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


                                FORM 10-Q

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

            FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997


                     Commission file number 1-12055


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

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

              515 W. GREENS ROAD, SUITE 800, HOUSTON, TEXAS
                (Address of principal executive offices)

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

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

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

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

                          Yes[X]       No[   ]

As of November 12, 1997, there were outstanding 55,093,417  shares of the
Registrant's Common Stock, no stated value.








<PAGE> 2

                    PARACELSUS HEALTHCARE CORPORATION
                                FORM 10-Q

                     FOR THE QUARTERLY PERIOD ENDED
                           SEPTEMBER 30, 1997

                                  INDEX

                                                             PAGE REFERENCE
                                                                FORM 10-Q
                                                             --------------
<TABLE>
<CAPTION>
<S>               
<C>                                                                  <C>
PRELIMINARY STATEMENT                                                 3
FORWARD-LOOKING STATEMENTS                                            3

PART I.
     Item 1.
          FINANCIAL INFORMATION

          Financial Statements-- (Unaudited)

          Condensed Consolidated Balance Sheets--
             September 30, 1997 and December 31, 1996                 4

          Consolidated Statements of Operations--
             Three Months and Nine Months Ended
             September 30, 1997 and 1996                              5 

          Condensed Consolidated Statements of Cash Flows--       
             Nine Months Ended September 30, 1997 and 1996            7 

          Notes to Interim Condensed Consolidated               
             Financial Statements                                     8

     Item 2.  Management's Discussion and Analysis of Financial
               Condition and Results of Operations                    16

PART II.  OTHER INFORMATION                                           28
     
SIGNATURE                                                             30
</TABLE>













<PAGE>  3

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

     On August 12, 1997, the Company filed amended  quarterly  reports on
Form  10-Q/A for the transition period ending December 31, 1995 and  each
of the  first  two  calendar  quarters  of  1996  to reflect the restated
results  for each respective period. On November 10,  1997,  the  Company
filed an amended  quarterly  report  on Form 10-Q/A for the quarter ended
September 30, 1996.

FORWARD-LOOKING STATEMENTS
     Certain   statements   in  this  Form  10-Q   are   "forward-looking
statements" made pursuant to  the  safe  harbor provisions of the Private
Securities  Litigation  Reform  Act of 1995.  Forward-looking  statements
involve a number of risks and uncertainties.  Factors which may cause the
Company's actual results in future  periods  to  differ  materially  from
forecast  results  include,  but  are  not  limited  to:  the  outcome of
litigation  pending  against  the Company and certain affiliated persons;
continued  satisfactory relations  with  the  Company's  Senior  Lenders;
general economic  and  business  conditions,  both  nationally and in the
regions  in  which  the Company operates; industry capacity;  demographic
changes; existing government  regulations  and changes in, or the failure
to  comply  with  government  regulations;  legislative   proposals   for
healthcare  reform;  the  ability  to  enter  into  managed care provider
arrangements  on  acceptable  terms;  changes  in Medicare  and  Medicaid
reimbursement levels; revisions to amounts recorded for losses associated
with the impairment of assets; 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 working
capital  requirements  and  the  expansion  of  the  Company's  business,
including the acquisition of additional facilities.
<PAGE> 4
PART I.   FINANCIAL INFORMATION
ITEM 1.   FINANCIAL STATEMENTS
                      PARACELSUS HEALTHCARE CORPORATION

                    CONDENSED CONSOLIDATED BALANCE SHEETS
                               ($ in 000's)
<TABLE>
<CAPTION>
                                                       SEPTEMBER     DECEMBER
                                                           30,          31,
                                                          1997         1996
                                                       ----------    --------
                                                       (Unaudited)  (Note 1)
<S>                                                    <C>          <C>
ASSETS
Current assets:
    Cash and cash equivalents                          $   25,822   $  17,771
    Restricted cash                                         3,135       2,358
    Accounts receivable, net                               86,853      64,687
    Deferred income taxes                                  28,309      28,739
    Refundable income taxes                                 7,174      31,003
    Other current assets                                   35,428      53,072
                                                        ---------     -------
        Total current assets                              186,721     197,630

