================================================================================

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

               QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

                     THE SECURITIES AND EXCHANGE ACT OF 1934

                For the quarterly period ended September 30, 2000

                         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 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
                          (Title of Class)

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

                                  Yes[X] No[ ]

As of  November  13,  2000,  there  were  outstanding  59,143,721  shares of the
Registrant's Common Stock, no stated value.

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<PAGE> 2

                        PARACELSUS HEALTHCARE CORPORATION

                              Debtor-in-Possession

                                    FORM 10-Q

                         FOR THE QUARTERLY PERIOD ENDED

                               SEPTEMBER 30, 2000

                                      INDEX

<TABLE>
<CAPTION>
<S>                                                                                            <C>

                                                                                               Page Reference
                                                                                                  Form 10-Q

Forward-Looking Statements                                                                             3
--------------------------

PART I.                  FINANCIAL INFORMATION
------

       Item 1.           Financial Statements-- (Unaudited)

                         Condensed Consolidated Balance Sheets--
                           September 30, 2000 and December 31, 1999                                    4

                         Consolidated Statements of Operations--
                           Three and Nine Months ended September 30, 2000
                            and 1999                                                                   5

                         Condensed Consolidated Statements of Cash Flows--
                           Nine Months ended September 30, 2000 and 1999                               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
-------

       Item 1.           Legal Proceedings                                                            22

       Item 2.           Change in Securities                                                         24

       Item 3.           Default upon Senior Securities                                               25

SIGNATURE                                                                                             26

</TABLE>





















<PAGE>3

Forward-Looking Statements

         Paracelsus   Healthcare   Corporation  ("PHC")  and  its  subsidiaries,
collectively,  are herein  referred to as the "Company."  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.  All
statements  regarding the Company's expected future financial position,  results
of  operations,  cash flows,  liquidity,  financing  plans,  business  strategy,
budgets, projected costs and capital expenditures,  competitive position, growth
opportunities,  plans and  objectives of management  for future  operations  and
words such as "anticipate,"  "believe," "plan," "estimate,"  "expect," "intend,"
"may"  and  other  similar  expressions  are  forward-looking  statements.  Such
forward-looking  statements  are inherently  uncertain,  and  stockholders  must
recognize  that  actual  results  may  differ   materially  from  the  Company's
expectations as a result of a variety of factors, including, without limitation,
those discussed below.

         Factors which may cause the Company's  actual results in future periods
to differ materially from forecast results include, but are not limited to:

o             Uncertainties related to PHC's voluntary petition under Chapter 11
              of the  Bankruptcy  Code  including,  but not  limited to, (i) the
              Company's ability to consummate, in substantial terms, the Plan of
              Reorganization,  as proposed,  (ii) actions  which may be taken by
              creditors and the outcome of various administrative matters in the
              Chapter 11 proceeding  and (iii) the  possibility of delays in the
              confirmation   and/or   the   effective   date  of  the   Plan  of
              Reorganization;
o             The Company's  inability to access capital markets given the
              Company's current financial  condition;
o             The  Company's  senior  management  may be  required to dedicate
              an excessive amount of time and effort dealing with the Company's
              financial condition with less time focusing directly on the
              operations of its businesses;
o             The Company may be unable to retain top management and other key
              personnel, including physicians;
o             Competition,  including the potential  impact of a new competing
              hospital opened in November 2000 in the Fargo, North Dakota
              market, and general economic,  demographic and business
              conditions,  both nationally and in the regions in which
              the Company operates;
o             Existing   government   regulations  and  changes  in  legislative
              proposals for healthcare reform, including changes in Medicare and
              Medicaid reimbursement levels;
o             The ability to enter into managed care  provider  arrangements  on
              acceptable terms;
o             Liabilities and other claims asserted  against the Company;
o             The loss of  any  significant  customer,  including  but  not
              limited  to  managed  care contracts;
o             The Company's  ability to comply with the terms of the subsidiary
              level credit facility;
o             The Company's ability to achieve profitable  operations after the
              confirmation of  the  Plan  of  Reorganization;  and
o             The  Company's  ability  to  generate sufficient cash from
              operations to meet its obligations.

         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

                              Debtor-in-Possession

                      CONDENSED CONSOLIDATED BALANCE SHEETS

                                  ($ in 000's)

<TABLE>
<CAPTION>
<S>                                                                          <C>                     <C>

                                                                                September 30,           December 31,
                                                                                     2000                   1999
                                                                             --------------------    --------------------
                                                                                (Unaudited)                (Note 1)
Assets
Current assets:

    Cash and cash equivalents..............................................  $     14,632            $     22,723
    Restricted cash........................................................         8,679                  12,991
    Accounts receivable, net...............................................        66,918                  30,796
    Supplies...............................................................         8,351                   8,655
    Income taxes receivable................................................         6,321                   6,152
    Other current assets...................................................        16,360                  14,212
                                                                                ---------              ----------
        Total current assets...............................................       121,261                  95,529

Property and equipment.....................................................       342,076                 339,528
Less: Accumulated depreciation and amortization............................      (126,625)               (113,052)
                                                                               ----------              ----------
                                                                                  215,451                 226,476

Goodwill...................................................................        85,055                  87,684
Other assets...............................................................        29,188                  27,369
                                                                               ----------              ----------
        Total assets.......................................................  $    450,955            $    437,058
                                                                               ==========              ==========

Liabilities and Stockholders' Equity (Deficit)
Current liabilities:

    Accounts payable.......................................................  $     30,114            $     35,563
    Accrued interest payable (Note 2)......................................           411                  12,598
    Accrued liabilities and other..........................................        17,826                  20,426
    Long-term debt in default classified as current (Note 2)...............         3,085                 335,445
    Long-term debt due within one year.....................................           485                     654
                                                                               ----------              ----------
        Total current liabilities..........................................        51,921                 404,686

Long-term debt (Note 3)....................................................        37,618                   3,685
Liabilities subject to compromise (Note 2).................................       373,597                    -
Other long-term liabilities................................................        11,719                  23,490
Stockholders' equity (deficit):
    Common stock...........................................................       216,047                 215,761
    Additional paid-in capital.............................................        11,874                  12,105
    Accumulated deficit....................................................      (251,821)               (222,669)
                                                                               ----------              ----------
        Total stockholders' equity (deficit)...............................       (23,900)                  5,197
                                                                               ----------              ----------
Total Liabilities and Stockholders' Equity (Deficit).......................  $    450,955              $  437,058
                                                                               ==========              ==========

                                               See accompanying notes.

</TABLE>














<PAGE>5

                        PARACELSUS HEALTHCARE CORPORATION

                              Debtor-in-Possession

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                        ($ in 000's, except per share data)
                                   (Unaudited)

<TABLE>
<CAPTION>
<S>                                           <C>                                 <C>

                                                     Three Months Ended                 Nine Months Ended
                                                        September 30,                      September 30,
                                              ----------------------------------- ----------------------------------
                                                    2000              1999             2000              1999
                                              ----------------- ----------------- ---------------- -----------------
Net revenue...................................$.   93,207       $   138,161       $  279,330       $  432,372

Costs and expenses:
  Salaries and benefits.........................   40,643            56,038          120,714          173,138
  Other operating expenses......................   35,888            57,623          107,279          172,647
  Provision for bad debts.......................    9,851            11,051           22,435           32,536
  Interest (excludes contractual interest of
     $1.5 million on pre-petition debt
     obligations  in the three and nine
     months ended September 30, 2000)               8,742            13,588           27,967           39,771
  Depreciation and amortization.................    8,117            10,758           24,281           30,543
  Unusual items.................................     -               (5,465)            -               2,203
  Loss (gain) on sale of facilities.............     -               (2,273)            -                 114
                                                ---------         ----------      -----------    ------------
        Total costs and expenses................  103,241           141,320           302,676         450,952
                                                ---------         ----------      -----------    ------------

Loss before minority interests,
   reorganization costs, income taxes and
   discontinued operations......................  (10,034)           (3,159)          (23,346)        (18,580)
Minority interests..............................     -                  149              -                270
                                                ---------         ----------      -----------    ------------
Loss before reorganization costs, income taxes
   and  discontinued operations.................  (10,034)           (3,010)          (23,346)        (18,310)
Reorganization costs............................   (1,451)             -               (5,806)           -
                                               ----------        ----------      -----------    ------------
Loss before income taxes and  discontinued
   operations...................................  (11,485)           (3,010)          (29,152)        (18,310)
Provision (benefit) for income taxes............     -                  366              -             (5,739)
                                                ----------        ----------      -----------    ------------
Loss before discontinued operations               (11,485)           (3,376)          (29,152)        (12,571)
Loss on discontinued operations.................     -                 (601)             -               (601)
                                                ----------        ----------      -----------    ------------
Net loss......................................$.  (11,485)      $    (3,977)      $   (29,152)   $    (13,172)
                                                ==========        ==========      ===========    ============

Loss per share - basic and assuming dilution:

     Loss before discontinued operations......$.    (0.20)            (0.06)      $     (0.50)  $       (0.23)
     Loss on discontinued operations............      -               (0.01)              -             (0.01)
                                                ----------        ----------      -----------    ------------
     Loss per share...........................$.    (0.20)     $      (0.07)      $     (0.50)  $       (0.24)
                                                ==========        ==========      ===========    ============

                                                                          See accompanying notes.

