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

                                 FORM 10-QT/A

                               AMENDMENT NO. 1

                                     TO

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

             For the quarterly period ended December 31, 1995


                      Commission file number 1-12055


                     PARACELSUS HEALTHCARE CORPORATION
         (Exact name of registrant as specified in its charter)


 California                                                    95-3565943
(State or other jurisdiction of                               (IRS Employer
 incorporation or organization)                           Identification No.)


            515 W. Greens Road, Suite 800, Houston, Texas           77067
                    (Address of principal executive offices)      (Zip Code)


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


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

                                   YES_X_    NO__

As of December 31, 1995, there were 450 shares of the Registrant's Common
Stock, no stated value, outstanding.









<PAGE> 2

                          PARACELSUS HEALTHCARE CORPORATION

                                    FORM 10-QT/A

                           For the Quarterly Period Ended
                                  December 31, 1995

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

PART I.   FINANCIAL INFORMATION

Item 1.   Financial Statements

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

          Consolidated Statements of Operations -
          Three Months ended December 31, 1995 and 1994                 5

          Condensed Consolidated Statements of Cash Flows -
          Three Months ended December 31, 1995 and 1994                 6

          Notes to Interim Condensed Consolidated Financial Statements  7

Item 2.   Management's Discussion and Analysis of Financial
          Condition and Results of Operations                           11

PART II.  OTHER INFORMATION                                             14

SIGNATURE                                                               16





















<PAGE> 3

PRELIMINARY STATEMENT

     Paracelsus  Healthcare  Corporation  (the  "Company") is filing this
report on Form 10-Q/A  to amend and restate the Transition Report on Form
10-Q for the quarter ended December 31, 1995, filed  with  the Securities
and Exchange Commission (the "Commission") on November 1, 1996.

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

     To show the  impact  of  the  restatement  entries  with  respect to
previously reported amounts for the quarters ended December 31,  1995 and
1994,  the  Company has provided a description of the restatement entries
and  a reconciliation  of  historical  results  for  the  quarters  ended
December  31,  1995  and  1994,  as  previously  reported  in  the  filed
transition report on Form 10-Q, to the restated results.

     Certain   statements   in   this   Form  10-Q  are  "forward-looking
statements" made pursuant to the safe harbor  provisions  of  the Private
Securities  Litigation  Reform  Act  of  1995. Forward-looking statements
involve a number of risks and uncertainties.  Factors which may cause the
Company's  actual results in future periods  to  differ  materially  from
forecast results  include,  but  are not limited to: general economic and
business conditions, both nationally  and  in  the  regions  in which the
Company   operates;  industry  capacity;  demographic  changes;  existing
government  regulations  and  changes  in,  or the failure to comply with
government regulations; legislative proposals  for healthcare reform; the
ability  to enter into managed care provider arrangements  on  acceptable
terms; changes  in  Medicare and Medicaid reimbursement levels; liability
and other claims asserted  against  the Company; competition; the loss of
any significant customer; changes in  business  strategy  or  development
plans;  the  ability to attract and retain qualified personnel, including
physicians;  the   significant  indebtedness  of  the  Company;  and  the
availability and terms  of capital to fund the expansion of the Company's
business, including the acquisition of additional facilities.








<PAGE> 4
PART I.   FINANCIAL INFORMATION
ITEM 1.   FINANCIAL STATEMENTS
                    PARACELSUS HEALTHCARE CORPORATION
                  CONDENSED CONSOLIDATED BALANCE SHEETS
                         (Dollars in thousands)
                               (Unaudited)
                                                Restatement - See Note 2
                                               	------------------------
                                                  December      September
                                                     31,            30,
                                                    1995           1995
                                                 ---------      --------
<TABLE>
<CAPTION>
<S>                                                <C>          <C> 
ASSETS
Current Assets:
   Cash and cash equivalents                       $  4,418     $   2,949
   Marketable securities                             12,643        10,387
   Accounts receivable, net                          53,538        46,247
   Other current assets                              26,948        27,437
   Deferred income taxes                             28,825        32,580
                                                    -------       -------
     Total current assets                           126,372       119,600

Property and equipment                              273,685       268,412
Less: Accumulated depreciation and amortization    (106,306)     (102,746)
                                                    -------       -------
                                                    167,379       165,666

