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                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-Q

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

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999

                        COMMISSION FILE NUMBER 001-12055

                        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 500, HOUSTON, TEXAS
                   (Address of principal executive offices)

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

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

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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the registrant was
required  to file  such  reports),  and  (2) has  been subject  to such  filing
requirements for the past 90 days.

                                  Yes[X] No[ ]

As of  November  10,  1999,  there  were  outstanding 57,667,721  shares of the
Registrant's Common Stock, no stated value.

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<PAGE> 2



                        PARACELSUS HEALTHCARE CORPORATION
                                    FORM 10-Q

                         FOR THE QUARTERLY PERIOD ENDED
                               SEPTEMBER 30, 1999

                                      INDEX

                                                                 PAGE REFERENCE
                                                                    FORM 10-Q

FORWARD-LOOKING STATEMENTS                                               3

PART I.                  FINANCIAL INFORMATION

       Item 1.           Financial Statements-- (Unaudited)

                         Condensed Consolidated Balance Sheets--
                           September 30, 1999 and December 31, 1998      4

                         Consolidated Statements of Operations--

                           Three Months and Nine Months Ended
                           September 30, 1999 and 1998                   5

                         Condensed Consolidated Statements of Cash Flows-
                           Nine Months Ended September 30, 1999
                           and 1998                                      6

                         Notes to Interim Condensed Consolidated
                           Financial Statements                          7

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

       Item 3.           Quantitative and Qualitative Disclosures
                         about Market Risks                             22

PART II.                 OTHER INFORMATION                              22

SIGNATURE                                                               24

























<PAGE> 3



FORWARD-LOOKING STATEMENTS

         Certain statements in this Form 10-Q are  "forward-looking  statements"
made pursuant to the safe harbor provisions of the Private Securities Litigation
Reform  Act of 1995.  Forward-looking  statements  involve a number of risks and
uncertainties.  Factors which may cause the Company's  actual  results in future
periods to differ materially from forecast results include,  but are not limited
to: 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; liabilities and other claims asserted against
the  Company;  competition;  the loss of any  significant  customer;  changes in
business strategy,  divestiture or development plans; the ability to attract and
retain  qualified  personnel,  including  physicians;  the  impact  of Year 2000
issues;   fluctuations  in  interest  rates  on  the  Company's   variable  rate
indebtedness;  the continued  listing of the  Company's  common stock on the New
York Stock  Exchange;  the Company's  ability to obtain a new credit facility at
reasonable  terms and conditions to fund working  capital  requirements  and the
expansion  of the  Company's  business  and its  continued  compliance  with its
existing  debt  covenants  and its  ability  to obtain  waivers  in the event of
noncompliance.  The Company is generally not required to, and does not undertake
to, update or revise its forward-looking statements.










































<PAGE> 4


PART I.  FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS

                        PARACELSUS HEALTHCARE CORPORATION
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                  ($ in 000's)
<TABLE>
<CAPTION>
<S>                                                                       <C>                        <C>
                                                                              SEPTEMBER 30,             DECEMBER 31,
                                                                                 1999                     1998
                                                                        ---------------------       ----------------
                                                                           (Unaudited)                   (Note 1)

ASSETS
Current assets:
    Cash and cash equivalents                                              $      4,361              $     11,944
    Restricted cash                                                               1,179                     1,029
    Accounts receivable, net                                                     60,128                    67,332
    Deferred income taxes                                                        10,766                     9,641
    Other current assets                                                         36,055                    38,923
                                                                             ----------                ----------
        Total current assets                                                    112,489                   128,869

Property and equipment                                                          537,766                   531,908
Less: Accumulated depreciation and amortization                                (176,023)                 (168,009)
                                                                             ----------                ----------
                                                                                361,743                   363,899

Goodwill                                                                        133,450                   136,994
Other assets                                                                     83,943                    86,340
                                                                             ----------                ----------
        Total Assets                                                       $    691,625              $    716,102
                                                                             ==========                ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
    Accounts payable                                                       $     46,103              $     41,301
    Accrued liabilities and other                                                36,610                    58,758
    Current maturities of long-term debt                                          5,543                     6,284
                                                                             ----------                ----------
        Total current liabilities                                                88,256                   106,343

Long-term debt                                                                  556,161                   533,048
Other long-term liabilities                                                      21,540                    42,370
Stockholders' equity:
    Common stock                                                                215,761                   222,977
    Additional paid-in capital                                                   12,105                       390
    Accumulated deficit                                                        (202,198)                 (189,026)
                                                                             ----------                ----------
        Total stockholders' equity                                               25,668                    34,341
                                                                             ----------                ----------
Total Liabilities and Stockholders' Equity                                 $    691,625                $  716,102
                                                                             ==========                ==========

                                                   See accompanying notes.
</TABLE>






















<PAGE> 5

                        PARACELSUS HEALTHCARE CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                       ($ in 000's, except per share data)
                                   (Unaudited)
<TABLE>
<CAPTION>
<S>                                                <C>
                                                           THREE MONTHS ENDED                 NINE MONTHS ENDED
                                                             SEPTEMBER 30,                      SEPTEMBER 30,
                                                   ----------------------------------------------------------------------
                                                          1999              1998              1999             1998
                                                   ----------------- ----------------- ---------------- -----------------
</TABLE>
<TABLE>
<CAPTION>
<S>                                                <C>               <C>               <C>              <C>

Net revenue                                        $  138,161        $  157,169        $  432,372       $  520,744

Costs and expenses:
  Salaries and benefits                                56,038            68,955           173,138          216,846
  Other operating expenses                             57,623            63,831           172,647          209,813
  Provision for bad debts                              11,051            10,368            32,536           30,248
  Interest                                             13,588            13,108            39,771           38,782
  Depreciation and amortization                        10,758             9,490            30,543           27,616
  Unusual items                                        (5,465)           (6,967)            2,203           (6,989)
  Loss (gain) on sale of facilities                    (2,273)              275               114           (6,825)
                                                   ----------       -----------        ----------       ----------
        Total costs and expenses                      141,320           159,060           450,952          509,491
                                                   ----------       -----------        ----------       ----------
Income (loss) before minority interests, income
   taxes, discontinued operations and
   extraordinary charge                                (3,159)           (1,891)          (18,580)          11,253
Minority interests                                        149               113               270           (3,173)
                                                   -----------      ------------       ----------       ----------
Income (loss) before income taxes, discontinued
   operations  and extraordinary charge                (3,010)           (1,778)          (18,310)           8,080
Provision (benefit) for income taxes                      366              (111)           (5,739)           2,424
                                                   ----------       ------------       ----------       ----------
Income (loss) before discontinued
   operations and extraordinary charge                 (3,376)           (1,667)          (12,571)           5,656
Loss on discontinued operations                          (601)           (2,424)             (601)          (2,424)
                                                  -----------       ------------      -----------       ----------
Income (loss) before extraordinary charge              (3,977)           (4,091)          (13,172)           3,232
Extraordinary charge on extinguishment
  of debt, net                                                                                              (1,175)
                                                  -----------       ------------      -----------       ----------
Net income  (loss)                                $    (3,977)      $    (4,091)      $   (13,172)      $    2,057
                                                  ===========       ============      ===========       ==========

Income (loss) per share - basic and assuming dilution:
     Income (loss) before extraordinary
       charge                                     $     (0.06)      $     (0.03)      $     (0.23)      $     0.10
     Loss on discontinued operations                    (0.01)            (0.04)            (0.01)           (0.04)
     Extraordinary charge on
       extinguishment of debt                                                                                (0.02)
                                                  -----------       ------------      -----------       ----------
Net income (loss) per share                       $     (0.07)      $     (0.07)      $     (0.24)      $     0.04
                                                  ===========       ============      ===========       ==========