Property and equipment                                    434,645     420,697
Less: Accumulated depreciation and amortization          (125,263)   (109,862)
                                                          -------     -------
                                                          309,382     310,835

Long-term assets of discontinued operations                 7,129      18,499
Assets held for sale                                       22,635      22,095
Goodwill                                                  115,345     118,168
Other assets                                              112,112     105,605
                                                          -------     -------
        Total assets                                  $   753,324   $ 772,832
                                                          =======     =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Accounts payable                                  $    49,626   $  40,408
    Accrued liabilities and other                          94,912     118,781
    Current maturities of long-term debt                    2,571       4,679
                                                           ------     -------
        Total current liabilities                         147,109     163,868

Long-term debt                                            494,449     491,057
Other long-term liabilities                                61,168      69,420
Stockholders' Equity:
    Common stock                                          224,472     224,472
    Additional paid-in capital                                390         390
    Unrealized (losses) gains on marketable securities        (78)        100 
    Accumulated deficit                                  (174,186)   (176,475)
                                                          -------     -------
        Total stockholders' equity                         50,598      48,487
                                                         
Total Liabilities and Stockholders' Equity              $ 753,324   $ 772,832
                                                          =======     =======
</TABLE>                           See accompanying notes.
<PAGE>  5

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

                                      THREE MONTHS ENDED    NINE MONTHS ENDED
                                         SEPTEMBER 30,         SEPTEMBER 30,
                                      ------------------    -----------------
                                        1997      1996        1997     1996
                                      -------    -------    --------  -------
                                                (Restated-           (Restated-
                                                   Note 2)             Note 2)
<TABLE> 
<CAPTION>
<S>                                  <C>        <C>         <C>       <C>
Net revenue                          $166,661   $126,008    $502,407  $ 361,194

Costs and expenses:
  Salaries and benefits                67,781     58,767     205,041    165,272
  Other operating expenses             67,689     55,763     203,162    156,571
  Provision for bad debts              12,688     10,039      33,449     24,003
  Interest                             13,236      9,397      34,715     18,411
  Depreciation and amortization         7,067      7,539      23,047     15,818
  Equity in earnings of Dakota
    Heartland Health System            (2,598)      (895)     (7,824)      (895)
  Impairment charge                         -     13,349           -     13,349
  Merger costs                              -     46,818           -     46,818
  Unusual charges                           -          -       5,978      2,438
                                       ------     ------       -----     ------
Total costs and expenses              165,863    200,777     497,568    441,785
Income (loss) from continuing
  operations before minority interests,
  income taxes and extraordinary loss     798    (74,769)      4,839    (80,591)
Minority interests                       (440)      (362)     (1,421)    (1,767)
                                       ------     ------       -----     ------
Income (loss) from continuing
  operations before  income taxes
  and extraordinary loss                  358    (75,131)      3,418    (82,358)
Provision (benefit) for income taxes      220    (29,783)      1,129    (32,846)
                                       ------     ------       -----     ------
Income (loss) from continuing
  operations before extraordinary loss    138    (45,348)      2,289    (49,512)
Discontinued operations:
  Loss from operations of
   discontinued operations, net             -     (4,294)          -    (19,641)
  Loss on disposal of discontinued
   operations, net                          -    (14,902)          -    (14,902)
                                       ------     ------       -----     ------
Income (loss) before extraordinary loss   138    (64,544)      2,289    (84,055)
Extraordinary loss from early
  extinguishment of debt, net               -     (4,557)          -     (4,557)
                                       ------      -----       -----     ------
Net income (loss)                    $    138   $(69,101)   $  2,289   $(88,612)
                                       ======     ======       =====     ======
                                        (continued)


<PAGE> 6
                    PARACELSUS HEALTHCARE CORPORATION
                  CONSOLIDATED STATEMENTS OF OPERATIONS
                   ($ in 000's, except per share data)
                               (Unaudited)

                                      THREE MONTHS ENDED    NINE MONTHS ENDED
                                         SEPTEMBER 30,         SEPTEMBER 30,
                                      ------------------    -----------------
                                        1997      1996        1997     1996
                                      -------    -------    --------  -------
                                                (Restated-           (Restated-
                                                   Note 2)             Note 2)
Income (loss) per share:
   Continuing operations             $     -   $   (1.08)   $   0.04  $ (1.46)
   Discontinued operations                 -       (0.45)          -    (1.01)
   Extraordinary loss                      -       (0.10)          -    (0.14)
                                      ------      ------        ----    -----
Income (loss) per share              $     -   $   (1.63)   $   0.04  $ (2.61)
                                      ======      ======        ====    =====

Weighted average common and
   common equivalent shares
   outstanding                        57,710      42,290      56,752   33,975
</TABLE>
                                       See accompanying notes.

