Other assets                                         39,635        40,533
                                                    -------       -------
     Total Assets                                  $333,386     $ 325,799
                                                    =======       =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
   Accounts payable and other current liabilities  $ 64,211     $  69,401
   Current maturities of long-term debt               5,150         8,658
                                                     ------        ------
     Total current liabilities                       69,361        78,059

Long-term debt                                      130,352       113,070
Other long-term liabilities                          25,230        25,176
Deferred income taxes                                21,544        24,619
Minority interests                                      178           126
Stockholder's equity
   Common stock                                       4,500         4,500
   Additional paid-in capital                           390           390
   Unrealized gains on marketable securities            212           137
   Retained earnings                                 81,619        79,722
                                                     ------        ------
     Total stockholder's equity                      86,721        84,749
                                                     ------        ------
     Total Liabilities and Stockholders' Equity    $333,386      $325,799
                                                    =======       =======
</TABLE>
                          See accompanying notes.
<PAGE> 5

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

                                                     Restatement - See Note 2
                                                     ------------------------
                                                         Three Months Ended
                                                             December 31,
                                                     ------------------------
                                                        1995           1994
                                                     ---------      ---------
<TABLE>
<CAPTION>
<S>                                                  <C>           <C>

Net Revenue                                          $ 130,161     $ 127,131

Costs and expenses:
  Salaries and benefits                                 55,545        53,271
  Other operating expenses                              53,176        56,391
  Provision for bad debts                                9,612         8,804
  Interest                                               3,851         3,716
  Depreciation and amortization                          3,988         4,340
                                                       -------       -------
Total costs and expenses                               126,172       126,522

Income before minority interests and income taxes        3,989           609
Minority interests                                        (569)         (693)
                                                        ------        ------
Income (loss) before income taxes                        3,420           (84)
Provision (benefit) for income taxes                     1,402           (34)
                                                       -------        ------
Net income (loss)                                    $   2,018     $     (50)
                                                       =======        ======
</TABLE>

                         See accompanying notes.



















<PAGE> 6
                    PARACELSUS HEALTHCARE CORPORATION
             CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                         (Dollars in thousands)
                               (Unaudited)
                                                   Restatement - See Note 2
                                                  ---------------------------
                                                       Three Months Ended
                                                           December 31,
                                                  ---------------------------
                                                     1995            1994
                                                  ------------    ----------
<TABLE>
<CAPTION>
<S>                                               <C>              <C>
Cash Flows from Operating Activities:
Net income (loss)                                 $  2,018         $     (50)
Non-cash expenses and changes in operating
  assets and liabilities                            (6,701)           (4,270)
                                                    ------            ------
Net cash used in operating activities               (4,683)           (4,320)
                                                    ------            ------

Cash Flows from Investing Activities:
Purchase of marketable securities                      (78)             (996)
Purchase of property and equipment, net             (5,253)           (1,670)
Decrease in minority interests                        (517)             (700)
Increase in other assets                            (1,653)             (924)
                                                     -----             -----
Net cash used in investing activities               (7,501)           (4,290)
                                                     -----             -----

Cash Flows from Financing Activities:
Borrowings under Credit Facility                    16,500            12,500
Repayments under Credit Facility                    (2,500)           (2,500)
Repayments of long-term debt, net                     (226)             (426)
Dividends to stockholder                              (121)             (412)
                                                    ------            ------
Net cash provided by financing activities           13,653             9,162
                                                    ------            ------
Increase in cash and cash equivalents                1,469               552
Cash and cash equivalents at beginning of period     2,949             1,452
                                                     -----            ------

Cash and cash equivalents at end of period        $  4,418           $ 2,004
                                                     =====             =====
Supplementary cash flow information
Cash paid during the period for:
     Income taxes                                 $    954           $   172
     Interest                                        5,550             5,351
</TABLE>

                         See accompanying notes.






<PAGE> 7

                    PARACELSUS HEALTHCARE CORPORATION

          NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               (Unaudited)

                            December 31, 1995

NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION

Organization
------------
Paracelsus Healthcare Corporation  (the  "Company")  was  incorporated in
November  1980  for  the principal purpose of owning and operating  acute
care  and  related healthcare  businesses  in  selected  markets.  As  of
December 31,  1995, the Company operated 22 hospitals with 1,986 licensed
beds in 8 states (including three psychiatric hospitals with 218 licensed
beds), of which 15 were owned and seven were leased.