                                                    See accompanying notes.
</TABLE>


















<PAGE> 6

                        PARACELSUS HEALTHCARE CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  ($ in 000's)
                                   (Unaudited)
<TABLE>
<CAPTION>
<S>                                                                   <C>
                                                                              NINE MONTHS ENDED
                                                                                 SEPTEMBER 30,
                                                                      --------------------------------------
                                                                            1999                1998
                                                                      ------------------  ------------------
</TABLE>
<TABLE>
<CAPTION>
<S>                                                                   <C>                 <C>
 CASH FLOWS FROM OPERATING ACTIVITIES:
 Net income (loss)                                                    $    (13,172)       $       2,057
 Non-cash expenses and changes in operating assets
    and liabilities                                                          1,662               (9,704)
                                                                      ------------        -------------
 Net cash used in operating activities                                     (11,510)              (7,647)
                                                                      ------------        -------------
 CASH FLOWS FROM INVESTING ACTIVITIES:
 Acquisition of DHHS, net of cash acquired                                       -              (59,278)
 Proceeds from sale of facilities, net of expenses                           2,025               36,398
 Additions to property and equipment, net                                  (24,034)             (14,428)
 Decrease (increase) in other assets, net                                    1,590               (6,928)
                                                                      ------------        -------------
 Net cash used in investing activities                                     (20,419)             (44,236)
                                                                      ------------        -------------
 CASH FLOWS FROM FINANCING ACTIVITIES:
 Proceeds from the issuance of common stock                                      -                   67
 Borrowings under senior revolving credit facility                          43,100               74,528
 Repayments under senior revolving credit facility                         (13,430)             (34,485)
 Repayments of debt, net                                                    (5,324)              (4,314)
 Deferred financing costs                                                        -               (3,984)
                                                                      ------------        -------------
 Net cash provided by financing activities                                  24,346               31,812
                                                                      ------------        -------------
 Decrease in cash and cash equivalents                                      (7,583)             (20,071)
 Cash and cash equivalents at beginning of period                           11,944               28,173
                                                                      ------------        -------------
 Cash and cash equivalents at end of period                           $      4,361        $       8,102
                                                                      ============        =============

 SUPPLEMENTAL CASH FLOW INFORMATION:
    Interest paid                                                     $    48,124         $      45,265
    Income taxes refunded                                             $       (26)     $           (440)

 NONCASH INVESTING ACTIVITIES:
    Notes receivable from sale of hospitals                           $     7,304         $      13,698
    Debt assumed by purchaser of hospitals                            $     2,952         $       3,239
    Capital lease obligations                                         $     1,124         $           -


                                               See accompanying notes.
</TABLE>






















<PAGE> 7


                       PARACELSUS HEALTHCARE CORPORATION
          NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
                               September 30, 1999

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
September 30, 1999,  the Company  operated 14 hospitals with 1,802 licensed beds
in 8 states, of which 11 are owned and three are leased (see Note 9 - Subsequent
Events).

BASIS OF  PRESENTATION - On July 1, 1998, the Company  completed the purchase of
Dakota Medical  Foundation's 50% partnership  interest in a general  partnership
operating as Dakota Heartland Health Systems ("DHHS") thereby giving the Company
100% ownership of DHHS. Prior to the purchase, the Company owned 50% of DHHS and
accounted  for its  investment  under the equity  method.  The  transaction  was
accounted  for as a step  purchase  acquisition.  As a result of this  change in
control, the Company has recast its 1998 consolidated statement of operations to
account  for DHHS  under the  consolidated  method of  accounting  as though the
transaction had occurred on January 1, 1998.

         The accompanying  unaudited condensed consolidated financial statements
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, consisting of normal recurring accruals,
considered  necessary for a fair  presentation  have been included.  The balance
sheet at September  30, 1999,  has been  derived  from the  unaudited  financial
statements  at that  date  but  does  not  include  all of the  information  and
footnotes  required by generally accepted  accounting  principles for a complete
set of financial  statements.  The Company's  business is seasonal in nature and
subject to general economic conditions and other factors. Accordingly, operating
results  for the  three  and nine  months  ended  September  30,  1999,  are not
necessarily  indicative  of the results that may be expected for the year ending
December 31, 1999. These financial statements should be read in conjunction with
the audited  consolidated  financial  statements  and notes thereto for the year
ended  December 31, 1998,  included in the Company's  1998 Annual Report on Form
10-K.

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


















<PAGE> 8

EARNINGS PER SHARE - The following table sets forth the computation of basic and
diluted income (loss) per share before discontinued operations and extraordinary
charge (dollars in thousands, except per share amounts).
<TABLE>
<CAPTION>
<S>                                                        <C>                                 <C>

                                                           THREE MONTHS ENDED SEPTEMBER 30,   NINE MONTHS ENDED SEPTEMBER 30,
                                                           ------------------------------     ------------------------------
                                                               1999             1998              1999             1998
                                                           -------------    -------------     -------------    -------------
Numerator (a):
   Income (loss) before discontinued
     operations and extraordinary charge                   $ (3,376)        $ (1,667)         $(12,571)        $  5,656
                                                           ========         ========          ========         ========
Denominator:
  Weighted average shares used for basic earnings per
    share                                                    55,922           55,116             55,386          55,104
   Effect of dilutive securities:
     employee stock options                                     564            2,428                  -           2,440
                                                           --------         --------          ---------        --------
   Dilutive potential common shares                             564            2,428                  -           2,440
                                                           --------         --------          ---------        --------
   Shares used for diluted earnings per share                56,486           57,544             55,386          57,544
                                                           ========         ========          =========        ========

Income (loss) before discontinued operations and
  extraordinary charge per share:
   Basic                                                  $   (0.06)       $   (0.03)         $   (0.23)       $   0.10
                                                          =========        =========          =========        ========
   Diluted                                                $   (0.06)       $   (0.03)         $   (0.23)       $   0.10
                                                          =========        =========          =========        ========
</TABLE>

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

         Options to purchase  2,563,903  and  3,296,903  shares of the Company's
common stock at a weighted  average exercise price of $4.40 and $3.48 per share,
which were  outstanding  during the three and nine months  ended  September  30,
1999,  respectively,  and  warrants  to  purchase  414,906  shares at a weighted
average  exercise price of $9.00 per share were not included in the  computation
of diluted EPS because their inclusion would have an antidilutive  effect in the
periods presented.

RESTRICTED  CASH - The  Company  had  restricted  cash of $1.2  million and $1.0
million at September 30, 1999 and December 31, 1998, respectively,  for payments
related to the commercial paper financing program.

COMPREHENSIVE  INCOME - The Company had no other comprehensive income (loss) for
the  three  and nine  months  ended  September  30,  1999 and  1998;  therefore,
comprehensive  income  (loss)  equaled net income (loss) for each of the periods
presented on the accompanying Consolidated Statements of Operations.

NOTE 2.    UNUSUAL ITEMS

         In the nine months  ended  September  30,  1999,  the Company  recorded
unusual  items of $2.2  million,  which  included  (i) a $2.2 million net charge
associated with the execution of an executive agreement with certain current and
former  officers  of the  Company  and a $5.5  million  corporate  restructuring
charge,  as reported in the Company's results of operations in the first half of
1999,  offset by (ii) a net gain of $5.5  million  recorded  in  September  1999
related to the settlement of shareholder litigation, as discussed below.