</TABLE>


















<PAGE>6

                        PARACELSUS HEALTHCARE CORPORATION

                              Debtor-in-Possession

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                ($ in 000's)
                                (Unaudited)
<TABLE>
<CAPTION>
<S>                                                                   <C>

                                                                                    Nine months ended
                                                                                       September 30,
                                                                      --------------------------------------
                                                                            2000                1999
                                                                      ------------------  ------------------
 Cash Flows from Operating Activities:
 Net loss  ....................................................       $    (29,152)       $    (13,172)
 Non-cash expenses and changes in operating assets
    and liabilities............................................             34,909               1,662
                                                                      ------------         -----------
 Net cash provided by (used in) operating activities
    before reorganization costs................................              5,757             (11,510)
 Reorganization costs..........................................             (5,806)               -
                                                                      ------------         -----------
 Net cash used in operating activities.........................                (49)            (11,510)
                                                                      ------------         -----------
 Cash Flows from Investing Activities:
 Proceeds from sale of facilities, net of expenses.............               -                  2,025
 Additions to property and equipment, net......................             (5,833)            (24,034)
 (Increase) decrease in other assets, net......................             (1,446)              1,590
                                                                      ------------         -----------
 Net cash used in investing activities.........................             (7,279)            (20,419)
                                                                      ------------         -----------
 Cash Flows from Financing Activities:
 Borrowings under revolving credit facility....................             36,000              43,100
 Repayments under revolving credit facility....................             (2,000)            (13,430)
 Termination of obligations under the commercial
     paper financing program...................................            (32,000)               -
 Repayments of debt, net ......................................               (411)             (5,324)
 Deferred financing costs......................................             (2,352)               -
                                                                      ------------          ----------
 Net cash provided by (used in) financing activities...........               (763)             24,346
                                                                      ------------          ----------
 Decrease in cash and cash equivalents.........................             (8,091)             (7,583)
 Cash and cash equivalents at beginning of period..............             22,723              11,944
                                                                      ------------          ----------
 Cash and cash equivalents at end of period....................       $     14,632         $     4,361
                                                                      ============          ==========

 Supplemental Cash Flow Information:
    Interest paid..............................................       $      3,321        $     48,124
    Income taxes (refunded) paid...............................       $        715        $        (26)

 Noncash Investing Activities:
    Notes receivable from sale of hospitals....................       $       -           $      7,304
    Debt assumed by purchaser of hospitals.....................       $       -           $      2,952
    Capital lease obligations..................................       $       -           $      1,124

                             See accompanying notes.
</TABLE>

















<PAGE>7

                        PARACELSUS HEALTHCARE CORPORATION

                              Debtor-in-Possession

          NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)

                               September 30, 2000

NOTE 1.    ORGANIZATION AND BASIS OF PRESENTATION

Organization - Paracelsus  Healthcare  Corporation  ("PHC") was  incorporated in
November 1980 for the principal  purpose of owning and operating  acute care and
related healthcare businesses in selected markets. PHC and its subsidiaries (the
"Company") presently operate 10 acute care hospitals with 1,287 licensed beds in
seven states, of which eight are owned and two are leased.

Basis of  Presentation - On September 15, 2000,  PHC filed a voluntary  petition
for  protection  under  Chapter  11 of Title 11 of the United  States  Code (the
"Bankruptcy  Code") with the United  States  Bankruptcy  Court for the  Southern
District  of  Texas  (Houston  Division)  (the  "Bankruptcy  Court")  (Case  no.
00-38590-H5-11).  The bankruptcy  filing is limited to PHC, the parent  company,
and does not include any of PHC's hospital subsidiaries. Simultaneously with the
commencement  of its bankruptcy  case, PHC filed a Plan of  Reorganization  (the
"Plan")  pursuant to which PHC  proposes  to effect its  capital  restructuring.
During the Chapter 11  proceeding,  PHC is operating  as a  debtor-in-possession
under the authority of the Bankruptcy Code. PHC elected to seek Bankruptcy Court
protection in order to facilitate the restructuring of its debt while continuing
to maintain normal  business  operations at PHC's hospital  subsidiaries.  PHC's
hospital subsidiaries did not file for bankruptcy protection and are expected to
continue  paying,  in the  ordinary and normal  course of  business,  all wages,
benefits and other employee obligations,  as well as all outstanding and ongoing
accounts payable to their contractors and vendors.

         The Company's  continuing  operating  losses and  liquidity  issues and
PHC's Chapter 11 proceeding raise  substantial doubt about the Company's ability
to  continue  as a going  concern.  The  ability of the Company to continue as a
going concern is dependent upon, among other things,  (i) the Company's  ability
to  comply  with  the  terms  of the  subsidiary  level  credit  facility,  (ii)
confirmation of the Plan under the Bankruptcy Code, (iii) the Company's  ability
to achieve profitable operations after such confirmation, and (iv) the Company's
ability to generate sufficient cash from operations to meet its obligations.

         The  condensed  consolidated  financial  statements of the Company have
been  prepared in  accordance  with the American  Institute of Certified  Public
Accountants  Statement  of Position  90-7,  "Financial  Reporting by Entities in
Reorganization  Under the Bankruptcy  Code" ("SOP 90-7") and generally  accepted
accounting principles  applicable to a going concern,  which assumes that assets
will be realized and  liabilities  will be  discharged  in the normal  course of
business.  The financial statements do not include further adjustments,  if any,
reflecting the possible future effects on the  recoverability and classification
of assets or the amount and  classification  of liabilities that may result from
the outcome of uncertainties discussed herein. The Plan and other actions during
the Chapter 11 proceeding could change materially the amounts currently recorded
in the consolidated financial statements.
<PAGE>8
         The accompanying  unaudited condensed consolidated financial statements
of the  Company  have  been  prepared  in  accordance  with  generally  accepted
accounting   principles  for  interim   financial   information   and  with  the
instructions  to  Form  10-Q.  Accordingly,  they  do  not  include  all  of the
information and notes required by generally accepted accounting principles for a
complete set of financial statements.  These financial statements should be read
in  conjunction  with the audited  consolidated  financial  statements and notes
thereto for the year ended  December 31, 1999,  included in the  Company's  1999
Form 10-K.  Operating  results for the three and nine months ended September 30,
2000, are not necessarily indicative of the results that may be expected for the
year ending December 31, 2000.

         The accompanying  unaudited condensed consolidated financial statements
have  been  prepared  in  accordance  with the  Company's  customary  accounting
practices  and SOP 90-7.  Management  believes  that the  financial  information
included herein reflects all  adjustments  necessary for a fair  presentation of
interim  results  and,  except  for the  costs  described  in Note 3,  all  such
adjustments are of a normal and recurring nature.

        Certain prior period amounts have been  reclassified to conform with the
current period presentation.

Earnings Per Share - The following table sets forth the computation of basic and
diluted loss before  discontinued  operations  per share  (dollars in thousands,
except per share amounts).
<TABLE>
<CAPTION>
<S>                                                     <C>                                  <C>
                                                        Three Months Ended September 30,     Nine months ended September 30,
                                                        --------------------------------     -------------------------------
                                                            2000             1999              2000             1999
                                                        ---------          --------          --------        ---------
Numerator (a):
   Loss before discontinued operations...............   $ (11,485)         $ (3,376)         $(29,152)        $(12,571)
                                                        =========          ========          ========         ========
Denominator:
  Weighted average shares used for basic earnings per
    share............................................      58,284            55,922            58,325           55,386
   Effect of dilutive securities:
     Employee stock options..........................        -                 -                 -                -
                                                        ---------          --------          --------        ---------
   Dilutive potential common shares..................        -                 -                 -                -
                                                        ---------          --------          --------        ---------
   Shares used for diluted earnings per share........      58,284            55,922            58,325           55,386
                                                        =========          ========          ========        =========

Loss before discontinued operations per share:
   Basic.............................................   $   (0.20)         $  (0.06)         $  (0.50)      $   (0.23)
                                                        =========          ========          ========       =========
   Diluted...........................................   $   (0.20)         $  (0.06)         $  (0.50)      $   (0.23)
                                                        =========          ========          ========       =========
----------------------

</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 1.7 million shares of the Company's common stock at
a weighted  average  exercise  price of $3.16 per share and warrants to purchase
414,690  shares at a  weighted  average  exercise  price of $9.00 per share were
outstanding  during the three and nine months ended September 30, 2000, but were
not included in the computation of diluted EPS due to their anti-dilutive effect
on reported loss before discontinued operations.
<PAGE>9
         See Note 2 for  additional  discussion  of common stock and warrants to
purchase   common   stock  to  be  issued  in   connection   with  the  Plan  of
Reorganization, which if confirmed and when effective, will result in
significant dilution of the ownership interests of the  existing  holders  of
the Company's common stock.