Basis of Presentation
---------------------
The accompanying unaudited condensed consolidated financial statements of
the Company have  been  prepared  in  accordance  with generally accepted
accounting  principles  for interim financial information  and  with  the
instructions to Form 10-Q.  Accordingly,  they  do not include all of the
information   and   notes  required  by  generally  accepted   accounting
principles for annual financial statements. In the opinion of management,
all adjustments considered  necessary  for  a fair presentation have been
included. The Company's business is seasonal  in  nature  and  subject to
general  economic  conditions  and  other factors. Accordingly, operating
results  for  the  quarterly  period ended  December  31,  1995  are  not
necessarily indicative of the results that may be expected for the annual
period. These financial statements should be read in conjunction with the
audited consolidated financial  statements and notes thereto for the year
ended December 31, 1996 included  in  the Company's Annual Report on Form
10-K  for  such  period,  which include restated  financial  results  for
calendar years 1992 through  1995  and  for  the  quarterly 1995 and 1996
periods.

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

Certain  account  balances  for  the three months ended December 31, 1994
have been reclassified to conform to the Company's current presentation.

NOTE 2.    RESTATEMENT OF FINANCIAL STATEMENTS

     In  October  1996,  the  Board  of  Directors  appointed  a  Special
Committee consisting of non-management  members,  to supervise and direct
the conduct of an inquiry by outside legal counsel regarding, among other
things,  the Company's accounting and financial reporting  practices  and
procedures for the periods prior to the quarter ended September 30, 1996.
<PAGE> 8

Such inquiry  resulted  in the Company restating its financial statements
for the periods commencing  January 1, 1992 through the nine months ended
September 30, 1996.

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

     The  impact  of  the  restatement entries on the Company's financial
results  for the three months  ended  December   31,  1995  and  1994  is
summarized in the following tables. A reconciliation has been included to
reconcile to the reported amounts as shown in the Consolidated Statements
of Operations for each respective period.

QUARTER ENDED DECEMBER 31, 1995
                                      As Previously     Adjustments      As
                                        Reported		     to        Restated
                                         Quarter          Quarter      Quarter
                                          Ended            Ended        Ended
                                        Dec. 31,          Dec. 31,     Dec. 31,
                                          1995              1995         1995
                                     -------------      -----------  ----------
(IN 000'S)
<TABLE>
<CAPTION>
<S>                                    <C>              <C>          <C>
Net revenue                            $ 128,674        $  1,487     $ 130,161
                                         -------	         -----       -------
Costs and expenses:
  Salaries and benefits                   55,545                        55,545
  Other operating expenses                51,564           1,612        53,176
  Provision for bad  debts                 9,612                         9,612
  Interest                                 3,851                         3,851
  Depreciation and  amortization           3,988                         3,988
                                         -------           -----       -------
Total costs and  expenses                124,560           1,612       126,172
Income before minority
  interests and income taxes               4,114            (125)        3,989
Minority interests                          (569)                         (569)
                                         -------           -----       -------
Income before income taxes                 3,545            (125)        3,420
Provision for income taxes                 1,453             (51)        1,402
                                         -------           -----       -------
Net income                              $  2,092        $    (74)    $   2,018
                                         =======           =====       =======
</TABLE>








<PAGE> 9

QUARTER ENDED DECEMBER 31, 1994
                                      As Previously     Adjustments      As
                                        Reported	          to        Restated
                                         Quarter          Quarter      Quarter
                                          Ended            Ended        Ended
                                        Dec. 31,          Dec. 31,     Dec. 31,
                                          1994              1994         1994
                                     -------------      -----------  ----------
(IN 000'S)                                                              
<TABLE>
<CAPTION>
<S>                                  <C>                <C>          <C>  	
Net revenue                          $124,123           $  3,008     $ 127,131