<PAGE> 7
                         PARACELSUS HEALTHCARE CORPORATION

                    CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                    ($ in 000's)
                                    (Unaudited)
                                                     Nine Months Ended
                                                        September 30,
                                                    -------------------- 
                                                      1997          1996
                                                    --------      ------
                                                                  (Restated -
                                                                 See Note 2)   
<TABLE>
<S>                                                 <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)                                      $  2,289      $ (88,612)
Non-cash expenses and changes in operating
   assets and liabilities                                (9,309)        58,664
                                                          -----         ------
Net cash used in operating activities                    (7,020)       (29,948)
                                                          -----         ------ 

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of facilities                        12,201              -
Acquisitions of facilities, net                               -       (123,072)
Sale (purchase) of marketable securities                 19,284         (4,104)
Additions to property and equipment, net                (12,617)        (3,260)
Increase in other assets, net                            (2,282)        (2,035)
                                                          -----          -----
Net cash provided by (used in) investing activities      16,586       (132,471)
                                                          -----        -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under Revolving Credit Facility               38,000        441,500
Repayments under Revolving Credit Facility              (34,593)      (342,000)
Proceeds from issuance of debt                                -        320,342
Repayments of debt                                       (4,922)      (262,193)
Sale of common stock, net                                     -         39,841
Dividends to stockholder                                      -        (24,878)
                                                          -----        -------
Net cash (used in) provided by financing activities      (1,515)       172,612
                                                          -----        -------
Increase  in cash and cash equivalents                    8,051         10,193
Cash and cash equivalents at beginning of year           17,771          4,418
                                                          -----        -------
Cash and cash equivalents at end of period             $ 25,822      $  14,611
                                                         ======        =======
  Supplemental Cash Flow Information:
   Interest paid                                       $ 45,262      $  15,713
   Income taxes (refunded) paid                         (23,911)         1,971

  Purchase of businesses, net:
   Fair value of assets acquired                              -      $(478,173)
   Liabilities assumed                                        -        207,859
   Stock and stock options issued                             -        147,242
</TABLE>
         

                                  See accompanying notes.
<PAGE> 8
             PARACELSUS HEALTHCARE CORPORATION

   NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL
                      STATEMENTS
                      (Unaudited)

                  September 30, 1997

NOTE 1.    ORGANIZATION AND BASIS OF PRESENTATION

ORGANIZATION  -  Paracelsus Healthcare Corporation (the
"Company") was incorporated  in  November  1980 for the
principal  purpose  of owning and operating acute  care
hospitals and related healthcare businesses in selected
markets.  The Company  presently  operates 27 hospitals
with 2,790  licensed beds in nine states (including two
psychiatric hospitals with 113 licensed beds), of which
20  are  owned,  including  two  through  a  50%  owned
partnership interest, and seven are leased.

BASIS  OF  PRESENTATION  -  The accompanying  unaudited
condensed  consolidated  financial  statements  of  the
Company have been prepared in accordance with generally
accepted accounting principles  for  interim  financial
information  and  with  the  instructions to Form 10-Q.
Accordingly, they do not include all of the information
and  notes  required by generally  accepted  accounting
principles for  annual  financial  statements.  In  the
opinion   of  management,  all  adjustments  considered
necessary for  a  fair  presentation have been included
(see Note 2). The balance  sheet  at  December 31, 1996
has been derived from the audited financial  statements
at   that   date  but  does  not  include  all  of  the
information  and   footnotes   required   by  generally
accepted  accounting principles for complete  financial
statements.  The  Company's  business  is  seasonal  in
nature  and  subject to general economic conditions and
other factors.  Accordingly,  operating results for the
three months and nine months ending  September 30, 1997
are not necessarily indicative of the  results that may
be  expected  for  the year ending December  31,  1997.
These   financial  statements   should   be   read   in
conjunction  with  the  audited  consolidated financial
statements  and  notes  thereto  for  the   year  ended
December  31, 1996 included in the Company's 1996  Form
10-K.