Comprehensive  Loss -  Comprehensive  loss for the three and nine  months  ended
September 30, 2000 of $11.7 million and $29.4  million,  respectively,  included
$231,000 of deferred  compensation  costs  related to the issuance of restricted
stock grants under an employment agreement. Comprehensive loss for the three and
nine months ended  September  30, 1999 equaled the net loss reported for each of
the respective periods.

Restricted  Cash - The Company  had  restricted  cash of $8.7  million and $13.0
million at September 30, 2000 and December 31, 1999, respectively, as collateral
for outstanding letters of credit and other commitments.

NOTE 2. PROCEEDING UNDER CHAPTER 11 OF THE BANKRUPTCY CODE

         On September 15, 2000,  PHC filed a voluntary  petition for  protection
under Chapter 11 of the Bankruptcy Code with the United States  Bankruptcy Court
for the Southern  District of Texas (Case no.  00-38590-H5-11).  The  bankruptcy
filing is limited to PHC, the parent company,  and does not include any of PHC's
hospital  subsidiaries.  Simultaneously  with the commencement of its bankruptcy
case,  PHC filed the Plan of  Reorganization  pursuant to which PHC  proposes to
effect  its  capital  restructuring.   PHC  elected  to  seek  Bankruptcy  Court
protection in order to facilitate the restructuring of its debt while continuing
to maintain normal business operations at PHC's hospital subsidiaries.

         PHC's hospital  subsidiaries did not file for bankruptcy protection and
are expected to continue paying,  in the ordinary and normal course of business,
all wages, benefits and other employee  obligations,  as well as all outstanding
and ongoing accounts payable to their  contractors and vendors.  A $62.0 million
credit  facility (see Note 3), secured at the subsidiary  level, is not directly
affected by PHC's  bankruptcy  filing.  The Company expects cash on hand and
cash generated  from  operations to be  sufficient  to meet the working
capital and capital  expenditure needs of the hospital  subsidiaries  during the
restructuring process.

         PHC's decision to restructure its debt was due to its highly  leveraged
capital   structure.   Despite  positive   earnings  before   interest,   taxes,
depreciation,  amortization  and unusual  charges,  the high interest burden has
severely  impacted PHC's  reinvestment  opportunities.  In an effort to conserve
capital and to preserve the normal operations of the hospital subsidiaries,  PHC
did not make its interest  payments of $33.5  million on the $325.0  million 10%
Senior Subordinated Notes (the "Notes") due February 15 and August 15, 2000.

         PHC has been in  negotiations  with  certain  Note  holders  (the "Note
Holders").  The Note Holders of the majority of the principal  amount of
the Notes support the main financial  terms of the Plan and,  subject to certain
conditions,  have  indicated  an intent to vote in favor of the Plan.  On the
effective  date (the "Effective  Date") of the Plan , as modified on October 6,
2000,  all  principal  and interest  outstanding  on the Notes and
allowed  general  unsecured  claims of up to $15.0 million will be exchanged for
(i) the  reorganized  PHC's 11.5%  Senior  Notes (due on August 15, 2005) in the
aggregate  principal  amount of $130.0  million (the "New  Notes"),  (ii) a Cash
Payment, as defined in the Plan, and (iii) 95.0% of the reorganized PHC's common
stock,  subject to dilution  through the  exercise of the Series A Warrants  and
Series B Warrants (as referred to below). Interest on the New Notes shall accrue
commencing  on the  Effective  Date.  The Plan also  provides for the holders of
PHC's common stock as of the Record Date (as defined in the Plan) to receive (i)
5.0% of the  reorganized  PHC's  common  stock,  (ii)  warrants  (the  "Series A
Warrants") to purchase  prior to the fifth  anniversary of the Effective Date an
additional  9.64% of the reorganized  PHC's common stock  (exercisable at $320.0
million  enterprise  value of the  reorganized  PHC),  and (iii)  warrants  (the
"Series B Warrants") to purchase prior to the first anniversary of the Effective
Date an additional  2.0% of the reorganized  PHC's common stock  (exercisable at
$100.0 million value of the reorganized PHC's common stock). The Plan would make
its  effectiveness  subject  to  certain  conditions,  including  among  others,
limiting  the amount of all allowed  general  unsecured  claims,  including  any
disputed general unsecured claims (other than the Notes), to $15.0 million.
<PAGE>10
         The terms of a settlement  agreement  executed in connection with
the global  settlement  of  shareholder  litigation  that  became  effective  in
September 1999, provide that the Company's $7.2 million 6.51% subordinated note
("Park Note") and accrued  interest  convert to PHC's common stock
in the event PHC files a voluntary petition in bankruptcy.  No shares of common
stock have been issued to Park at this time.  See  "Liabilities  Subject to
Compromise"  discussed  below.  Under the proposed Plan of  Reorganization,
(i) the Park Note will be deemed to have been  converted to  approximately  1.9
million shares of PHC's common stock upon the filing of the Bankruptcy, (ii)
the Park Note holder (Park Hospital GmbH or "Park")  will be deemed to have
been  issued the common  stock in  accordance with the terms of the  settlement
and (iii) the Park Note will be cancelled upon receipt of such shares of common
stock by Park.  The 1.9 million  shares will be deemed  to be  outstanding  as
of  the  Record  Date  for  the  purposes  of the distribution of the 5.0% of
the  reorganized  PHC's common stock and warrants as discussed above.

         The Plan also  contains a  management  retention  plan (the  "Retention
Plan") to enhance the ability of the Company to retain key management  employees
during the restructuring  period.  Under the Retention Plan, bonuses aggregating
$1.0  million  will be awarded,  subject to certain  conditions,  to certain key
management  employees.  The Retention  Plan provides that the retention  bonuses
will be awarded  in two equal  amounts  upon:  (i) the  Effective  Date and (ii)
ninety days following the Effective Date. The Plan, as well as PHC's  Disclosure
Statement,  are on file with the  Bankruptcy  Court and are available for review
and copying during the Bankruptcy Court's normal business hours.

         On October 2, 2000, PHC received  approval from the Bankruptcy Court to
pay pre-petition and post-petition PHC's employee wages,  salaries and benefits.
The  Bankruptcy  Court also  approved  orders  granting  authority,  among other
things,  to  pay  pre-petition  claims  of  certain  utilities.  All  other  PHC
pre-petition  liabilities are classified in the condensed  consolidated  balance
sheet as  liabilities  subject to compromise.  PHC intends to pay  post-petition
claims of all vendors and providers in the ordinary course of business.

         Under the Bankruptcy Code, actions to collect pre-petition indebtedness
from PHC are  subject to an  automatic  stay and other  contractual  obligations
against PHC may not be enforced. In addition, PHC may assume or reject executory
contracts,  including  lease  obligations,  under the Bankruptcy  Code.  Parties
affected by the lease or contract rejections may file claims with the Bankruptcy
Court in accordance with procedures set forth in the Bankruptcy Code.
<PAGE>11
         The Plan of Reorganization must be voted upon by the holders of Allowed
Claims and Allowed  Equity  Interests in impaired  classes set forth in the Plan
and approved by the  Bankruptcy  Court.  There can be no assurance that the Plan
will be  approved  by the  requisite  holders  of claims  or  equity  interests,
confirmed by the Bankruptcy Court, or consummated. A plan of reorganization must
be confirmed by the  Bankruptcy  Court after  certain  findings  required by the
Bankruptcy  Code are made by the  Bankruptcy  Court.  The  Bankruptcy  Court may
confirm a plan of reorganization  notwithstanding the non-acceptance of the plan
by an impaired class of creditors or equity holders if certain  requirements  of
the Bankruptcy Code are met.

         In accordance with SOP 90-7, "Liabilities Subject to Compromise" on the
accompanying  condensed  consolidated  balance  sheet refers to PHC  liabilities
incurred  prior to the  commencement  of the  Chapter 11  proceeding  and do not
reflect liabilities of any of PHC's subsidiaries. These liabilities,  consisting
primarily of long-term  debt,  including the principal  amounts of the Notes and
the Park Note and accrued interest through September 15, 2000,  certain accounts
payable,  accrued liabilities and post-termination benefit obligations to former
officers  and key  employees,  represent  the  Company's  estimate  of  known or
potential  claims to be resolved in connection  with the Chapter 11  proceeding.
Such claims remain subject to future adjustments based on negotiations,  actions
of the Bankruptcy Court,  further  developments with respect to disputed claims,
future rejection of executory contracts or unexpired leases, determination as to
the value of any collateral securing claims,  treatment under the Plan and other
events.  Payment  terms for these  amounts as proposed in the Plan are discussed
above.

