1996.

On December 8, 1995, the  Company  amended  and  restated  its  existing Credit
Facility to increase the amount available for borrowings from $125.0 million to
$230.0 million. The Credit Facility is available for working capital  purposes,
to  finance capital expenditures, to fund acquisitions and for the issuance  of
letters  of  credit.  As  of  March  31, 1996, the Company had $51.0 million of
borrowings outstanding under its Credit Facility.

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 and borrowings  under  its  Credit  Facility  will  be
sufficient  to fund future acquisition, capital expenditure and working capital
requirements  through  fiscal  year 1996. 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.

In March 1995, the Financial  Accounting  Standards  Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and  for  Long-Lived Assets
to  be Disposed of," which requires impairment losses to be recorded  on  long-
lived  assets  used in operations when indicators of impairment are present and
the undiscounted  cash flows estimated to be generated by those assets are less
than the assets' carrying  amount.  The statement also addresses the accounting
for long-lived assets that are  expected  to  be disposed of.  The Company will
adopt  SFAS No. 121 on October 1, 1996, and, based  on  current  circumstances,
does not believe the effect of the adoption will be material.



<PAGE> 21

Regulatory Matters
------------------
Various  other  legislative proposals for healthcare reform at both federal and
state levels have been introduced or have been under consideration. 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

During  March  1996, the Company settled two lawsuits in  connection  with  the
operation of its  psychiatric  programs  previously  disclosed in the Company's
Form 10-K for the year ended September 30, 1995. See Item  1  -  Note 6 of this
Form 10-Q.

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) Exhibit

    10.25   Asset Purchase Agreement, dated as of March 29, 1996 between
            Paracelsus and FHP, Inc.(filed as Exhibit 10.25 to Paracelsus'
            Registration Statement on Form S-4, Registration No. 333-08521,
            filed on July 19, 1996, and incorporated herein by reference).


(b) Reports on Form 8-K

    None.










<PAGE> 22

                               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)


                                          /s/ JAMES G. VANDEVENDER
Dated: August 11, 1997                By: ____________________________
                                             James G. VanDevender
                                        Senior Executive Vice President,
                                             Chief Financial Officer
                                                 & Director