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


<PAGE> 9

     Certain account balances for the three  months and
nine   months   ended  September  30,  1996  have  been
reclassified  to  conform   to  the  Company's  current
presentation.

NET  INCOME (LOSS) PER SHARE  -  Net  income (loss) per
share is computed by dividing net income  (loss) by the
weighted average number of common and common equivalent
shares outstanding. Fully diluted net income (loss) per
share is not presented because it approximated  primary
net  income  per  share  or was anti-dilutive. Weighted
average number of common shares  outstanding  for   the
three  months  and nine months ended September 30, 1996
have been adjusted  to  reflect  the 66,159.426-for-one
stock  split  in  conjunction  with  the   merger  with
Champion Healthcare Corporation ("Champion")  in August
1996.

     In   February   1997,   the  Financial  Accounting
Standards   Board   issued  Statement   of   Accounting
Standards  ("SFAS")  No.  128,  "Earnings  per  Share,"
which is required  to  be adopted on December 31, 1997.
At that time, the Company  will  be  required to change
the method currently used to compute earnings per share
and  to  restate  all  prior  periods.  Under  the  new
requirements  for  calculating  primary  earnings   per
share,  the  dilutive  effect  of stock options will be
excluded.  The  impact will not result  in  a  material
change in primary income (loss) per share for the three
months and nine months  ended  September  30,  1997 and
1996. The impact of SFAS No. 128 on the calculation  of
fully diluted income (loss) per share for these periods
is also not expected to be material.

NOTE 2.    RESTATEMENT OF FINANCIAL STATEMENTS

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

     The need  for  prior  period  restatements was the
result of accounting errors and irregularities  at pre-
merger  Paracelsus in four areas: (i) overstatement  of
receivables  due  from  Medicare  and  other government
programs;   (ii)  use  of  corporate  reserves;   (iii)
provisions for bad debt expense relating principally to
two of the Company's  psychiatric  hospitals in the Los
Angeles  area;  and  (iv) deferral of facility  closure
<PAGE> 10

costs   which   only  affected   the   1996   quarterly
information. Certain  adjustments to the financial data
for the three months and  nine  months  ended September
30,  1996  reflect items originally recorded  in  those
reporting periods  that  have  now been reclassified or
reallocated  to  earlier periods as  a  result  of  the
Special Committee's  investigation. See Part I - Item 2
"Management's  Discussion  and  Analysis  of  Financial
Condition  and  Results   of  Operations"  for  further
detailed  analysis of items  (i)  through  (iv)  above,
which equal  to the total net loss revision amounts for
the  applicable   periods.   Certain  reclassifications
between  reporting  line items and  between  continuing
operations and discontinued  operations  are also being
reflected under the "Adjustments" column.

     On  August  12,  1997,  the Company filed  amended
quarterly  reports on Form 10-Q/A  for  the  transition
period ending  December  31, 1995 and each of the first
two calendar quarters of 1996  to  reflect the restated
results  for each respective period.  On  November  10,
1997, the  Company filed an amended quarterly report on
Form 10-Q/A for the quarter ended September 30, 1996.


