Costs and expenses:
  Salaries and benefits                53,646               (375)       53,271
  Other operating expenses             48,716              7,675        56,391
  Provision for bad  debts              8,804                            8,804
  Interest                              3,716                            3,716
  Depreciation and  amortization        4,340                            4,340
                                     --------           --------      --------
Total costs and  expenses             119,222              7,300       126,522
Income before minority
  interests and income taxes            4,901             (4,292)          609
Minority interests                       (693)                            (693)
                                     --------           --------       -------
Income (loss) before income taxes       4,208             (4,292)          (84)
Provision (benefit) for income taxes    1,726             (1,760)          (34)
                                     --------           --------       -------
Net income (loss)                    $  2,482          $  (2,532)      $   (50)
                                     ========           ========       ======= 
</TABLE>

NOTE 3. MARKETABLE SECURITIES

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

NOTE 4. EXCHANGE TRANSACTION

On  November  28,  1995,  the  Company  entered  into  an  Asset Exchange
Agreement and
a Stock Purchase Agreement to acquire the 139-bed Pioneer Valley Hospital
in West Valley City, Utah, the 120-bed Davis Hospital and Medical  Center
in  Layton,  Utah  and  the  129-bed Santa Rosa Medical Center in Milton,
Florida  from another healthcare  company  (collectively,  the  "Acquired
Hospitals").   In  exchange,  the  other party will receive the Company's
119-bed Peninsula Medical Center in  Ormond  Beach,  Florida, the 135-bed
Elmwood  Medical  Center  in  Jefferson, Louisiana, the 190-bed  Halstead
Hospital in Halstead, Kansas, and $38.5 million in cash, net of a working
capital differential. The Company also will purchase the real property of
Elmwood  and  Halstead  from a real  estate  investment  trust  ("REIT"),
<PAGE> 10
exchange the Elmwood and  Halstead  real  property  for  the Pioneer real
property  and  then  sell  the  Pioneer  real property to the REIT.   The
acquisition of the Acquired Hospitals will be accounted for as a purchase
transaction, with no material gain or loss  to  be  recognized therefrom.
The  Company  will  finance  the  acquisition from borrowings  under  its
revolving line of credit.

NOTE 5 - LONG-TERM DEBT

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

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

NOTE 6. CONTINGENCIES

The Company is defending itself  against  a  lawsuit  filed by Aetna Life
Insurance  Company  ("Aetna")  alleging  false  diagnosis  and   billings
submitted  for  treatment  of Aetna patients at the Company's psychiatric
facilities. Management denies these allegations and believes the ultimate
resolution of the lawsuit will  not have a material adverse effect on its
consolidated financial position.

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














<PAGE> 11

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


General
-------
Following changes  in  the Company's management which became effective as
of the merger with Champion  Healthcare  Corporation  on  August 16, 1996
(the   "Merger"),   management   determined  that  there  were  financial
performance and accounting issues  with  the pre-merger operating results
of the Company.  In October 1996, the Company  announced  that  its third
quarter results would be substantially lower than expected.  At the  same
time, the Board of Directors formed a Special Committee of non-management
members  to  supervise the conduct of an inquiry by outside legal counsel
as to the nature  and  reasons for the earnings shortfall and investigate
the  accounting  and financial  reporting  practices  and  procedures  in
periods prior to September  30,  1996.  As a result of its investigation,
the Special Committee recommended  to  the Board that the Company restate
its prior period financial statements.   The  need for the restatement of
prior period financial statements was the result of accounting errors and
irregularities at pre-merger Paracelsus as discussed in Item 1 - Note 2.

   The  following  table  presents  a  summary  of  the   impact  of  the
restatements on the three months ended December 31, 1995 and 1994.

<TABLE>
<CAPTION>
<S>                     <C>                 <C>                <C>
                        As Previously
                          Reported                             As Restated
                           Quarter                               Quarter
                            Ended                                 Ended
                          Dec. 31,                               Dec. 31,
                            1995             Adjustments           1995
                        ------------         -----------       -----------
Net Revenue             $128,674             $  1,487            $130,161
Income(loss)
  before income taxes      3,545                 (125)              3,420
Net income (loss)          2,092                  (74)              2,018
</TABLE>

<TABLE>
<CAPTION>
<S>                     <C>                 <C>                <C>
                        As Previously                             
                          Reported                             As Restated
                           Quarter                               Quarter
                            Ended                                 Ended
                          Dec. 31,                               Dec. 31,
                            1994             Adjustments           1994
                        -----------          -----------       -----------
Net Revenue             $124,123             $  3,008            $127,131
Income(loss)
  before income taxes      4,208               (4,292)                (84)
Net income (loss)          2,482               (2,532)                (50)
</TABLE>