         A  summary  of  the  principal   categories  of  claims  classified  as
"Liabilities  Subject to  Compromise"  as a result of the Chapter 11  proceeding
follows (in thousands):
<TABLE>
<CAPTION>
<S>                                                                   <C>

 10% Senior Subordinated Notes.................................   $      325,000
 Accrued interest through September 15, 2000...................           36,853
 6.51% Subordinated Note.......................................            7,185
 Post-termination benefit obligations..........................            3,254
 Vendor accounts payable.......................................              705
 Accrued litigation liabilities................................              600
                                                                  --------------
     Total liabilities subject to compromise...................   $      373,597
                                                                  ==============
</TABLE>

         The financial  statements do not include further  adjustments,  if any,
reflecting the possible future effects on the  recoverability and classification
of assets or the amount and  classification  of liabilities that may result from
the outcome of the uncertainties  associated with the Chapter 11 proceeding.  If
the Chapter 11 proceeding had not been filed,  the Company would have reported a
working capital deficit of  approximately  $303.6 million at September 30, 2000.
During the pendency of the Chapter 11  proceeding,  the Company is not recording
the  contractual  amount of interest  expense  related to the Notes and the Park
Note after September 15, 2000.  Contractual  interest  obligations excluded from
interest expense reported on the accompanying condensed statements of operations
was $1.5 million for the three and nine months ended September 30, 2000.

         Due to cross default provisions,  a hospital subsidiary's capital lease
obligation has been presented as current  liabilities in the Company's condensed
consolidated balance sheet at September 30, 2000.

         At the Company's  request,  on October 26, 2000, the  Bankruptcy  Court
dismissed the PHC Finance,  Inc.  Chapter 11 proceeding which was filed on March
15, 2000.
<PAGE>12
NOTE 3 . LONG TERM DEBT

         On May 16, 2000, the Company entered into a new credit agreement with a
lending  group,  which provides a $62.0 million  revolving  credit and letter of
credit  guaranty  facility (the "Credit  Facility"),  expiring May 15, 2003. The
Credit  Facility  was  used  to  refinance  obligations  outstanding  under  the
Company's prior off-balance sheet commercial paper financing program, to replace
existing  letters of credit  outstanding  under the previously  existing interim
financing  arrangement  and to fund normal working  capital and certain  capital
expenditures of the Company's hospitals. The Credit Facility is an obligation of
certain of the  Company's  subsidiaries  and is secured by all of the  Company's
eligible patient receivables and certain other assets of the Company's hospitals
and a first lien on two of its hospitals.  Accordingly,  the Credit  Facility is
not an obligation of PHC.  Borrowings under the Credit Facility bear interest at
prime  plus 1.5% or LIBOR plus  3.75% per annum and are  limited  to  hospitals'
eligible receivables and certain operating measurements, as defined. The Company
is obligated  to pay certain  commitment  fees based upon  amounts  borrowed and
available for  borrowing  during the terms of the Credit  Facility.  The Company
also is subject to certain default  provisions and a covenant on certain minimum
levels of cash generated from operations.

         The  termination  of the  off-balance-sheet  commercial  paper  program



















































effectively resulted in the Company's reacquisition of $32.0 million in accounts
receivable  previously  sold to an unaffiliated  trust on a non-recourse  basis,
which was financed with borrowings under the Credit Facility.  Consequently, the
accompanying  balance  sheet  as  of  September  30,  2000  reflects  offsetting
increases in accounts  receivable and long-term  debt. As of September 30, 2000,
the  Company  had $34.0  million  in  outstanding  borrowings  under the  Credit
Facility  and $8.6  million in  outstanding  letters of credit,  which are fully
secured by cash  collateral.  The Company recorded  deferred  financing costs of
$2.4 million in connection with the Credit Facility.

NOTE  4. REORGANIZATION COSTS AND UNUSUAL CHARGES

         In the three and nine months  ended  September  30,  2000,  the Company
recorded approximately $1.5 million and $5.8 million of reorganization costs for
professional fees incurred in connection with its reorganization  activities. In
the three months ended  September 30, 1999,  the Company  recorded a net unusual
gain of $5.5  million  related  to the  settlement  of  shareholder  litigation.
Unusual  charges for the nine months ended  September 30, 1999,  reflected (i) a
$2.2 million net charge associated with the execution of an executive  agreement
with  certain  former  officers  of the  Company  and a $5.5  million  corporate
restructuring  charge in the first half of 1999,  offset by (ii) the net gain of
$5.5 million related to the settlement of shareholder litigation.

NOTE 5. INCOME TAXES

         During the fourth quarter of 1999, the Company  recorded a deferred tax
valuation allowance  aggregating $26.8 million to reserve the full amount of the
Company's  net  deferred  tax assets at  December  31,  1999,  due to the issues
affecting liquidity and related  uncertainties  which, if unfavorably  resolved,
would adversely affect the Company's future operations.  The Company recorded no
income tax benefit in the three and nine months ended September 30, 2000, as the
result of recording an additional  valuation allowance of $4.6 million and $11.4
million,  respectively,  to reserve all net deferred tax assets generated during
the respective periods. The deferred tax valuation allowance as of September 30,
2000 totaled $86.4 million.
<PAGE>13
NOTE 6. OPERATING SEGMENTS

         There has been no material change in the Company's  reportable segments
as previously  reported in the Company's 1999 Form 10-K. "Same  Hospitals," as a
reportable segment,  consist of acute care hospitals currently owned, or leased,
and operated by the Company. "All Other" comprises of closed/sold facilities and
overhead costs. Selected segment information for the three and nine months ended
September 30, 2000 and 1999, were as follows:
<TABLE>
<CAPTION>
<S>                                                     <C>
                                                                  Three Months ended
                                                                  September 30, 2000
                                                        ---------------------------------------
                                                           Same
                                                         Hospitals    All Other      Total
                                                        ----------   -----------   ------------
          Net revenue.................................   $ 93,187    $      20     $   93,207
          Adjusted EBITDA (a) (b).....................   $ 10,109    $  (3,284)    $    6,825

                                                                  Three Months ended
                                                                  September 30, 1999
                                                        ---------------------------------------
                                                           Same
                                                         Hospitals    All Other      Total
                                                        ----------   -----------   ------------
          Net revenue.................................  $  91,154    $  47,007     $  138,161
          Adjusted EBITDA (a).........................  $  13,722    $    (124)    $   13,598

                                                                  Nine Months ended
                                                                  September 30, 2000
                                                        ---------------------------------------
                                                           Same
                                                         Hospitals    All Other      Total
                                                        ----------   -----------   ------------
          Net revenue.................................   $277,744    $   1,586     $  279,330
          Adjusted EBITDA (a) (b).....................   $ 37,529    $  (8,627)    $   28,902

                                                                  Nine months ended
                                                                  September 30, 1999
                                                        ---------------------------------------
                                                           Same
                                                         Hospitals    All Other      Total
                                                        ----------   -----------   ------------
          Net revenue.................................   $277,759    $ 154,613     $  432,372
          Adjusted EBITDA (a).........................   $ 47,120    $   7,201     $   54,321
-------------------------------------
</TABLE>

(a)  Earnings from continuing operations before interest,  taxes,  depreciation,
     amortization,  reorganization costs and unusual charges ("Adjusted EBITDA")
     has  been  included  because  it is a widely  used  measure  of  internally
     generated  cash  flow and is  frequently  used in  evaluating  a  company's
     performance.  Adjusted  EBITDA is not an  acceptable  measure of liquidity,
     cash  flow  or  operating  income  under  generally   accepted   accounting
     principles and may not be comparable to similarly  titled measures of other
     companies.

(b)  Adjusted EBITDA in 2000 reflected the impact of $537,000 in shut down costs
     relating to the closure of unprofitable physician practices.
<PAGE>14
NOTE 7. CONTINGENCIES

           The  Company  has been  involved  in  discussions  with  the  Federal
government  regarding  a review of  pneumonia  claims  filed  with the  Medicare
program by the Company's Jamestown, Tennessee facility for years 1992-1997. As a
result of this review,  the Federal  government  has asserted  that such filings
contained coding errors that allegedly  resulted in an estimated  overpayment of
up to $1.3  million  by the  Medicare  program.  Furthermore,  in such cases the
Federal  government  has the ability to seek treble  damages and other  monetary
relief under the False Claims Act. The Company and the Federal  government  have
conducted  independent  reviews and have entered into settlement  discussions to
resolve this matter.  Based on the results of the Company's  independent review,
the Company has accrued $480,000 for potential  settlement costs associated with
this matter.

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

         On September 15, 2000,  PHC filed a voluntary  petition for  protection
under Chapter 11 of the Bankruptcy Code with the United States  Bankruptcy Court
for the Southern  District of Texas (Case no.  00-38590-H5-11).  The  bankruptcy
filing is limited to PHC, the parent company,  and does not include any of PHC's
hospital  subsidiaries.  Simultaneously  with the commencement of its bankruptcy
case,  PHC filed the Plan of  Reorganization  pursuant to which PHC  proposes to
effect its  capital  restructuring.  During the  Chapter 11  proceeding,  PHC is
operating as a debtor-in-possession  under the authority of the Bankruptcy Code.
PHC elected to seek  Bankruptcy  Court  protection  in order to  facilitate  the
restructuring   of  its  debt  while  continuing  to  maintain  normal  business
operations at PHC's hospital subsidiaries.  See Note 2 of the notes to condensed
consolidated financial statements.