<PAGE> 11
<TABLE>
<CAPTION>
                                            QUARTER ENDED SEPTEMBER 30, 1996
                                       ---------------------------------------
                                       As Originally
(IN 000'S, EXCEPT PER SHARE DATA)        Reported    Adjustments   As Restated
                                       ------------  -----------   -----------
<S>                                   <C>            <C>           <C>
Net revenue                           $ 109,855      $ 16,153      $  126,008
Costs and expenses:
 Salaries and benefits                   58,718            49          58,767
 Other operating expenses                47,334         7,534          54,868
 Provision for bad  debts                10,489          (450)         10,039
 Interest                                 9,383            14           9,397
 Depreciation and amortization            7,416           123           7,539
 Impairment charge                       13,349             -          13,349
 Merger costs                            46,818             -          46,818
                                         ------         ------         ------
Total costs and  expenses               193,507          7,270        200,777
Loss from continuing
   operations before minority
   interests, income taxes and
   extraordinary loss                   (83,652)         8,883        (74,769)
Minority interests                           52           (414)          (362)
                                         ------          -----         ------
Loss  from continuing
   operations before income
   taxes and extraordinary loss         (83,600)         8,469        (75,131)
Income tax benefit                      (33,355)         3,572        (29,783)
                                         ------          -----         ------
Loss from continuing operations
   before extraordinary loss            (50,245)         4,897        (45,348)
Discontinued operations:
  Loss from operations of
    discontinued operations, net        (10,419)         6,125         (4,294)
  Loss on disposal of discontinued 
    operations, net                     (14,902)             -        (14,902)
                                        -------          -----         ------
Loss before extraordinary loss          (75,566)        11,022        (64,544)
Extraordinary loss from
early extinguishment of debt, net        (4,557)             -         (4,557)
                                        -------          -----          -----
Net loss                              $ (80,123)     $  11,022     $  (69,101)
                                        =======         ======         ======
Loss per share:
 Continuing operations                $   (1.19)     $    0.11     $    (1.08)
 Discontinued  operations                 (0.60)          0.15          (0.45)
 Extraordinary loss                       (0.10)             -          (0.10)
                                        -------          -----          -----
Loss per share                        $   (1.89)     $    0.26     $    (1.63)
                                        =======          =====          =====
Weighted average shares
   outstanding                           42,290         42,290         42,290
</TABLE>




<PAGE> 12
<TABLE>
<CAPTION>
                                      NINE MONTHS ENDED SEPTEMBER 30, 1996
                                      --------------------------------------
                                      As Originally
(IN 000'S, EXCEPT PER SHARE DATA)       Reported    Adjustments  As Restated
                                      ------------- -----------  -----------
<S>                                  <C>            <C>          <C>
Net revenue                          $ 350,200      $ 10,994     $  361,194
Costs and expenses:
 Salaries and benefits                 165,223            49        165,272
 Other operating expenses              137,937        17,739        155,676
 Provision for bad  debts               24,453          (450)        24,003
 Interest                               18,433           (22)        18,411
 Depreciation and amortization          15,529           289         15,818
 Impairment charge                      13,349             -         13,349
 Merger costs                           46,818             -         46,818
 Unusual charge                          2,438             -          2,438
                                       -------         ------        ------
Total costs and  expenses              424,180        17,605        441,785
Loss from continuing
   operations before minority
   interests, income taxes and
   extraordinary loss                  (73,980)       (6,611)       (80,591)
Minority interests                      (1,595)         (172)        (1,767)
                                       -------          ----         ------
Loss  from continuing
   operations before income
   taxes and extraordinary loss        (75,575)       (6,783)       (82,358)
Income tax benefit                     (30,066)       (2,780)       (32,846)
                                        ------         -----         ------
Loss from continuing operations
   before extraordinary loss           (45,509)       (4,003)       (49,512)
Discontinued operations:
  Loss from operations of
    discontinued operations, net       (21,896)        2,255        (19,641)
  Loss on disposal of discontinued
    operations, net                    (14,902)            -        (14,902)
                                        ------         -----         ------
Loss before extraordinary loss         (82,307)       (1,748)       (84,055)
Extraordinary loss from
  early extinguishment of debt, net     (4,557)            -         (4,557)
                                       -------         -----         ------
Net loss                             $ (86,864)     $ (1,748)    $  (88,612)
                                        ======         =====         ======
Loss per share:
 Continuing operations               $   (1.34)     $  (0.12)    $    (1.46)
 Discontinued  operations                (1.08)         0.07          (1.01)
 Extraordinary loss                      (0.14)            -          (0.14)
                                         -----         -----         ------
Loss per share                       $   (2.56)     $  (0.05)    $    (2.61)
                                         =====         =====          =====
Weighted average shares
   outstanding                          33,975        33,975         33,975
</TABLE>



<PAGE> 13

NOTE 3.    UNUSUAL CHARGES

     In   May  1997,  the  Company  recognized  unusual
charges  totaling  $6.0  million,  consisting  of  $3.5
million relating  to  the  closure  of  the 125-bed PHC
Regional  Hospital  and  Medical Center ("PHC  Regional
Hospital") in Salt Lake City,  Utah  and  $2.5  million
relating  to  a corporate reorganization.  Such charges
consisted primarily  of  employee severance and related
costs, and to a lesser extent,  certain  other contract
termination costs.