<PAGE> 9

         In September  1999,  the global  settlement  of the putative  class and
derivative actions arising out of the Company's August 1996 merger with Champion
Healthcare  Corporation  ("Champion")  and two related public  offerings  became
effective, in all material respects. In accordance with the terms of the global
settlement,  the Company paid $14.0 million, which was funded from insurance
proceeds, to the class settlement fund for  distribution  to class members and
issued 1.5 million shares of common stock for purposes of  distribution  to
class  members.  Park Hospital GmbH (the "Former  Majority  Shareholder")  also
transferred  8.7  million  shares of the Company's  common stock to certain
former Champion  shareholders and 1.2 million shares of the  Company's  common
stock for  purposes of  distribution  to class members.  In  addition,  the
Company  made a payment of $1.0 million in cash and issued 1.0  million  shares
of common  stock to  terminate  a contract  with Dr. Manfred G.  Krukemeyer,
who is the ultimate legal owner of the Former  Majority Shareholder  and a
former Chairman of the Board of Directors of the Company (the "Former
Chairman").

         The settlement reduced the Company's existing and future obligations to
certain  former  officers  and  directors  and  terminated  options to  purchase
approximately  1.3 million  shares of the  Company's  common  stock at $0.01 per
share ("Value Options")  granted in connection with the August 1996 merger.  The
Company,   all  class  members,  the  derivative   plaintiffs,   the  separately
represented former Champion shareholders,  the Former Majority Shareholder,  the
underwriter, and the affected current and former officers and directors provided
mutual  releases  of all claims  arising  out of or  related to the August  1996
merger and the related public offerings. The terms of the global settlement were
described in detail in the Company's 1998 Annual Report on Form 10-K.

         Unusual  items for the nine  months  ended  September  30, 1998 of $7.0
million consisted primarily of (i) a gain of $7.5 million from the settlement of
a disputed  capitation contract offset by (ii) a net charge of $511,000 from the
restructuring of home health operations and the settlement of a contract dispute
and litigation.

NOTE 3.    DISPOSITIONS OF HOSPITALS

         On September 30, 1999,  the Company  completed the sale of the stock of
Paracelsus Senatobia Community,  Inc. ("Senatobia"),  which owned and operated a
76-bed  acute  care  hospital  located  in  Mississippi.   The  sales  price  of
approximately $4.7 million,  which included the sale of net working capital, was
paid by a  combination  of  $100,000  in  cash,  $1.6  million  in  second  lien
promissory notes, and the assumption by the buyer of approximately  $3.0 million
in capital lease obligations and related lease guaranty payments.  The notes are
subject to final working  capital  adjustments  and to certain  discounts  under
certain circumstances. The Company recorded a gain of approximately $2.3 million
on the sale of Senatobia.

         Effective  June 30,  1999,  the Company sold  substantially  all of the
assets of four  skilled  nursing  facilities  (collectively,  the  "Convalescent
Hospitals").   The  facilities  had  232  licensed  beds.  The  sales  price  of
approximately  $6.9 million,  which excluded net working capital,  was paid by a
combination  of $3.0 million in cash and a $3.9 million  second lien  promissory
note, which is subject to prepayment discounts. In connection with the sale, the
Company  paid  $1.0  million  to  terminate  a  lease  agreement  at  one of the
facilities and used the remaining cash proceeds of $2.0 million from the sale to
reduce its outstanding  indebtedness under its senior revolving credit facility.
The  Company  recorded  a  pretax  gain of  approximately  $1.3  million  on the
disposition.











<PAGE> 10

         In June 1999, the Company also recorded a loss on sale of facilities of
$3.7  million  in  connection  with the sale of the eight  hospitals  located in
metropolitan  Los Angeles ("LA Metro") as  previously  reported in the Company's
1998 Annual Report on Form 10-K. The charge  resulted from the final  settlement
of working  capital  and the  recognition  of a  prepayment  discount on certain
promissory  notes.  The notes were repaid in full  during the second  quarter of
1999 and the proceeds were used to reduce the Company's  indebtedness  under the
senior revolving credit facility.

         Effective  March 31,  1999,  the Company  sold the stock of  Paracelsus
Bledsoe  County  Hospital,  Inc.  ("Bledsoe"),  which operated a 32 licensed bed
facility located in Pikeville,  Tennessee. The sales price of approximately $2.2
million,  including  working  capital,  was paid by a combination of $100,000 in
cash and the  issuance by the buyer of $2.1  million in  promissory  notes.  The
notes are secured by all  outstanding  common  stock and assets of Bledsoe.  The
Company recorded no material gain or loss on the Bledsoe disposition.

         The results of operations of Senatobia,  the Convalescent Hospitals and
Bledsoe for the three and nine months ended September 30, 1999 were not material
to the Company's  consolidated  statements of operations,  individually and on a
combined  basis.  The pro forma effect of the  dispositions  of  Senatobia,  the
Convalescent  Hospitals and Bledsoe on the Company's  1998 results of operations
was  previously  reported  in the  Company's  Current  Report  on Form 8-K dated
September 30, 1999.

NOTE 4.    LOSS FROM DISCONTINUED OPERATIONS

         Loss from  discontinued  operations for the three and nine months ended
September  30,  1999  reflected  a charge of  $601,000  (net of tax  benefit  of
$418,000)  from  certain  Medicare   contractual   adjustments  related  to  the
completion  of  prior  year  cost  reports  for  the  discontinued   psychiatric
operations, which the Company sold in June 1998.

         Loss from  discontinued  operations of $2.4 million (net of tax benefit
of $1.7  million)  for the  three  and nine  months  ended  September  30,  1998
reflected the settlement of litigation  concerning alleged violations of certain
Medicare rules at the discontinued psychiatric facilities.

NOTE 5.    LONG-TERM DEBT

         Effective  June 30,  1999,  the Company  amended its senior bank credit
agreement,  which  provides for,  among other things (i) an increase in interest
rates, (ii) a change in certain financial  covenants for the last three quarters
of 1999,  (iii) a reduction in the  revolving  credit loan  commitments  for any
prepayment made in connection  with an asset  disposition,  as defined,  (iv) an
increase  in  permitted  letters of credit  and (v)  approval  of certain  asset
dispositions,  as defined.  See Note 9 regarding  the  subsequent  repayment  of
indebtedness under the senior bank credit agreement.




















<PAGE> 11

         As of  September  30,  1999,  the  Company  was in  compliance  with or
received waivers for all debt covenants to which it was subject under the senior
bank  credit  agreement.  The  Company's  continued  compliance  with  its  debt
covenants,  under the  existing  senior  bank credit  agreement  or a new credit
facility,  when  completed as discussed in Note 9 below,  is  predicated  on its
ability to maintain certain levels of operating  performance.  If the Company is
unable to meet such  objectives,  it will be required to seek  waivers  from its
lenders in the future.  However, there can be no assurance that the Company will
be able to obtain such waivers, if needed.

NOTE 6. STOCKHOLDERS' EQUITY

         As discussed in Note 2, the global settlement to shareholder litigation
became final in September 1999. In connection therewith,  the Company issued 1.0
million shares of common stock to the Former  Chairman and 1.5 million shares of
common stock for purposes of distribution to class members, which resulted in an
increase in common stock of $3.0 million based on the market value of the shares
on March 24, 1999,  the execution date of the global  settlement.  Additionally,
the Company recorded (i) a reduction in common stock of $10.2 million related to
the termination of Value Options to purchase 1.3 million shares of the Company's
common stock,  which were  previously  recorded as merger expenses in connection
with the August 1996 merger, and (ii) an increase in additional-paid-in  capital
of $11.7 million,  which  reflected the market value,  on March 24, 1999, of the
9.9  million  shares  of  common  stock  transferred  from the  Former  Majority
Shareholder to the former Champion shareholders and for purposes of distribution
to the class members.