<PAGE> 12
 The 1995 adjustments consisted primarily of (i) a decrease in deductions from
revenue  of  $1.8  million  for receivables from Medicare and other  government
programs, offset by a charge  to  net  revenue of $278,000 for certain bad debt
expense that was deferred at two of the psychiatric hospitals, (ii) an increase
in operating expenses of $1.6 million from  the  reversal of corporate reserves
and  (iii) an increase in operating expenses of $13,000  for  certain  deferred
closure  costs.  The  1994 adjustments consisted primarily of (i) a decrease in
deductions from revenue  totaling  $3.0 million, consisting of $2.1 million for
receivables  from  Medicare and other  government  programs  and  $864,000  for
deferral of bad debt  expense  in prior periods that was recorded as deductions
from  revenue at two of the psychiatric  hospitals  and  (ii)  an  increase  in
operating expenses of $7.3 million from the reversal of corporate reserves.

  The following discussion analyzes the results, as restated, for quarter ended
December  31,  1995,  as  compared  to the quarter ended December 31, 1994. The
following  information should be read  in  conjunction  with  the  consolidated
financial statements of the Company, and the related notes thereto, included in
the Annual Report  on  Form  10-K  for  the year ended December 31, 1996, which
included restated financial results for periods prior thereto.


Results of Operations - Quarter ended December 31, 1995
-------------------------------------------------------
Compared with Quarter ended December 31, 1994
---------------------------------------------

Net revenue for the three months ended December 31, 1995 was $130.2 million, an
increase of $3.1 million , or 2.4%, over  $127.1 million for the same period of
1994. Of the $3.1 million increase, $6.6 million  was  contributed by hospitals
owned throughout  both periods ("same hospitals"), offset   by   a net decrease
of  $3.5  million, attributable to hospitals and healthcare related  businesses
that were closed or sold since January 1995. The $6.6 million increase in "same
hospitals"  net  revenue  was  attributable to an increase of $4.1 million from
additional home health business  at  hospitals  located primarily in Tennessee,
with the remaining $2.5 million increase resulting  primarily   from additional
services offered and medical staff development efforts.

Expressed as a percentage operating revenues, operating expenses  (salaries and
benefits, other operating expenses, and provision for bad debts) decreased from
93.2%  in  1994  to 90.9% in 1995 and operating margin increased from  6.8%  to
9.1%. The 2.3% increase in operating margin in 1995 was primarily due to a 3.6%
decrease in other  operating  expenses,  as  a  percentage of net revenue, from
incremental  charges  recorded  in 1994 for accrued  legal  costs  relating  to
outstanding  litigation and the write-off  of  certain  assets,  offset  by  an
increase in purchased  services  in 1995 attributable to additional home health
business which was profitable but  was  more  labor  intensive. The increase in
operating margin in 1995 was further offset by a 0.8%  increase in salaries and
benefits and a 0.5% increase in provision for bad debt,  as a percentage of net
revenue, with the former primarily due to an increase in home  health  business
and the latter attributable mainly to the psychiatric hospitals.

Depreciation  and  amortization  decreased  to  $4.0  million in 1995 from $4.3
million  for  the  same  period  of 1994. The $300,000 decrease  was  primarily
attributable to facilities and healthcare  related  businesses  sold  or closed
since January 1995.

Net  income  for  the  quarter  ended  December  31,  1995 was $2.0 million, as
compared to a loss of $50,000 for the quarter ended December 31, 1994. The $2.1
<PAGE> 13

million increase was due primarily to additional incremental  charges  recorded
in  1994  for  accrued  legal costs and the write-off of certain assets and  an
increase in net revenue during 1995.

Liquidity and Capital Resources
-------------------------------
Net cash used in operating  activities  for the quarter ended December 31, 1995
was $4.7 million, compared to $4.3 million  for  the  same  period of 1994. Net
cash used in investing activities increased $3.2 million to $7.5 million during
1995 from $4.3 million in 1994, primarily from an increase in  use  of  cash to
finance  capital  expenditures.  Net  cash  provided  by  financing  activities
increased $4.5 million to $13.7 million during 1995 from $9.2 million  for  the
same  1994  period,  due  primarily to an incremental borrowing of $4.0 million
under  the  Revolving Credit  Facility  to  finance  capital  expenditures  and
purchases of physician clinics during 1995.