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

NOTE 4.    DISPOSITION AND CLOSURE OF HOSPITALS

     On January 31, 1997, the  Company  closed the 104-
bed  Orange  County  Community  Hospital of Orange  and
consolidated  services  into the 53-bed  Orange  County
Hospital of Buena Park ("Buena Park"). On May 15, 1997,
a wholly owned subsidiary of the Company entered into a
joint venture with a group  of physicians, in which the
subsidiary leased Buena Park  and  the  85-bed Bellwood
General Hospital in Bellflower, California to a limited
liability  company  formed  by  the joint venture.  The
subsidiary owns a 51% interest in the joint venture.

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

     On  May 15, 1997, the Company closed the inpatient
services at  PHC  Regional   Hospital and all remaining
services in June 1997. The Company  closed the hospital
as  a result of continuing losses under  the  capitated
contract  with  FHP  International  Inc.  (now owned by
Pacificare  of  Utah).  In  August  1997,  the  Company
executed  an  Amended  and  Restated Provider Agreement
with Pacificare of Utah, retroactive  to  July 1, 1997,
to  (i)  receive payment for services provided  to  FHP
enrollees  on  a per diem basis instead of a capitation
basis; (ii) revise the contract term from 15 years to 5
years ending in  June  2002;   (iii)  no longer provide
exclusive service to FHP enrollees; and (iv) agree on a
mechanism   to   resolve  disagreement  regarding   the
administration of  the  capitation  agreement  prior to
<PAGE> 14

July 1, 1997.

NOTE 5.     DAKOTA HEARTLAND HEALTH SYSTEM PARTNERSHIP

     On August 20, 1997, Dakota Medical Foundation (the
"Foundation"),   the   Company's   partner   in  Dakota
Heartland  Health System ("DHHS"), exercised its  right
to require the Company to purchase the Foundation's 50%
partnership  interest  in  DHHS. DHHS owns and operates
two general acute care hospitals  with  a  total of 345
beds in Fargo, North Dakota. The purchase price will be
based on a 5.5 multiple of DHHS' historical  cash flow,
but   in  no  event  to  be  less  than  $50.0  million
commencing  January  1998.  Under  the  agreement,  the
Company  has  until  August  20,  1998  to complete its
purchase. The Company is currently considering  various
options to finance this acquisition. If the purchase is
not   completed   within   the  allowable  period,  the
Foundation  can  exercise  various  options,  including
seeking remedies available at  law  against the Company
for breach of its obligation.

     The Company currently accounts for  its investment
in DHHS under the equity method. Upon completion of the
purchase   of   the   Foundation's   interest   in  the
partnership,  the  Company  will account for DHHS under
the consolidation method. Pro  forma  net  revenue  and
earnings from continuing operations
before    interest,    taxes   and   depreciation   and
amortization  ("EBITDA")  for  the  nine  months  ended
September 30, 1997,  respectively, assuming the Company
owned 100% of DHHS on  January 1, 1997, would have been
as follows ($ in 000's):


                                     AS CURRENTLY
                                        REPORTED   PRO FORMA      INCREASE
                                      ----------   ---------      --------
<TABLE>
<CAPTION>
<S>                                 <C>            <C>            <C>

Net Revenue                         $ 502,407      $  577,284     $ 74,877
EBITDA (a)                             67,158          77,659       10,501
</TABLE>
____________________
(a) Excludes unusual charges of $5,978,000. See Note 3.