 NOTE 7. OPERATING SEGMENTS

         The Company  segregates  its  hospitals  into core and non core markets
("Core Facilities" and "Non Core Facilities",  respectively).  There has been no
material  change in the  composition  of Core and Non Core  Facilities or in the
accounting policies of the segments as previously reported in the Company's 1998
Annual  Report on Form  10-K,  except for the  reclassification  of the Non Core
Facilities  sold in 1999 to the "All  Other"  segment  for  each of the  periods
presented  below.  The Company does not allocate income taxes,  senior bank debt
interest, or subordinated note interest to its reportable segments. These items,
along with overhead  costs,  and the operations of sold/closed  facilities  have
been included in the "All Other"  category.  See Note 9 regarding the subsequent
disposition of certain Core  Facilities.  Selected  segment  information for the
three and nine months ended September 30, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
<S>                                                    <C>
                                                                 THREE MONTHS ENDED SEPTEMBER 30, 1999
                                                        --------------------------------------------------------
                                                           CORE        NON CORE       ALL OTHER       TOTAL
                                                        ----------   -----------    ------------    ------------
          Net revenue.................................   $ 122,431   $  14,936      $      794      $  138,161
          Adjusted EBITDA (a)..........................  $  20,158   $     611      $   (7,171)     $   13,598

                                                                 THREE MONTHS ENDED SEPTEMBER 30, 1998
                                                        --------------------------------------------------------
                                                           CORE        NON CORE       ALL OTHER       TOTAL
                                                        ----------    ----------    ------------    ------------
          Net revenue..................................  $ 116,412   $  16,385      $   24,372      $  157,169
          Adjusted EBITDA (a)..........................  $  17,909   $     622      $   (4,403)     $   14,128
</TABLE>














<PAGE>12

<TABLE>
<CAPTION>
<S>                                                     <C>
                                                                   NINE MONTHS ENDED SEPTEMBER 30, 1999
                                                        --------------------------------------------------------
                                                           CORE        NON CORE       ALL OTHER       TOTAL
                                                        ----------    ----------     -----------    ------------
          Net revenue.................................   $ 370,579   $  48,025       $   13,768     $  432,372
          Adjusted EBITDA (a)..........................  $ 68,834    $   3,527       $  (18,040)    $   54,321

                                                                 NINE MONTHS ENDED SEPTEMBER 30, 1998
                                                        --------------------------------------------------------
                                                           CORE        NON CORE       ALL OTHER       TOTAL
                                                        ----------    ----------    ------------    ------------
          Net revenue..................................  $ 367,916    $   52,868     $   99,960     $ 520,744
          Adjusted EBITDA (a) (b)......................  $ 65,401     $    5,084     $   (9,821)    $  60,664
</TABLE>

------------------------------------
(a)  Earnings before unusual items, gain (loss) on sale of facilities, interest,
     taxes, depreciation, amortization and extraordinary charge.

(b)  Core  Facilities  adjusted  EBITDA for the nine months ended
     September  30, 1998 included  minority  interest of $4.1 million
     attributable to the Company's former partner in DHHS.

NOTE 8.    CONTINGENCIES

        IMPACT OF YEAR 2000 - The Company has completed the first five of seven
phases of the Year  2000  project  plan,  which  included,  among  others,  (i)
obtaining  vendor  certification  (ii) identifying and testing all patient care
critical  and  operations   critical   items  and  (iii)   correcting/replacing
non-compliant  systems. The sixth phase, which involves developing  contingency
plans, is substantially completed. The seventh and final phase which focuses on
identifying  and  correcting any  unpredictable  malfunction in the systems and
equipment will be conducted  throughout  the remainder of 1999, as planned. The
Company's  efforts  have  focused  on identifying and remediating, as necessary,
patient  care  or  operations  critical  equipment  that  were  not  Year  2000
compliant. Consequently, the Company does not expect the Year  2000  issues  to
have  an  adverse  impact  on patient  care.  Furthermore, each  hospital  has
developed a back-up plan for critical equipment in case it unexpectedly fails.
However,  the Company can provide no assurances that applications and equipment
the Company believes to be Year 2000 compliant will not experience difficulties
or that the  Company  will not  experience  difficulties  in implementing  any
contingency or back-up plans, if and when necessary.  Additionally,  failure by
third parties on which the Company  relies for systems or  operational  support
could have a material effect on the Company's results of operations and its
ability  to  provide  health  care services.  See  Item 2.  "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for
further discussion.






















<PAGE> 13

NOTE 9.    SUBSEQUENT EVENTS

         Pursuant to a recapitalization  agreement completed on October 8, 1999,
the  Company  sold  93.9% of the  outstanding  common  stock  of a  wholly-owned
subsidiary ("HoldCo") to JLL Healthcare, LLC, an affiliate of the private equity
firm of Joseph Littlejohn & Levy, Inc., for $280.0 million in cash, inclusive of
working capital.  The Company  retained 6.1% of the outstanding  common stock of
HoldCo, which owned substantially all of the assets of five hospitals, including
one which was  previously  closed in June  1997,  with 640  licensed  beds,  and
related  facilities  located in Salt Lake City, Utah. The Company had previously
classified the operating hospitals as Core Facilities.

         The cash  proceeds  from the  transaction  were used to  eliminate  all
indebtedness  then  outstanding and related accrued interest under the Company's
senior credit facilities totaling $223.5 million, to reduce borrowings under the
commercial paper financing program by approximately $12.8 million and to provide
collateral  of $11.5  million for  certain  outstanding  letters of credit.  The
Company also eliminated $7.8 million in annual  operating lease payments related
to  one of the  Utah  Facilities.  The  Company  expects  to  record  a gain  of
approximately $82.0 million on the transaction,  subject to the final settlement
of working  capital and the valuation of the Company's  remaining  investment in
HoldCo,  and an  extraordinary  charge of  approximately  $4.0  million from the
write-off of deferred  financing costs due to the early  extinguishment  of debt
under the senior credit facilities.

         Concurrent  with the  repayment  of all  indebtedness  under the senior
credit   facilities,   most  of  the  commitments  under  such  facilities  were
permanently  cancelled.  The  Company  has  entered  into an  interim  financing
arrangement  with  one  of its  bank  lenders,  which  maintained  its  original
commitment under the senior bank credit agreement of $34.8 million.  The Company
is in the process of negotiating  with such lender for a new credit  facility to
replace  the  interim  financing  arrangement  in  the  fourth  quarter of 1999.
However,  there can be no assurance  that the Company will be  successful in its
effort  to  obtain  a  new  financing  commitment  under  acceptable  terms  and
conditions.

































<PAGE> 14

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

         The healthcare  industry as a whole faces  increasing  uncertainty from
governmental  and private  industry  efforts to reform  healthcare  delivery and
payment systems.  As a result,  the Company continues to experience  significant
changes on several fronts,  including 1) a general reduction of payment rates by
government  and  other  payors,  2)  an  increasing  shift  in  payor  mix  from
traditional  Medicare/  Medicaid  and  indemnity  payors to managed  care and 3)
increasing  competition  for patients and  technological  advances which require
increased  capital  investments.  The Company  has taken steps to address  these
challenges,  such as divesting of selected  unprofitable  businesses or markets,
implementing cost control measures on a hospital-by-hospital basis, reducing the
overall  corporate cost  structure,  renegotiating  payor  contracts and service
arrangements,  actively  recruiting  physicians  and  expanding  facilities  and
services in selected  markets.  The Company also actively  monitors and analyzes
the  potential  impact of  proposed  healthcare  legislation  to  formulate  its
business   strategies.   However,  the  Company  cannot  predict  whether  other
healthcare  legislation  will be passed at the  federal or state  level and what
resulting response the Company may take.