Net working capital  was $57.0 million, an increase of $15.5 million from $41.5
million at September 30, 1995. The increase mainly resulted from an increase in
accounts receivable and  a  decrease  in  accounts  payable  and  other accrued
expenses,  in addition to a  decrease of $3.5 million in current maturities  of
long-term debt  resulting  from  the  refinancing  of an existing mortgage note
originally due in January 1996 to long-term debt. The  Company's long-term debt
as  a  percentage  of  total  capitalization  was 60.0% at December  31,  1995,
compared  to  57.2%  at  September  30,  1995.  The  increase   was   primarily
attributable  to  net borrowings of $14.0 million under the Credit Facility  to
finance capital expenditures  and  fund working capital requirements during the
three months ended December 31, 1995  and  the refinancing of the mortgage note
described above.

On  December  8, 1995, the Company amended and  restated  its  existing  Credit
Facility to increase the amount available for borrowings from $125.0 million to
$230.0 million.  The Credit Facility is available for working capital purposes,
to finance capital  expenditures,  to fund acquisitions and for the issuance of
letters of credit. As of December 31,  1995,  the  Company had $41.5 million of
borrowings outstanding under its Credit Facility.

The  Company anticipates that internally generated cash  flows  from  earnings,
proceeds  from  the  sale  of  hospital accounts receivable under the Company's
commercial paper program and borrowings  under  its  Credit  Facility  will  be
sufficient  to fund future acquisition, capital expenditure and working capital
requirements  through  fiscal  year 1996. There can be no assurance that future
developments in the hospital industry  or  general  economic  trends  will  not
adversely  affect  the Company's operations or its ability to meet such funding
requirements.

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



<PAGE> 14

Regulatory Matters
------------------
Various  other  legislative proposals for healthcare reform at both federal and
state levels have been introduced or have been under consideration. The Company
cannot predict the  effect that such reforms may have on its business and there
can be no assurance that  any  such  reforms  will  not have a material adverse
effect on the Company's future revenues or liquidity.


PART II.  OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

No material change has occurred in the litigation described in Note 6 of the
Notes to Interim Condensed Consolidated Financial Statements.

ITEM 2. CHANGE IN SECURITIES

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

10.7     Third Amended and Restated Guaranty and Pledge Agreement, dated as of
         December 8, 1995, by and among Dr. Manfred Krukemeyer, Paracelsus,
         Bank of America and NationsBank (filed as Exhibit 4.1 to Paracelsus'
         Current Report on Form 8-K dated December 8, 1995, and incorporated
         herein by reference).

10.26    Stock Purchase Agreement by and between Paracelsus and General
         Hospitals of Galen, Inc., dated as of November 29, 1995 (filed as
         Exhibit 10.40 to Paracelsus' Annual Report on Form 10-K for the year
         ended September 30, 1995, and incorporated herein by reference).

10.27    Asset Exchange Agreement by and between Paracelsus Haltstead Hospital,
         Inc., Paracelsus Elmwood Medical Center, Inc., Paracelsus Peninsula
         Medical Center, Inc., and Paracelsus Real Estate Corporation and
         Pioneer Valley Hospital, Inc. and Medical Center of Santa Rosa, Inc.,
         dated November 28, 1995 (filed as Exhibit 10.41 to Paracelsus' Annual
         Report on Form 10-K for the year ended September 30, 1995, and
         incorporated herein by reference).




<PAGE> 15


10.31    Second Amended and Restated Credit Agreement, dated as of December 8,
         1995, among Paracelsus, Bank of America National Trust and Savings
         Association as agent, and other lenders named therein (filed as
         Exhibit 4.1 to Paracelsus' Current Report on Form 8-K dated December
         8, 1995, and incorporated herein by reference).


(b) Reports on Form 8-K

      The Company filed a Current Report on Form 8-K, dated December 8, 1995,
      reporting pursuant to Item 5 thereof, that the Company had entered into
      a Second Amended and Restated Credit Agreement increasing the amount
      available thereunder to $230.0 million.











































<PAGE> 16

                                   SIGNATURE

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


                                Paracelsus Healthcare Corporation

                                        (Registrant)


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