         The Company's  continuing  operating  losses and  liquidity  issues and
PHC's Chapter 11 proceeding raise  substantial doubt about the Company's ability
to  continue  as a going  concern.  The  ability of the Company to continue as a
going concern is dependent upon, among other things,  (i) the Company's  ability
to  comply  with  the  terms  of the  subsidiary  level  Credit  Facility,  (ii)
confirmation of the Plan under the Bankruptcy Code, (iii) the Company's  ability
to achieve profitable operations after such confirmation, and (iv) the Company's
ability to generate sufficient cash from operations to meet its obligations.

         The  condensed  consolidated  financial  statements of the Company have
been prepared in  accordance  with SOP 90-7 and  generally  accepted  accounting
principles  applicable  to a going  concern,  which  assumes that assets will be
realized and  liabilities  will be  discharged in the normal course of business.
The financial statements do not include further adjustments,  if any, reflecting
the possible future effects on the  recoverability  and classification of assets
or the amount and classification of liabilities that may result from the outcome
of uncertainties discussed herein. The Plan and other actions during the Chapter
11 proceeding  could change  materially  the amounts  currently  recorded in the
consolidated financial statements.
<PAGE>15
RESULTS OF OPERATIONS

         The comparison of operating  results to prior years is difficult  given
the number of  divestitures in 1999.  "Same  Hospitals" as used in the following
discussion  consist  of acute care  hospitals  owned or leased  throughout  both
periods for which comparative operating results are presented.

Results of Operations - Three Months ended September 30, 2000
compared with Three Months ended September 30, 1999

         Net revenue for the three months ended  September  30, 2000,  was $93.2
million, a decrease of $45.0 million, or 32.5%, from $138.2 million for the same
period in 1999. The decrease in net revenue was directly  related to the sale of
five hospitals included in the results of operations for the 1999 quarter.

         Net revenue at Same Hospitals for the three months ended  September 30,
2000 was $93.2 million compared to $91.2 million in 1999, an increase of 2.2% or
$2.0  million.  Net  revenue for the  quarter  reflects  an overall  increase in
admissions  and   outpatient   visits.  Partially offsetting these factors, Same
Hospitals net revenue was unfavorably  impacted by the continuing shift in payor
mix  from  traditional  Medicare,  Medicaid  and  indemnity  coverage to managed
care,  from  which the  Company  generally  receives  lower  reimbursement.  The
Company has  responded to the payor mix shift to managed  care by  renegotiating
contracts to  obtain  better rates, collecting  under payments, reducing denials
and restricting  silent  preferred  provider  organizations.  Consequently,  the
Company is beginning to realize  improved  reimbursement  from managed care. The
Company  will continue its effort on these initiatives and expects  improvements
in future periods.

         For  the  three  months  ended  September  30,  2000,  Same  Hospitals'
inpatient  admissions  increased  5.4%  from  9,268 in 1999 to 9,765 in 2000 and
patient  days  increased  1.8%  from  45,159  in 1999 to  45,961  in 2000.  Same
Hospitals'  average  length of stay  declined  3.4% from 4.9 days in 1999 to 4.7
days in 2000.  Excluding home health visits,  outpatient  visits  increased 6.3%
from  76,431  in 1999 to  81,279  in  2000.  Outpatient  visits  at seven of the
Company's  hospitals  outpaced  the prior year as the result of an  increase  in
services  and  number  of  physicians  in many of these  markets  and due to the
industry trend of increased  outpatient  utilization.  Surgeries  decreased 3.8%
from 5,298 in 1999 to 5,097 in 2000 largely due to increased  competition at the
Company's  Fargo,  North  Dakota  and  Lancaster,   California  hospitals.  Same
Hospitals'  home health visits  decreased  1.7% from 60,626 in 1999 to 59,615 in
2000 due primarily to the elimination of unprofitable home assistance services.

         In  the Fargo  market,  a  competing  hospital opened in November 2000.
As a result,  the  Company expects  declines  in patient  volumes  at  its Fargo
hospital in the coming  months, which  will  adversely  impact the Company's net
revenue  and  operating  income.  The  Fargo  hospital  accounted  for 27.0% the
Company's net revenue and 52.9% of its Same Hospital EBITDA in the 2000 quarter.
The Company  continues to pursue various  alternatives to mitigate the effect of
increased competition in this market.
<PAGE>16
         Operating expenses (salaries and benefits, other operating expenses and
provision  for bad debts)  decreased  $38.3  million from $124.7  million in the
three months ended  September 30, 1999 to $86.4 million in 2000 due primarily to
sold facilities.  Excluding sold hospitals, operating expenses at Same Hospitals
increased  by  approximately  $5.6  million,  primarily  due to a  $2.3  million
increase  in  salaries  and  benefits  and a $2.4  million  increase in bad debt
expense.  The  increase in salaries and  benefits  was due to a  combination  of
market related wage increases and increased volumes at certain hospitals. Salary
and  benefits  also  increased  due to  $368,000  in  severance  charges  at one
hospital,   the   majority  of  which   related  to the closure of  unprofitable
physician  practices.  Approximately  half  the  increase  in bad  debt  expense
occurred at one hospital and was due largely to an increase in self-pay patients
and emergency room visits,  which  generally  result in higher bad debt expense.
Additionally,   certain  of  the  Company's   hospitals  have  also  experienced
significant  turnover in their business  office  personnel,  which has adversely
impacted  bad debt  expense as well.  The  Company has filled all but one of the
management  vacancies  in its  hospital  business  offices,  and  expects to see
improved  business office  performance in the months ahead.  The Company is also
implementing a comprehensive  revenue cycle management  initiative in all of its
hospitals,  a  significant  component  of which is  aimed at  reducing  bad debt
expense through improved  business office  processes.  This initiative  involves
implementing  systems  and  processes  to  track,   benchmark  and  improve  the
hospitals'  admission,  billing and collection  cycles. The Company expects this
initiative to show some positive  results by year-end,  although the full impact
of the  Company's  efforts  will not be  realized  until 2001.  Other  operating
expense  increased by $852,000,  due  primarily to volume  related  increases in
supply costs at certain  hospitals and  increased  pharmaceutical  costs.  Other
operating expense also included $169,000 in non-salary  expenses associated with
the closure of physician practices previously discussed.

         Operating  expenses,  expressed  as a percentage  of net revenue,  were
92.7% and  90.3% in 2000 and  1999,  respectively.  Operating  expenses  at Same
Hospitals  increased  to 89.2% of net  revenue in 2000 from  85.0% in 1999,  and
operating margins decreased to 10.8% from 15.0%, respectively.  The reduction in
operating margins resulted from higher operating costs discussed above.

         Interest expense decreased $4.8 million from $13.6 million in the three
months  ended  September  30, 1999 to $8.7 million in 2000,  due  primarily to a
decrease in the average borrowings  outstanding on the revolving line of credit,
partially offset by higher average rate of interest in the current period, which
reflected,  in part,  additional interest on the defaulted interest payments due
February 15 and August 15, 2000 on the Notes.  In accordance  with SOP 90-7, the
Company ceased accruing interest on the Notes and other debt obligations subject
to compromise on September 15, 2000, the date of the Bankruptcy  filing.  As the
result of the Chapter 11 proceeding,  contractual  interest obligations excluded
from interest expense in the accompanying 2000 condensed statement of operations
was $1.5 million.

         Depreciation and amortization expense decreased $2.6 million from $10.8
million in the three  months  ended  September  30, 1999 to $8.1 million for the
same period in 2000 primarily due to the sale of five hospitals  included in the
results of operations for the 1999 quarter.  Partially  offsetting the effect of
sold  facilities,  depreciation  and  amortization  increased  from current year
additions to property and equipment and the write-off of intangibles of $418,000
in connection with the closure of physician practices in the current quarter.
<PAGE>17
         Loss before income taxes and discontinued  operations was $11.5 million
for the three months ended September 30, 2000, and included reorganization costs
of approximately  $1.5 million for professional fees incurred in connection with
the Company's  reorganization efforts. 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.

         The Company  recorded no income tax benefit in the three  months  ended
September 30, 2000 as the result of recording an additional  valuation allowance
to reserve all net deferred tax assets generated during the current quarter. The
Company recognized an income tax benefit of $366,000 in 1999.

         In 1999, 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.

         Net loss for the  three  months  ended  September  30,  2000 was  $11.5
million,  or $0.20 per diluted  share,  compared to $4.0  million,  or $0.07 per
diluted share,  for the same period of 1999.  Weighted average common and common
equivalent  shares  outstanding  increased  to 58.3  million  in 2000  from 55.9
million in 1999 due primarily to the issuance of common stock in connection with
the settlement of litigation in September 1999, an employment agreement in March
2000 and the exercise of stock options in the current quarter.

Results of Operations - Nine Months ended September 30, 2000
compared with Nine Months ended September 30, 1999

         Net revenue for the nine months ended  September  30, 2000,  was $279.3
million,  a decrease of $153.1  million,  or 35.4%,  from $432.4 million for the
same  period  in 1999.  The  decline  in net  revenue  is due to the sale of ten
hospitals in 1999.