RESULTS OF OPERATIONS

         The  comparison  of  operating  results  for 1999 with  prior  years is
difficult given the acquisitions and divestitures in the affected periods. "Same
hospitals" as used in the following  discussion,  where appropriate,  consist of
acute care  hospitals  owned as of September 30, 1999 and throughout the periods
for which comparative operating results are presented.  In October 1999, the
Company sold 93.9% of the outstanding common stock of a wholly-owned subsidiary,
which owned substantially all of the assets of five hospitals, including one
which was previously closed in June 1997, and related facilities located in Salt
Lake City, Utah. See "Liquidity and Capital Resources".  The following
discussions include the results of operations for these Utah facilities for all
periods presented.

RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1999
COMPARED WITH THREE MONTHS ENDED SEPTEMBER 30, 1998

         Net revenue for the three months ended  September 30, 1999,  was $138.2
million, a decrease of $19.0 million, or 12.1%, from $157.2 million for the same
period in 1998.  The  decline in net revenue is largely due to the sale of eight
acute care hospitals in 1998 and Bledsoe and the  Convalescent  Hospitals in the
first half of 1999,  and to a lesser  extent,  from a $3.1 million charge to net
revenue  to  revise   estimates   of  amounts  due  to  the  Company   from  the
Medicare/Medicaid  programs, which primarily related to prior years cost reports
for sold facilities.

         Net revenue at "same  hospitals"  for the three months ended  September
30, 1999 increased $4.6 million,  or 3.4%, to $137.4 million from $132.8 million
in 1998. Same hospital net revenue at Core Facilities increased $6.0 million, or
5.2%,  from $116.4 million in 1998 to $122.4 million in 1999.  Same hospital net
revenue at Non Core  Facilities  decreased  $1.5  million,  or 8.8%,  from $16.4
million in 1998 to $14.9 million in 1999.  Same  hospital net revenue  increased
primarily due to increased patient volumes at the Company's Core Facilities.  To
a lesser extent, net revenue was unfavorably impacted by the Balanced Budget Act
of 1997 (the "1997 Budget Act"), which was substantially  phased in by the third
quarter  of  1998,   the   increasing   penetration  of  managed  care  and  the
restructuring of home health operations in the latter half of 1998.
















<PAGE> 15

         The Company's "same hospitals" experienced a 2.4% increase in inpatient
admissions from 13,516 in the three months ended September 30, 1998 to 13,840 in
the comparable period in 1999. "Same hospitals" patient days decreased 0.7% from
61,696 in 1998 to 61,264  in 1999.  Excluding  home  health  visits,  outpatient
visits at "same  hospitals"  increased  3.2% from  151,230 in 1998 to 156,051 in
1999. The increase in admissions and outpatient  visits were primarily driven by
the Core  Facilities  and resulted  from (i)  favorable  demographic  changes in
certain  markets,  (ii) the  increase in number of  physicians  and  services at
several of the Company's  hospitals and (iii)  increased  volume  generated from
certain hospital  benchmarking  and service  awareness  programs  implemented in
1998. Volume at the Non Core Facilities,  as reported below, declined due to the
closure of certain  operations and increasing  competition in a selected market.
Home health visits in "same  hospitals"  decreased  34.5% from 92,532 in 1998 to
60,626 in 1999  primarily  due to the  closure  or sale of certain  home  health
operations throughout 1998.

         The following table presents "same hospitals"  operating statistics for
the Company's Core and Non Core  Facilities for the three months ended September
30, 1999 and 1998.
<TABLE>
<CAPTION>
<S>                                                                <C>
                                                                               "SAME HOSPITALS"
                                                                       THREE MONTHS ENDED SEPTEMBER 30,
                                                                   --------------------------------------------
                                                                     1999                1998          % CHANGE
                                                                   -------             -------         --------
  CORE FACILITIES
  Patient Days..............................................        53,481              52,142             2.6%
  Inpatient Admissions     ..................................       11,997              11,414             5.1
  Outpatient Visits, excluding Home Health..................       135,522             128,239             5.7
  Home Health Visits........................................        37,453              58,650           (36.1)

  NON CORE FACILITIES
  Patient Days..............................................         7,783               9,554           (18.5)%
  Inpatient Admissions......................................         1,843               2,102           (12.3)
  Outpatient Visits, excluding Home Health..................        20,529              22,991           (10.7)
  Home Health Visits........................................        23,173              33,882           (31.6)
</TABLE>

         Operating expenses (salaries and benefits, other operating expenses and
provision for bad debts), expressed as a percentage of net revenue, decreased to
90.3% in the three months  ended  September  30, 1999  compared to 91.1% for the
comparable period in 1998.  Operating expenses decreased $18.5 million to $124.7
million  in 1999  from  $143.2  million  in 1998  primarily  from the  Company's
strategic  disposition  of  certain  facilities,  the  closure  of  unprofitable
business  operations,  and from cost reduction efforts implemented in the latter
part of 1998. These  initiatives  contributed to an improvement in the Company's
operating margins from 8.9% in 1998 to 9.7% in 1999.  Operating expenses in 1998
included a favorable  adjustment  of  approximately  $4.5  million to reduce the
general and  professional  liability  insurance  accruals  to reflect  actuarial
estimates.

         Operating expenses at the Company's "same hospitals"  declined to 85.0%
of net revenue in 1999 from 86.1% in 1998,  and  operating  margins  improved to
15.0% from  13.9%,  respectively.  On a "same  hospital"  basis,  Core  Facility
operating  margins  increased to 16.3% in 1999 from 15.3% in 1998,  and Non Core
operating  margins  increased to 4.1% in 1999 from 3.8% in 1998. The improvement
reflects  the  favorable  impact  of  the  various  cost  reduction  initiatives
undertaken  during  the  second  half of  1998.  However,  the  improvement  was
partially  offset by an increase in the provision in bad debt, which the Company
believes  resulted  from (i) the shift in payor mix from  traditional  Medicare,
which has minimal  bad debts,  to managed  care and  self-pay  patients,  (ii) a
general  trend in payment  delays and denial of claims by managed  care  payors,
which  increased  the  allowance  for  doubtful  accounts and (iii) the residual
effect of the computer system conversion at certain facilities in the early part
of the year and (iv)  management  turnover  at  certain  facilities.  While  the
Company is unable to predict  whether the current trend in bad debt expense will
continue,  the  Company  has  undertaken  a number of  actions to  mitigate  the
increase in bad debts  including,  strengthening  the hospital  business  office
operations,  pursuing litigation on past due accounts, particularly with respect
to certain managed care payors,  and modifying  admittance  policies at selected
hospitals.

<PAGE> 16

         Interest  expense  increased  $480,000  from $13.1 million in the three
months ended September 30, 1998 to $13.6 million in 1999, primarily due to a net
increase in borrowings  under the senior credit  facility and  commercial  paper
program to fund working capital and capital expenditures.

         Depreciation and amortization  expense increased $1.3 million from $9.5
million in the three months ended  September  30, 1998 to $10.8  million for the
same period in 1999 primarily due to additions to property and equipment.

         Loss before income taxes and  discontinued  operations was $3.0 million
for the three months ended  September  30, 1999 and included (i) an unusual gain
of $5.5 million from the settlement of shareholder  litigation in September 1999
and (ii) a $2.3 million gain on the sale of a hospital. Loss before income taxes
and discontinued operations of $1.8 million for the three months ended September
30, 1998 included an unusual gain of $7.0 million primarily  attributable to the
settlement of a capitated contract dispute.