         Net revenue at Same  Hospitals was $277.7 million and $277.8 million in
the nine months ended September 30, 2000 and 1999,  respectively.  The stability
in net  revenue  was due  largely  to an  overall  increase  in  admissions  and
outpatient visits. Offsetting these factors, Same Hospitals net revenue was
unfavorably impacted by the continuing shift in payor mix to managed care as
previously discussed.

         Same Hospitals experienced a 1.3% increase in inpatient admissions from
28,995 in the nine months ended  September 30, 1999 to 29,358 in the  comparable
period in 2000.  Same Hospital  patient days decreased 1.9% from 144,648 in 1999
to 141,841 in 2000.  Average length of stay per admission  declined by 3.2% from
5.0 days in 1999 to 4.8 days in 2000.  Excluding home health visits,  outpatient
visits increased 5.2% from 228,486 in 1999 to 240,336 in 2000. Outpatient visits
at eight of the  Company's  hospitals  outpaced  the prior year as the result of
increases in services and number of  physicians in many of these markets and due
to the industry trend of increased outpatient  utilization.  Surgeries decreased
1.5% from 15,988 in 1999 to 15,744 in 2000 largely due to increased  competition
in two of the Company's larger markets,  as discussed above. To a lesser extent,
certain of the decline in  surgeries  was also due to the  departure  of several
physicians  at the  Company's  Richmond,  Virginia  hospital  as the result of a
revision to the credentialing  standards for the hospital's  medical staff. Home
health visits at Same  Hospitals  decreased 7.7% from 202,141 in 1999 to 186,519
in 2000  largely due to the discontinuance of certain  unprofitable  home health
contracts at the Richmond  facility and a decline of home health  operations  in
other markets.
<PAGE>18
         Operating  expenses decreased $127.9 million from $378.3 million in the
nine  months  ended  September  30,  1999 to $250.4  million in 2000 due to sold
facilities.  Expressed as a percentage of net revenue,  operating  expenses were
89.7%  and  87.5%  for the nine  months  ended  September  30,  2000  and  1999,
respectively.  Operating  margins  were  10.3%  and  12.5%  in  2000  and  1999,
respectively.  The majority of the deterioration in operating margin occurred at
Same Hospitals as further discussed below.

         Operating  expenses at Same  Hospitals  increased by $9.4  million,  or
4.1%, due to (i) a $5.5 million increase in salaries and benefits as a result of
generally  tight labor  markets,  as discussed  above,  (ii) an increase of $2.6
million in other  operating  costs  primarily from volume  related  increases in
supply  costs  at  certain  facilities  and  increased  pharmaceutical  cost and
(iii) an increase of $1.3 million in bad debt expense. As previously  discussed,
the  majority of the  increase in bad debts was  attributable  to one  facility,
which has experienced  increases in self-pay patients and emergency room visits,
which generally result in higher bad debt expense. In addition, turnover in key
business office personnel at certain hospitals has unfavorably impacted bad debt
expense.

         Operating  expenses  at Same  Hospitals  increased  from  83.1%  of net
revenue in 1999 to 86.5% in 2000, and operating  margins decreased from 16.9% to
13.5%, respectively. The decline in operating margins reflected higher operating
costs in the current period as a result of the factors discussed above.

         Interest expense decreased $11.8 million from $39.8 million in the nine
months ended  September  30, 1999 to $28.0  million in 2000,  primarily due to a
reduction  in the  average  borrowings  outstanding.  The  decrease  in interest
expense was offset in part by an increase in the average rate of interest in the
current period and additional  interest on the defaulted  interest  payments due
February 15, 2000 and August 15, 2000 on the Notes. In accordance with SOP 90-7,
the Company  ceased  accruing  interest on the Notes and other debt  obligations
subject to compromise on September 15, 2000, the date of the Bankruptcy  filing.
As the result of the Chapter 11  proceeding,  contractual  interest  obligations
excluded from interest expense in the accompanying  2000 condensed  statement of
operations was $1.5 million.

         Depreciation and amortization expense decreased $6.2 million from $30.5
million in the nine months  ended  September  30, 1999 to $24.3  million for the
same  period  in 2000  primarily  due to the  sale  of ten  hospitals  in  1999,
partially offset by an increase from additions to property and equipment and the
write-off of intangibles in connection with the shut down of physician practices
in the current quarter.

         Loss before income taxes and discontinued  operations was $29.2 million
for the nine months ended September 30, 2000 and included  reorganization  costs
of $5.8 million for professional  fees incurred in connection with the Company's
reorganization efforts. Loss before income taxes and discontinued operations for
the nine months  ended  September  30, 1999 was $18.3  million 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.
<PAGE>19
         The Company  recorded  no income tax  benefit in the nine months  ended
September 30, 2000 as the result of recording an additional  valuation allowance
to reserve all net deferred tax assets generated during the current period.  The
Company  recorded  income tax benefit of $5.7  million in the nine months  ended
September 30, 1999.

         In 1999, 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.

         Net  loss  for the nine  months  ended  September  30,  2000 was  $29.2
million,  or $0.50 per diluted share,  compared to $13.2  million,  or $0.24 per
diluted share,  for the same period of 1999.  Weighted average common and common
equivalent  shares  outstanding  were 58.3  million and 55.4 million in 2000 and
1999,  respectively.   The  increase  in  weighted  average  common  and  common
equivalent  shares  outstanding  resulted  from the  issuance of common stock in
connection  with the  settlement of litigation in September  1999, an employment
agreement in March 2000 and the exercise of stock options in the current year.

LIQUIDITY AND CAPITAL RESOURCES

         On September 15, 2000,  PHC filed a voluntary  petition for  protection
under Chapter 11 of the Bankruptcy Code with the United States  Bankruptcy Court
for the Southern  District of Texas (Case no.  00-38590-H5-11).  The  bankruptcy
filing is limited to PHC, the parent company,  and does not include any of PHC's
hospital  subsidiaries.  Simultaneously  with the commencement of its bankruptcy
case,  PHC filed the Plan of  Reorganization  pursuant to which PHC  proposes to
effect  its  capital  restructuring.   PHC  elected  to  seek  Bankruptcy  Court
protection in order to facilitate the restructuring of its debt while continuing
to maintain normal business operations at PHC's hospital subsidiaries.

         PHC's hospital  subsidiaries  have not filed for bankruptcy  protection
and are  expected to  continue  paying,  in the  ordinary  and normal  course of
business,  all wages,  benefits and other employee  obligations,  as well as all
outstanding and ongoing accounts payable to their  contractors and vendors.  The
$62.0 million Credit Facility,  secured at the subsidiary level, is not directly
affected by PHC's filing. The Company expects cash on hand and cash generated
from operations to be sufficient to meet the working capital and capital
expenditure needs of the hospital subsidiaries during the restructuring process.

         PHC's decision to restructure its debt was due to its highly  leveraged
capital   structure.   Despite  positive   earnings  before   interest,   taxes,
depreciation,  amortization  and unusual  charges,  the high interest burden has
severely  impacted PHC's  reinvestment  opportunities.  In an effort to conserve
capital and to preserve the normal operations of the hospital subsidiaries,  PHC
did not make its interest payments of $33.5 million on the Notes due February 15
and August 15, 2000.

         PHC has been in negotiations with the Note Holders. The Note Holders of
the majority  of the  principal  amount  of the Notes  support  the main
financial terms of the Plan and, subject to certain  conditions,  have indicated
an intent to vote in favor of the Plan.  On the  Effective  Date  of the  Plan,
as modified on October 6,  2000,  all  principal  and  interest
outstanding  on the Notes and allowed  general  unsecured  claims of up to $15.0
million will be exchanged for (i) the reorganized  PHC's 11.5% Senior Notes (due
on August 15, 2005) in the aggregate principal amount of $130.0 million,  (ii) a
Cash Payment,  as defined in the Plan, and (iii) 95.0% of the reorganized  PHC's
common stock,  subject to dilution through the exercise of the Series A Warrants
and Series B Warrants  (as  referred to below).  Interest on the New Notes shall
accrue  commencing on the Effective Date. The Plan also provides for the holders
of PHC's  common stock as of the Record Date (as defined in the Plan) to receive
(i) 5.0% of the  reorganized  PHC's  common  stock,  (ii)  Series A Warrants  to
purchase  prior to the fifth  anniversary  of the  Effective  Date an additional
9.64% of the  reorganized  PHC's common  stock  (exercisable  at $320.0  million
enterprise  value of the  reorganized  PHC),  and  (iii)  Series B  Warrants  to
purchase prior to the first anniversary of the Effective Date an additional 2.0%
of the  reorganized  PHC's common stock  (exercisable at $100.0 million value of
the  reorganized  PHC's  common  stock).  The Plan would make its  effectiveness
subject to certain  conditions,  including among others,  limiting the amount of
all allowed general unsecured  claims,  including any disputed general unsecured
claims (other than the Notes), to $15.0 million.
<PAGE>20
         The terms of a settlement  agreement  executed in connection with
the global settlement of shareholder litigation in September 1999, provide that
the Company's $7.2  million  6.51%  subordinated  Park Note and  accrued
interest convert to PHC's common stock in the event PHC files a voluntary
petition in bankruptcy. No  shares  of  common  stock  have  been  issued  to
Park at this time.  See "Liabilities Subject to Compromise"  discussed below.
Under the proposed Plan of Reorganization,  (i) the Park Note will be  deemed
to have been  converted  to approximately  1.9 million  shares of PHC's  common
stock upon the filing of the Bankruptcy,  (ii) Park will be deemed to have been
issued the  common  stock in accordance  with the  terms of the  settlement and
(iii) the Park Note will be cancelled  upon receipt of such shares of common
stock by Park.  The 1.9 million shares will be deemed to be  outstanding  as of
the Record Date for the purposes of the  distribution  of the 5.0% of the
reorganized  PHC's  common  stock  and warrants as discussed above.

         The Plan also contains the Retention Plan to enhance the ability of the
Company to retain key  management  employees  during the  restructuring  period.
Under the  Retention  Plan,  bonuses  aggregating  $1.0 million will be awarded,
subject  to  certain  conditions,  to  certain  key  management  employees.  The
Retention Plan provides that the retention  bonuses will be awarded in two equal
amounts  upon:  (i) the  Effective  Date  and (ii)  ninety  days  following  the
Effective  Date. The Plan, as well as PHC's  Disclosure  Statement,  are on file
with the  Bankruptcy  Court and are available for review and copying  during the
Bankruptcy Court's normal business hours.

         On October 2, 2000, PHC received  approval from the Bankruptcy Court to
pay pre-petition and post-petition PHC's employee wages,  salaries and benefits.
The  Bankruptcy  Court also  approved  orders  granting  authority,  among other
things,  to  pay  pre-petition  claims  of  certain  utilities.  All  other  PHC
pre-petition  liabilities are classified in the condensed  consolidated  balance
sheet as  liabilities  subject to compromise.  PHC intends to pay  post-petition
claims of all vendors and providers in the ordinary course of business.

         Under the Bankruptcy Code, actions to collect pre-petition indebtedness
from PHC are  subject to an  automatic  stay and other  contractual  obligations
against PHC may not be enforced. In addition, PHC may assume or reject executory
contracts,  including  lease  obligations,  under the Bankruptcy  Code.  Parties
affected by the lease or contract rejections may file claims with the Bankruptcy
Court in accordance with procedures set forth in the Bankruptcy Code.

         The Plan of Reorganization must be voted upon by the holders of Allowed
Claims and Allowed  Equity  Interests in impaired  classes set forth in the Plan
and approved by the  Bankruptcy  Court.  There can be no assurance that the Plan
will be  approved  by the  requisite  holders  of claims  or  equity  interests,
confirmed by the Bankruptcy Court, or consummated. A plan of reorganization must
be confirmed by the  Bankruptcy  Court after  certain  findings  required by the
Bankruptcy  Code are made by the  Bankruptcy  Court.  The  Bankruptcy  Court may
confirm a plan of reorganization  notwithstanding the non-acceptance of the plan
by an impaired class of creditors or equity holders if certain  requirements  of
the Bankruptcy Code are met.
<PAGE>21
         At the Company's  request,  on October 26, 2000, the  Bankruptcy  Court
dismissed the PHC Finance,  Inc.  Chapter 11 proceeding which was filed on March
15, 2000.

         In accordance with SOP 90-7, "Liabilities Subject to Compromise" on the
accompanying  condensed  consolidated  balance  sheet refers to PHC  liabilities
incurred  prior to the  commencement  of the Chapter 11  proceedings  and do not
reflect liabilities of any of PHC's subsidiaries. These liabilities,  consisting
primarily of long-term  debt,  including the principal  amounts of the Notes and
the Park Note and accrued interest through September 15, 2000,  certain accounts
payable,  accrued liabilities and post-termination benefit obligations to former
officers  and key  employees,  represent  the  Company's  estimate  of  known or
potential  claims to be resolved in connection  with the Chapter 11  proceeding.
Such claims remain subject to future adjustments based on negotiations,  actions
of the Bankruptcy Court,  further  developments with respect to disputed claims,
future rejection of executory contracts or unexpired leases, determination as to
the value of any collateral securing claims,  treatment under the Plan and other
events.  Payment  terms for these  amounts as proposed in the Plan are discussed
above.

         Net  cash  provided  by  operating   activities   before   payments  of
reorganization  costs was $5.8  million in the nine months ended  September  30,
2000,  compared  to net cash used in  operations  of $11.5  million for the same
period of 1999.  Including  reorganization  costs,  net cash  used in  operating
activities was $49,000 in 2000. The Company  expects that future  reorganization
costs will be paid as incurred from  internally  generated cash from  operations
and  existing  cash  balances.  Net cash used in investing  activities  was $7.3
million  during 2000  compared  to $20.4  million  during  1999,  and  reflected
primarily a decrease in capital expenditures  attributable to ten hospitals sold
in 1999. Net cash used in financing  activities during 2000 was $763,000,  which
reflected net  borrowings of $34.0  million  under the  subsidiary-level  Credit
Facility,  offset by (i) the  termination of $32.0 million of obligations  under
the  off-balance-sheet  commercial  paper  program  and (ii) the payment of $2.4
million in deferred financing costs on the subsidiary-level Credit Facility. Net
cash provided by financing  activities in 1999 reflected net borrowings of $29.7
million under the then existing  revolving  credit facility offset by repayments
of $5.3 million of other debts, primarily capital lease obligations.

         As of September 30, 2000,  the Company had $34.0 million in outstanding
borrowings  under its  subsidiary-level  Credit  Facility  and $8.6  million  in
outstanding letters of credit, which are fully secured by cash collateral. As of
November 14, 2000,  the Company had no available  borrowing  capacity  under its
subsidiary-level  Credit  Facility.  The  Company  anticipates  that  internally
generated cash from  operations and existing cash balances will be sufficient to
fund  the  hospitals'   routine   capital   expenditures   and  working  capital
requirements through 2000.

         The Company is in a highly leveraged financial position.  The Company's
continuing operating losses and liquidity issues and PHC's Chapter 11 proceeding
raise  substantial  doubt  about the  Company's  ability to  continue as a going
concern.  The ability of the Company to continue as a going concern is dependent
upon, among other things,  (i) the Company's ability to comply with the terms of
the subsidiary  level Credit Facility,  (ii)  confirmation of the Plan under the
Bankruptcy Code, (iii) the Company's  ability to achieve  profitable  operations
after such confirmation,  and (iv) the Company's ability to generate  sufficient
cash from operations to meet its obligations.  The Plan and other actions during
the Chapter 11 proceeding could change materially the amounts currently recorded
in the consolidated financial statements.
<PAGE>22
LITIGATION

         The  Company  has  been  involved  in  discussions   with  the  Federal
government  regarding  a review of  pneumonia  claims  filed  with the  Medicare
program by the Company's Jamestown, Tennessee facility for years 1992-1997. As a
result of this review,  the Federal  government  has asserted  that such filings
contained coding errors that allegedly  resulted in an estimated  overpayment of
up to $1.3  million  by the  Medicare  program.  Furthermore,  in such cases the
Federal government has the ability to seek treble damages under the False Claims
Act. The Company and the Federal government have conducted  independent  reviews
and have entered into  settlement  discussions to resolve this matter.  Based on
the  results of the  Company's  independent  review,  the  Company  has  accrued
$480,000 for potential settlement costs associated with this matter.

         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 3.           QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

        The  Company's  only  exposure  to market risk is changes in the general
level of market  interest rates.  The Company does not hold or issue  derivative
instruments  for trading  purposes  and is not a party to any  instruments  with
leverage features.

        With respect to the Company's interest-bearing  liabilities,  borrowings
of $34.0 million  under the  subsidiary-level  Credit  Facility at September 30,
2000 are subject to variable  rates of interest  and are affected by the general
level of market interest rates. The Company's  variable rate debt bears interest
at prime plus 1.5% or LIBOR plus 3.75%.  Based on a hypothetical  1% increase in
interest rates, the potential  annualized impact on future pretax earnings would
be approximately $340,000.

        All other debt  obligations  of the Company  have fixed  interest  rates
ranging from 6.51% to 10.5% and accordingly have no earnings exposure to changes
in interest rates.  Additionally,  under the Bankruptcy Code, actions to collect
certain of the pre-petition  indebtedness  against the Company are subject to an
automatic stay and other contractual  obligations against the Company may not be
enforced.

PART II.          OTHER INFORMATION

ITEM 1.           LEGAL PROCEEDINGS

         On September 15, 2000,  PHC filed a voluntary  petition for  protection
under Chapter 11 of the Bankruptcy Code with the United States  Bankruptcy Court
for the Southern  District of Texas (Case no.  00-38590-H5-11).  The  bankruptcy
filing is limited to PHC, the parent company,  and does not include any of PHC's
hospital  subsidiaries.  Simultaneously  with the commencement of its bankruptcy
case,  PHC filed the Plan of  Reorganization  pursuant to which PHC  proposes to
effect its  capital  restructuring.  During the  Chapter 11  proceeding,  PHC is
operating as a debtor-in-possession  under the authority of the Bankruptcy Code.
PHC elected to seek  Bankruptcy  Court  protection  in order to  facilitate  the
restructuring   of  its  debt  while  continuing  to  maintain  normal  business
operations at PHC's hospital subsidiaries.
<PAGE>23
         PHC's decision to restructure its debt was due to its highly  leveraged
capital   structure.   Despite  positive   earnings  before   interest,   taxes,
depreciation,  amortization  and unusual  charges,  the high interest burden has
severely  impacted PHC's  reinvestment  opportunities.  In an effort to conserve
capital and to preserve the normal operations of the hospital subsidiaries,  PHC
did not make its interest payments of $33.5 million on the Notes due February 15
and August 15, 2000.