         The Company  recorded an income tax provision of $366,000 for the three
months  ended  September  30, 1999 and an income tax benefit of $111,000 for the
same  period in 1998.  The  income  tax  provision  for 1999  differed  from the
statutory rate due to  nondeductible  expense from the settlement of shareholder
litigation and goodwill  amortization.  The income tax benefit for 1998 differed
from  the  statutory  rate due to  nondeductible  goodwill  amortization  and an
increase in the valuation allowance.

         The Company  recorded a loss from  discontinued  operations of $601,000
(net of tax benefit of  $418,000),  or $0.01 per share,  resulting  from certain
Medicare  contractual  adjustments  related  to  the  discontinued   psychiatric
operations  sold in 1998.  Loss  from  discontinued  operations  in 1998 of $2.4
million (net of tax of $1.7 million),  or $0.04 per diluted share, resulted from
the settlement of the 1995 litigation  concerning  alleged violations of certain
Medicare rules at the Company's former psychiatric hospitals.

         Net  loss  for the  three  months  ended  September  30,  1999 was $4.0
million,  or $0.07 per diluted share,  compared to a net loss of $4.1 million or
$0.07 per diluted share,  for the same period of 1998.  Weighted  average common
and common equivalent  shares  outstanding were 56.5 million and 57.5 million in
1999 and 1998, respectively.

RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1999
COMPARED WITH NINE MONTHS ENDED SEPTEMBER 30, 1998

         Net revenue for the nine months ended  September  30, 1999,  was $432.4
million, a decrease of $88.4 million, or 17.0%, from $520.7 million for the same
period in 1998.  The  decline in net revenue is largely due to the sale of eight
acute  care  hospitals  in 1998 and the  sale of  Bledsoe  and the  Convalescent
Hospitals in March and June 1999, respectively.

         Net revenue at "same hospitals"  decreased by $2.2 million, or 0.5%, to
$418.6  million for the nine months ended  September 30, 1999 compared to $420.8
million in 1998.  This  decrease  occurred  entirely at the  Company's  Non Core
Facilities as a result of an overall decline in patient  volumes.  Same hospital
net revenue at Core  Facilities  increased  $2.7 million,  or 0.7%,  from $367.9
million in 1998 to $370.6 million in 1999. Same hospital net revenue at Non Core
Facilities  decreased $4.9 million, or 9.2%, from $52.9 million in 1998 to $48.0
million in 1999.  Increased  patient  volumes in  admissions,  patient  days and
outpatient  visits  (excluding  home health)  contributed to the increase in net
revenue at the Core Facilities.









<PAGE> 17

         The Company's "same hospitals" experienced a 2.3% increase in inpatient
admissions  from 41,889 in the nine months ended September 30, 1998 to 42,844 in
the comparable  period in 1999.  Same hospital  patient days increased 1.8% from
190,992 in 1998 to 194,421 in 1999.  Excluding  home health  visits,  outpatient
visits at "same  hospitals"  increased  3.7% from  456,038 in 1998 to 472,734 in
1999.  The  increase in  admissions  and  outpatient  visits  resulted  from (i)
favorable demographic changes in certain markets, (ii) an increase in the number
of  physicians  and  services at several of the  Company's  hospitals  and (iii)
increased  volume  generated  from  certain  hospital  benchmarking  and service
awareness  programs  implemented in 1998. Home health visits in "same hospitals"
decreased  36.6% from  318,715 in 1998 to 202,141 in 1999  primarily  due to the
1998 closure or sale of certain home health  operations  in response to the 1997
Budget Act.

         The following table presents "same hospitals"  operating statistics for
the Company's Core and Non Core  Facilities for the nine months ended  September
30, 1999 and 1998.
<TABLE>
<CAPTION>
<S>                                                                <C>

                                                                               "SAME HOSPITALS"
                                                                         NINE MONTHS ENDED SEPTEMBER 30,

                                                                     1999                1998          % CHANGE
                                                                     ----                ----          --------
  CORE FACILITIES
  Patient Days..............................................       167,995             161,357              4.1%
  Inpatient Admissions     ..................................       36,642              35,431              3.4
  Outpatient Visits, excluding Home Health..................       410,169             383,814              6.9
  Home Health Visits........................................       125,362             195,486            (35.9)

  NON CORE FACILITIES
  Patient Days..............................................        26,426              29,635            (10.8)%
  Inpatient Admissions......................................         6,202               6,458             (4.0)
  Outpatient Visits, excluding Home Health..................        62,565              72,224            (13.4)
  Home Health Visits........................................        76,779             123,229            (37.7)
</TABLE>

         Operating expenses (salaries and benefits, other operating expenses and
provision  for bad debts),  expressed as a percentage  of net revenue,  remained
relatively  flat at 87.5% and 87.7% in the nine months ended  September 30, 1999
and 1998,  respectively.  Operating expenses decreased $78.6 million from $456.9
million in the nine months ended  September  30, 1998 to $378.3  million in 1999
largely  due to  reductions  from  closed/sold  facilities  and  cost  reduction
initiatives  implemented in the second half of 1998.  Operating expenses in 1998
included a favorable  adjustment  of  approximately  $4.5  million to reduce the
general and  professional  liability  insurance  accruals  to reflect  actuarial
estimates.   Operating   margins   were  12.5%  and  12.3%  in  1999  and  1998,
respectively.























<PAGE> 18

         Operating  expenses at the Company's "same hospitals" were 82.8% of net
revenue in 1999 and 82.3% in 1998,  and operating  margins were 17.2% and 17.7%,
respectively.  Core Facility operating margins remained relatively flat at 18.5%
in 1999 and 18.9% in 1998, and Non Core Facility  operating margins decreased to
7.3% from 9.6%,  respectively.  The stability of Core operating margins reflects
the favorable impact of the various cost reduction initiatives undertaken in the
latter half of 1998.  Additionally,  the comparison of 1999 operating margins to
1998 is less  subject  to the impact of the 1997  Budget  Act on net  revenue as
reimbursement  reductions were  substantially  phased in by the third quarter of
1998.  Non Core  operating  margins in 1999 remained  below 1998 levels  despite
significant  restructuring and cost reduction measures due to the loss of higher
margin home health  business and an overall  decline in patient volumes at these
facilities.

         Interest expense  increased $1.0 million from $38.8 million in the nine
months ended  September 30, 1998 to $39.8 million in 1999, due to a net increase
in  borrowings  under  the  senior  credit  facility   (primarily  to  fund  the
acquisition of DHHS in July 1998, facility expansion, Year 2000 expenditures and
working capital) and commercial paper program.

         Depreciation and amortization expense increased $2.9 million from $27.6
million in the nine months  ended  September  30, 1998 to $30.5  million for the
same period in 1999 primarily due to the acquisition of DHHS on July 1, 1998 and
additions to property and equipment.

         Loss before income taxes,  discontinued  operations  and  extraordinary
charge was $18.3  million  for the nine  months  ended  September  30,  1999 and
included (i) unusual charges of $2.2 million,  which consisted of a $5.5 million
corporate  restructuring  charge,  a $2.2  million  charge  associated  with  an
executive  agreement  offset  by a $5.5  million  gain  from the  settlement  of
shareholder  litigation  and (ii) a net loss on sale of  facilities  of $114,000
(see  Note  3).  Income  before  income  taxes,   discontinued   operations  and
extraordinary  charge was $8.1 million for the nine months ended  September  30,
1998 and  included a gain on sale of the Chico  Hospitals  of $7.1  million,  an
unusual  gain of $7.0  million  primarily  from the  settlement  of a  capitated
contract dispute and minority interests of $4.1 million attributable to DHHS.