         PHC has been in negotiations with the Note Holders. The Note Holders of
the majority of the principal  amount of the Notes support the principal
financial terms of the Plan and, subject to certain  conditions,  have indicated
an intent to vote in favor of the Plan.  On the  Effective  Date  of the  Plan,
as modified on October 6,  2000,  all  principal  and  interest
outstanding  on the Notes and allowed  general  unsecured  claims of up to $15.0
million will be exchanged for (i) the reorganized  PHC's 11.5% Senior Notes (due
on August 15, 2005) in the aggregate principal amount of $130.0 million,  (ii) a
Cash Payment,  as defined in the Plan, and (iii) 95.0% of the reorganized  PHC's
common stock,  subject to dilution through the exercise of the Series A Warrants
and Series B Warrants  (as  referred to below).  Interest on the New Notes shall
accrue  commencing on the Effective Date. The Plan also provides for the holders
of PHC's  common stock as of the Record Date (as defined in the Plan) to receive
(i) 5.0% of the  reorganized  PHC's  common  stock,  (ii)  Series A Warrants  to
purchase  prior to the fifth  anniversary  of the  Effective  Date an additional
9.64% of the  reorganized  PHC's common  stock  (exercisable  at $320.0  million
enterprise  value of the  reorganized  PHC),  and  (iii)  Series B  Warrants  to
purchase prior to the first anniversary of the Effective Date an additional 2.0%
of the  reorganized  PHC's common stock  (exercisable at $100.0 million value of
the  reorganized  PHC's  common  stock).  The Plan would make its  effectiveness
subject to certain  conditions,  including among others,  limiting the amount of
all allowed general unsecured  claims,  including any disputed general unsecured
claims (other than the Notes), to $15.0 million.

         The terms of a settlement  agreement  executed in connection with
the global settlement of shareholder litigation in September 1999, provide that
the Company's $7.2  million  6.51%  subordinated  Park Note and  accrued
interest convert to PHC's common stock in the event PHC files a voluntary
petition in bankruptcy. No  shares  of  common  stock  have  been  issued  to
Park at this time.  See "Liabilities Subject to Compromise"  discussed below.
Under the proposed Plan of Reorganization,  (i) the Park Note will be  deemed
to have been  converted  to approximately  1.9 million  shares of PHC's  common
stock upon the filing of the Bankruptcy,  (ii) Park will be deemed to have been
issued the  common  stock in accordance  with the  terms of the  settlement and
(iii) the Park Note will be cancelled  upon receipt of such shares of common
stock by Park.  The 1.9 million shares will be deemed to be  outstanding  as of
the Record Date for the purposes of the  distribution  of the 5.0% of the
reorganized  PHC's  common  stock  and warrants as discussed above.

         The Plan also contains the Retention Plan to enhance the ability of the
Company to retain key  management  employees  during the  restructuring  period.
Under the  Retention  Plan,  bonuses  aggregating  $1.0 million will be awarded,
subject  to  certain  conditions,  to  certain  key  management  employees.  The
Retention Plan provides that the retention  bonuses will be awarded in two equal
amounts  upon:  (i) the  Effective  Date  and (ii)  ninety  days  following  the
Effective  Date. The Plan, as well as PHC's  Disclosure  Statement,  are on file
with the  Bankruptcy  Court and are available for review and copying  during the
Bankruptcy Court's normal business hours.
<PAGE>24
         On October 2, 2000, PHC received  approval from the Bankruptcy Court to
pay pre-petition and post-petition PHC's employee wages,  salaries and benefits.
The  Bankruptcy  Court also  approved  orders  granting  authority,  among other
things,  to  pay  pre-petition  claims  of  certain  utilities.  All  other  PHC
pre-petition  liabilities are classified in the condensed  consolidated  balance
sheet as  liabilities  subject to compromise.  PHC intends to pay  post-petition
claims of all vendors and providers in the ordinary course of business.

         Under the Bankruptcy Code, actions to collect pre-petition indebtedness
against PHC are subject to an automatic stay and other  contractual  obligations
against PHC may not be enforced. In addition, PHC may assume or reject executory
contracts,  including  lease  obligations,  under the Bankruptcy  Code.  Parties
affected by the lease or contract rejections may file claims with the Bankruptcy
Court in accordance with procedures set forth in the Bankruptcy Code.

         The Plan of Reorganization must be voted upon by the holders of Allowed
Claims and Allowed  Equity  Interests in impaired  classes set forth in the Plan
and approved by the  Bankruptcy  Court.  There can be no assurance that the Plan
will be  approved  by the  requisite  holders  of claims  or  equity  interests,
confirmed by the Bankruptcy Court, or consummated. A plan of reorganization must
be confirmed by the  Bankruptcy  Court after  certain  findings  required by the
Bankruptcy  Code are made by the  Bankruptcy  Court.  The  Bankruptcy  Court may
confirm a plan of reorganization  notwithstanding the non-acceptance of the plan
by an impaired class of creditors or equity holders if certain  requirements  of
the Bankruptcy Code are met.

         At the Company's  request,  on October 26, 2000, the  Bankruptcy  Court
dismissed the PHC Finance,  Inc.  Chapter 11 proceeding which was filed on March
15, 2000.

ITEM 2.           CHANGE IN SECURITIES

         In  connection  with PHC's  Chapter 11  proceeding,  actions to collect
pre-petition  indebtedness under the Notes and certain other obligations against
the Company are subject to an automatic  stay.  Furthermore, on the Effective
Date of the Plan, as modified on October 6, 2000,all principal
and interest outstanding on the Notes and allowed general unsecured claims of up
to $15.0  million will be exchanged for (i) the  reorganized  PHC's 11.5% Senior
Notes  (due on August  15,  2005) in the  aggregate  principal  amount of $130.0
million,  (ii) a Cash  Payment,  as defined by the Plan,  and (iii) 95.0% of the
reorganized PHC's common stock,  subject to dilution through the exercise of the
Series A Warrants and Series B Warrants.  The Plan also provides for the holders
of PHC's  common stock as of the Record Date (as defined in the Plan) to receive
(i) 5.0% of the  reorganized  PHC's  common  stock,  (ii)  Series A Warrants  to
purchase  prior to the fifth  anniversary  of the  Effective  Date an additional
9.64% of the  reorganized  PHC's common  stock  (exercisable  at $320.0  million
enterprise  value of the  reorganized  PHC),  and  (iii)  Series B  Warrants  to
purchase prior to the first anniversary of the Effective Date an additional 2.0%
of the  reorganized  PHC's common stock  (exercisable at $100.0 million value of
the reorganized PHC's common stock).
<PAGE>25
         The terms of a settlement  agreement  executed in connection with
the global settlement of shareholder litigation in September 1999, provide that
the Company's $7.2  million  6.51%  subordinated  Park Note and  accrued
interest convert to PHC's common stock in the event PHC files a voluntary
petition in bankruptcy. No  shares  of  common  stock  have  been  issued  to
Park at this time.  See "Liabilities Subject to Compromise"  discussed below.
Under the proposed Plan of Reorganization,  (i) the Park Note will be  deemed
to have been  converted  to approximately  1.9 million  shares of PHC's  common
stock upon the filing of the Bankruptcy,  (ii) Park will be deemed to have been
issued the  common  stock in accordance  with the  terms of the  settlement and
(iii) the Park Note will be cancelled  upon receipt of such shares of common
stock by Park.  The 1.9 million shares will be deemed to be  outstanding  as of
the Record Date for the purposes of the  distribution  of the 5.0% of the
reorganized  PHC's  common  stock  and warrants as discussed above.

ITEM 3.           DEFAULTS UPON SENIOR SECURITIES

         The Company defaulted on the interest  payments of approximately  $33.5
million due on February 15, and August 15, 2000 on the Company's  $325.0 million
10% Senior  Subordinated Notes due 2006.  Relating  therewith,  on September 15,
2000,  PHC filed a voluntary  petition for  protection  under  Chapter 11 of the
Bankruptcy Code as further discussed elsewhere in this Form 10-Q.

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

27        Financial Data Schedule

(b)               Report on Form 8-K

         The Company filed on September 20, 2000, a Current  Report on Form 8-K,
reporting pursuant to Item 3, that PHC filed a voluntary petition for protection
under Chapter 11 of the Bankruptcy Code.


<PAGE>26



                              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/ LAWRENCE A. HUMPHREY
Dated: November 14, 2000                        ____________________________
                                                     Lawrence A. Humphrey
                                                  Executive Vice President &
                                                   Chief Financial Officer