         The Company  recorded an income tax benefit of $5.7 million in the nine
months  ended  September  30, 1999 and an income tax expense of $2.4 million for
the same  period in 1998.  The income  tax  benefit  in 1999  differed  from the
statutory rate due to  nondeductible  expense from the settlement of shareholder
litigation  and  goodwill  amortization,   which  were  partially  offset  by  a
non-taxable gain related to the execution of an executive agreement.  Income tax
expense  in 1998  differed  from the  statutory  rate due to a  decrease  in the
valuation  allowance,  which  was  partially  offset by  nondeductible  goodwill
amortization.

         The Company  recorded a loss from  discontinued  operations of $601,000
(net of tax benefit of  $418,000),  or $0.01 per share,  resulting  from certain
Medicare  contractual  adjustments  related  to  the  discontinued   psychiatric
operations  sold  in  1998.  The  Company  recorded  a  loss  from  discontinued
operations  of $2.4 million (net of tax of $1.7  million),  or $0.04 per diluted
share,  in 1998 to reflect  the  settlement  of the 1995  litigation  concerning
alleged violations of certain Medicare rules.














<PAGE> 19

         Net  loss  for the nine  months  ended  September  30,  1999 was  $13.2
million, or $0.24 per diluted share,  compared to net income of $2.1 million, or
$0.04  per  diluted  share,  for the same  period  of 1998.  Net  income in 1998
included an  extraordinary  charge for the  write-off of deferred  loan costs of
$1.2 million (net of tax benefits of $816,000),  or $0.02 per share, relating to
the credit  facility in  existence  prior to March 30,  1998.  Weighted  average
common and common  equivalent  shares  outstanding  were 55.4  million  and 57.5
million in 1999 and 1998, respectively.  The decrease in weighted average common
and common  equivalent shares  outstanding  resulted from the effect of dilutive
securities,  which were  excluded due to their  antidilutive  effect on 1999 net
loss.

LIQUIDITY AND CAPITAL RESOURCES

         The Company had net working  capital of $24.2  million at September 30,
1999, an increase of $1.7 million from $22.5  million at December 31, 1998.  The
increase in net working  capital  resulted  primarily from decreases in interest
payable and Medicare/Medicaid  third-party payables, which were partially offset
by a  reduction  in  accounts  receivable.  The  Company's  long-term  debt as a
percentage  of total  capitalization  increased to 95.6% at September  30, 1999,
compared to 93.9% at December 31, 1998,  as the result of the 1999  year-to-date
net loss and from additional net borrowings under the senior credit facilities.

         Net cash used in operating  activities  increased $3.9 million to $11.5
million in the nine months  ended  September  30, 1999 from $7.6 million for the
same  period in 1998.  Net cash used in  investing  activities  decreased  $23.8
million  from  $44.2  million  in 1998 to $20.4  million  in 1999 due to (i) the
acquisition  of DHHS  for  $59.3  million  in 1998  partially  offset  by (ii) a
decrease in proceeds  from the sale of  facilities of $34.4 million and (iii) an
increase in property and equipment  additions primarily from facility expansions
and  increased  capital  expenditures  in 1999  associated  with  Year  2000 and
computer system  conversions.  Net cash provided by financing  activities during
1999 was $24.3  million as  compared  to $31.8  million  during  1998.  The $7.5
million  decrease  resulted  primarily  from a decrease in  acquisition  related
borrowings  in  1999  relative  to  1998,  partially  offset  by a  decrease  in
repayments  under the revolver  portion of the senior credit  facilities and the
payment of deferred  financing  costs  associated  with the  refinancing  of the
senior credit facility in March 1998.

         In June 1999, the Company recorded a corporate  restructuring charge of
$5.5 million in connection with its effort to further reduce corporate  overhead
through  the  consolidation   and/or  elimination  of  corporate  functions  and
contracts  and a reduction  of  corporate  office  space under  lease.  The cash
portion of the restructuring charge was approximately $3.5 million.

         Effective  June 30,  1999,  the Company  amended its senior bank credit
agreement,  which  provides for,  among other things (i) an increase in interest
rates, (ii) a change in certain financial  covenants for the last three quarters
of 1999,  (iii) a reduction in the  revolving  credit loan  commitments  for any
prepayment made in connection  with an asset  disposition,  as defined,  (iv) an
increase  in  permitted  letters of credit  and (v)  approval  of certain  asset
dispositions, as defined.

         Effective  July 21,  1999,  the  Company  received  waivers  to certain
provisions of the senior bank credit  agreement to permit the global  settlement
of shareholder litigation. The settlement, which became final in September 1999,
had no material  adverse  impact on the  Company's  liquidity.  The  substantial
fulfillment of the settlement terms is described in Item 2. "Legal  Proceedings"
in this Quarterly Report on Form 10-Q.









<PAGE> 20

         On October 8,  1999,  the  Company  sold 93.9% of HoldCo,  which  owned
substantially all of the assets of five hospitals and related facilities located
in Salt Lake  City,  Utah for  $280.0  million  in cash,  inclusive  of  working
capital.  The cash  proceeds  from the  transaction  were used to eliminate  all
indebtedness  then  outstanding and related accrued interest under the Company's
senior credit facilities totaling $223.5 million, to reduce borrowings under the
commercial paper financing program by approximately $12.8 million and to provide
collateral  of $11.5  million for  certain  outstanding  letters of credit.  The
Company also eliminated $7.8 million in annual  operating lease payments related
to one of the Utah  Facilities.  The  Company  expects to use the balance of the
proceeds,  net of  transaction  costs,  for selected  capital  expenditures  and
strategic investments in its existing markets.

         As of  September  30,  1999,  the  Company  was in  compliance  with or
received waivers for all debt covenants to which it was subject under the senior
bank credit agreement.  as the result of the repayment of all indebtedness under
the senior credit facilities in October 1999, most of the commitments under such
facilities were permanently  cancelled.  The Company has entered into an interim
financing  arrangement  with  one of its  bank  lenders,  which  maintained  its
original commitment under the senior bank credit agreement of $34.8 million. The
Company  is in the  process  of  negotiating  with such  lender for a new credit
facility to replace the interim financing  arrangement under the existing senior
bank credit  agreement in the fourth quarter of 1999.  However,  there can be no
assurance  that the  Company  will be  successful  in its effort to obtain a new
financing commitment under acceptable terms and conditions.

         The Company's continued  compliance with its debt covenants,  under the
existing  senior  bank  credit  agreement  or  the  new  credit  facility,  when
completed,  is predicated on its ability to maintain certain levels of operating
performance.  If the  Company  is  unable to meet  such  objectives,  it will be
required to seek waivers from its lenders in the future.  However,  there can be
no assurance that the Company will be able to obtain such waivers, if needed.

         On October 15, 1999, the Company renewed its commercial paper financing
program  through  April 16, 2000.  As of November 9, 1999,  approximately  $33.2
million  remained  available for borrowings  under the commercial paper program,
subject to the  availability of the eligible  accounts  receivable.  The Company
also had $23.2 million  available  for  borrowings  under the interim  financing
arrangement,  subject to the terms thereof, 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,  existing  cash  balances,  borrowings  under its  existing  financing
arrangement and the commercial paper financing  program,  proceeds from the sale
of facilities,  income tax refunds and permitted equipment leasing  arrangements
will be sufficient to fund future capital and Year 2000  expenditures (see "Year
2000" discussion below) and working capital requirements through 1999. There can
be no assurance  that the above  sources will  sufficiently  fund the  Company's
liquidity needs or that future  developments in the hospital industry or general
economic  trends  will not  adversely  affect the  Company's  operations  or its
liquidity.

















<PAGE> 21

         The Company no longer  satisfies  the  closing  price  requirement  for
continued  listing  on the New York Stock  Exchange.  The  Company is  currently
considering  measures  that would  enable the Company to regain  compliance  and
remain listed.  There can be no assurance that such measures will be successful,
or that the  Company's  common  stock will  continue  to be listed on a national
securities exchange.

LITIGATION

         The  Company is subject to claims  and legal  actions by  patients  and
others in the ordinary  course of business.  The Company  believes that all such
claims and actions are either adequately covered by insurance or will not have a
material  adverse  effect  on the  Company's  financial  condition,  results  of
operations or liquidity.

YEAR 2000

        The  following  discussion  updates a more  complete  disclosure of the
Company's Year 2000 project plan previously reported in the 1998 Form 10-K. The
Company is on track with its Year 2000  seven-phase  project plan.  The Company
has completed the first five phases of the project plan, which included,  among
others,  (i) obtaining  vendor  certification  (ii) identifying and testing all
patient   care   critical   and    operations    critical   items   and   (iii)
correcting/replacing non-compliant systems.

        The sixth  phase,  which  involves  developing  contingency  plans,  is
substantially   complete.   The  contingency  plan,   developed  by  functional
department and on a hospital-by-hospital  basis, includes the identification of
(i) core  functions  and  related  supporting  mission-critical  systems,  (ii)
procedures  to detect data  corruption  and  manual/replacement  procedures  to
execute  in the event of system  malfunction,  (iii) loss  impact of  potential
failures on departmental core functions and procedures for restoring lost data,
(iv) a supply chain  readiness  assessment  for all critical  suppliers,  (v) a
staffing  plan during the weekend of the century  change and the  scheduling of
Year 2000 critical  personnel to assist and coordinate  activities in the event
of  system  malfunctions,  (vi)  emergency  notification  procedures  with  the
corporate  command  center  and with  points  of  contact,  including  vendors,
customers  and/or  legal  counsel,  (vii)  backup  procedures  for all critical
physical  facility  equipment  and systems  including  heating,  water  supply,
electrical power,  elevators,  fire detection and security,  and increased fuel
resources for extended usage of emergency power, and (viii)  validation plan to
ensure that the contingency plan is realistic and executable. The Company is in
the process of  communicating  the corporate  master  contingency  plan to each
hospital  and the  corporate  office.  Such plan  includes  the creation of the
corporate  control  center to monitor all Year 2000  activities  and procedures
addressing  alternative  data processing  systems and power  distribution.  The
seventh and final  phase,  which  focuses on  identifying  and  correcting  any
unpredictable  malfunction in the systems and equipment, is in process and will
be conducted throughout the remainder of 1999, as planned.

        Based on existing  information,  the Company believes that its estimate
of Year 2000  total  costs of $8.0  million  to $10.0  million,  as  previously
reported in the Company's 1998 Annual Report on Form 10-K, remains appropriate.
To date,  the  Company  has  incurred  approximately  $7.0  million  in capital
expenditures on replacement  systems and capital  projects that would have been
undertaken  notwithstanding the Year 2000 compliance program, but the timing of
which was accelerated. The Company has also incurred approximately $1.0 million
in expenses  to date,  including  approximately  $400,000  associated  with the
write-off of non-compliant systems, which were or will be replaced. The Company
continues to review its Year 2000 total cost estimate as appropriate.








<PAGE> 22

        The Company's efforts have focused on identifying and remediating, as
necessary, patient care or operations  critical  equipment  that  were not Year
2000  compliant.  Consequently, the Company  does not expect the Year 2000
issues to have an adverse  impact on patient care.  Furthermore,  each
hospital  has  developed a back-up plan for  critical  equipment in case it
unexpectedly  fails.  However,  the  Company  can  provide  no  assurances  that
applications  and equipment the Company  believes to be Year 2000 compliant will
not experience difficulties or that the Company will not experience difficulties
in  implementing  any  contingency  or  back-up  plans,  if and when  necessary.
Additionally,  failure by third parties on which the Company  relies for systems
or  operational  support could have a material effect on the Company's
results of operations and its ability to provide health care services.  The
foregoing assessment is based on information currently available to the Company.

REGULATORY MATTERS

         Because  of  national,  state and  private  industry  efforts to reform
healthcare  delivery and payment  systems,  the  healthcare  industry as a whole
faces increased uncertainty.  The Company is unable to predict whether any other
healthcare  legislation  at the federal and/or state level will be passed in the
future  and what  action it may take in  response  to such  legislation,  but it
continues to monitor all proposed  legislation and analyze its potential  impact
in order to formulate its future business strategies.

ITEM 3.           QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

         There were no material  changes to the  information  reported in the
Company's  1998 Annual  Report on Form 10-K.  See Item 2."Management Discussion
and Analysis - Liquidity and Capital Resources."

PART II.          OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

         In September  1999,  the global  settlement  of the putative  class and
derivative actions arising out of the Company's August 1996 merger with Champion
and two related public  offerings  became effective, in all material respects.
In accordance with the terms of the global  settlement,  the Company paid $14.0
million,  which was funded from insurance  proceeds,  to the class  settlement
fund for  distribution  to class members  and  issued  1.5  million  shares  of
common  stock  for  purposes  of distribution to class members.  The Former
Majority Shareholder also transferred 8.7 million  shares of the  Company's
common stock to certain  former  Champion shareholders  and 1.2 million shares
of the Company's  common stock for purposes of  distribution  to class members.
In addition,  the Company made a payment of $1.0 million in cash and issued 1.0
million shares of common stock to terminate a contract with the Former Chairman.

         The settlement reduced the Company's existing and future obligations to
certain former  officers and directors and terminated  Value Options to purchase
approximately  1.3  million  shares of the  Company's  common  stock  granted in
connection  with the August 1996 merger.  The Company,  all class  members,  the
derivative plaintiffs,  the separately represented former Champion shareholders,
the Former Majority Shareholder,  the underwriter,  and the affected current and
former officers and directors provided mutual releases of all claims arising out
of or related to the August 1996 merger and the related  public  offerings.  The
terms of the global  settlement  were  described in detail in the Company's 1998
Annual Report on Form 10-K.











<PAGE> 23

         The  Company is subject to claims  and legal  actions by  patients  and
others in the ordinary  course of business.  The Company  believes that all such
claims and actions are either adequately covered by insurance or will not have a
material  adverse  effect  on the  Company's  financial  condition,  results  of
operations or liquidity.

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.        EXHIBITS AND REPORT ON FORM 8-K

(a)      Exhibits

27        Financial Data Schedule.

(b)  Reports on Form 8-K

         The Company  filed on October 15, 1999,  a Current  Report on Form 8-K,
dated September 30, 1999, reporting pursuant to Item 2, the sale of the stock of
Paracelsus Senatobia Community, Inc.

         The Company  filed on October 25, 1999,  a Current  Report on Form 8-K,
dated  October 8, 1999,  reporting  pursuant to Item 2, the sale of 93.9% of the
outstanding common stock of a wholly owned subsidiary which owned  substantially
all of the assets of five hospitals and related  facilities located in Salt Lake
City, Utah.





























<PAGE> 24

                                  SIGNATURE

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

                                          Paracelsus Healthcare Corporation
                                                    (Registrant)

Dated: November 15, 1999                   BY:    /S/ LAWRENCE A. HUMPHREY
                                           -------------------------------
                                                 Lawrence A. Humphrey
                                              Executive Vice President &
                                                Chief Financial Officer