NOTE 6.     LONG-TERM DEBT

     The Company entered into the First Amendment to
the existing five-year Reducing Revolving Credit
Facility (the "Credit Facility")(the "Credit
Agreement") on April 14, 1997 and the Second and Third
Amendments on August 14, 1997, which provide among
other things: (i) a reduction in the credit commitment
from $400.0 million to $200.0 million effective April
<PAGE>15

14, 1997 and to $165.0 million effective August 14,
1997; (ii) interest rates which (a) effective June 1,
1997 through August 13, 1997, increased  by .50%  on a
monthly basis as compared to rates otherwise in effect
prior thereto, (b) effective August 14, 1997 through
June 30, 1998, at the Company's option, equal to LIBOR
plus a margin of 3.25% or the prime rate plus a margin
of 2.25% and (c) effective July 1, 1998 and thereafter,
equal to LIBOR plus a margin of 3.75% or the prime rate
plus a margin of 2.75%; (iii) future reductions in the
credit commitment and debt outstanding under the Credit
Facility by: (a) 60% of the proceeds from permitted
dispositions of certain hospitals in the Los Angeles
metropolitan area (the "LA Metro Hospitals") (including
dispositions of stock of subsidiaries whose only assets
are LA Metro Hospitals) and of certain other specified
stock and assets, (b) 100% of the proceeds from any
other dispositions and (c) 60% of income tax refunds
received after August 14, 1997; (iv) a first priority
lien in certain of the Company's real and personal
properties; and (v) additional restrictive financial
covenants as compared to those at December 31, 1996. At
September 30, 1997, the Company had $149.4 million
outstanding under its Credit Facility and approximately
$15.1 million committed under letter of credit
arrangements. As of September 30, 1997, there was $.5
million available for borrowings under the Credit
Facility.

NOTE  7.    CONTINGENCIES

     The  Company  is  a party to pending stockholders'
litigation as previously  discussed  in  the  Company's
1996 Form 10-K and another litigation matter. See "Item
2 - Pending Litigation."






















<PAGE> 16
ITEM 2.      MANAGEMENT'S DISCUSSION AND ANALYSIS
      OF   FINANCIAL   CONDITION   AND  RESULTS  OF OPERATIONS

RESTATEMENT OF FINANCIAL INFORMATION FOR  QUARTER  AND  NINE
MONTHS ENDED SEPTEMBER 30, 1996

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

     The  following  table presents a  summary  of  the
impact of the restatement  on  the  quarterly  and nine
months   periods  ended  September  30,  1996.  Certain
adjustments  to  the  1996 financial data reflect items
originally recorded in  these  reporting  periods  that
have   been  reclassified  or  reallocated  to  earlier
periods   as   a  result  of  the  Special  Committee's
investigation   and    are    summarized    under   the
"Reallocation to prior periods" column in the following
tables.  The  restated financial information should  be
read in conjunction with the Company's 1996 Form 10-K.

<TABLE>
<CAPTION> 

QUARTER ENDED SEPTEMBER 30, 1996
                                                      Reallocated
                                      As Originally     to prior
(IN 000'S, EXCEPT PER SHARE DATA)       Reported        periods    As Restated
                                      -------------   ------------ -----------
<S>                                   <C>             <C>          <C>
Net revenue                           $ 109,855       $  16,153    $  126,008
Net loss                                (80,123)         11,022       (69,101)
Loss per share                        $   (1.89)      $    0.26    $    (1.63)
</TABLE>

<TABLE>
<CAPTION>

NINE MONTHS ENDED SEPTEMBER 30, 1996
                                                          Reallocated
(In 000's, except             As Originally                to prior
 per share data)               Reported      Adjustments   periods  As Restated
                              ------------   -----------  ---------- ----------
<S>                           <C>            <C>          <C>       <C>
Net revenue                   $350,200       $ (3,064)    $ 14,058  $ 361,194
Net loss                       (86,864)       (13,012)      11,264    (88,612)
Loss per share                $  (2.56)      $  (0.38)    $   0.33  $   (2.61)
</TABLE>

<PAGE> 17

Net revision to  previously reported net loss consisted
primarily of:


<TABLE>
<CAPTION>
                                          THREE MONTHS       NINE MONTHS
                                              ENDED             ENDED
                                           SEPTEMBER 30,     SEPTEMBER 30,
                                              1996               1996
                                          -------------     --------------
<S>                                          <C>               <C>
ADJUSTMENTS:
(i)  Increase in deductions from revenue
     for receivables from Medicare and
     other government program                $        -         $    (4,205)
(ii) Increase in operating expenses from the
     reversal of corporate reserves                   -              (7,635)
(iii)Recording of bad debt expense that was
     deferred at two of the psychiatric
     hospitals
     - Increase in deductions from net revenue        -              (1,833)
     - Increase in provision for bad debts            -              (5,885)
(iv) Increase in operating expenses for
       deferred facility closure costs                -              (2,497)
                                               ---------             ------
Pre-tax adjustments                                   -             (22,055)
Income tax benefit at 41%                             -              (9,043)
                                               ---------             ------
Net adjustments                                       -             (13,012)
Reallocation to prior periods                    11,022              11,264
                                               ---------             ------
Net revision to previously reported net loss $   11,022         $    (1,748)
                                               =========             ======
</TABLE>

     The  Company  does  not  believe  that  the  adjustments
regarding the Medicare  receivables  resulted  from  improper
patient billing procedures under that program.

RESULTS OF OPERATIONS

     The  Company made numerous acquisitions and divestitures
since  April   1996,  including  the  merger  with  Champion.
Additionally, in  August  1996,  the  Company  completed  its
public  offering  of  the  $325.0 million senior subordinated
notes (the "Notes") and a sale  of  5.2 million shares of its
common  stock  and  entered  into  a  new  Credit  Agreement.
Accordingly, the Company's financial position  and  portfolio
of  operating  hospitals  during  the quarter and nine months
ended  September 30, 1997 were significantly  different  from
those of  the  comparable  1996 periods.  "Same hospitals" as
used in the following discussion,  where appropriate, consist
of  acute  care hospitals owned throughout  the  periods  for
which comparative operating results are presented.  Operating
results of the  Company's  psychiatric  hospitals  have  been

<PAGE> 18

segregated  from  those  of  the acute care hospitals and are
reflected  under  the  caption  "Loss   from   operations  of
discontinued operations, net" in the Consolidated  Statements
of Operations.

RESULTS OF OPERATIONS - QUARTER ENDED SEPTEMBER 30, 1997
COMPARED WITH QUARTER ENDED SEPTEMBER 30, 1996

     Net revenue for the quarter ended September 30, 1997 was
$166.7 million, an increase of $40.7 million, or 32.3%,  from
$126.0 million for the same period of 1996. The $40.7 million
increase  was  primarily attributable to an increase of $27.7
million contributed  by  hospitals  acquired, net of divested
hospitals, since August 1996 and an increase  of  $13.0  from
"same   hospitals."  The  $13.0  million  increase  in  "same
hospitals"  was  primarily  attributable  to  (i) incremental
revenue  contributed  by a joint venture formed in  May  1997
involving  two  hospitals   located   in   the   Los  Angeles
metropolitan ("LA metro") area (see Note 4), (ii)  additional
services  offered  at  certain  hospitals and (iii) favorable
settlement adjustments under certain governmental programs in
1997, as compared to negative settlement adjustments in 1996.
Such  increase was partially offset  by  a  decrease  in  net
revenue   attributable  to  a  decline  in  reimbursement  at
hospitals located  primarily  in Tennessee and the closure of
underperforming operating units.

     The  Company's  acute care volumes  experienced  a  4.5%
increase in inpatient  admissions  from  15,394  in  1996  to
16,080  in  1997.  Patient days increased from 68,389 in 1996
to 75,608 in 1997.  Outpatient visits (including home health)
increased 18.4%  from  323,809  in  1996  to 383,290 in 1997.
Admissions in "same hospitals" decreased from  12,523 in 1996
to  11,744  in  1997,  partially  as a result of management's
decision to close underperforming operating units.

     Expressed  as  a  percentage of net  revenue,  operating
expenses (salaries and benefits, other operating expenses and
provision for bad debts)   decreased  from  98.9% in 1996 to
88.9% in 1997 as operating margin increased  from  1.1%  to
11.1%.  General  factors  contributing  to the improvement in
operating margin percentage include (i) management's  efforts
to   control  costs,  including  a  corporate  reorganization
completed  in  May  1997  to reduce corporate overhead costs,
(ii) efficiency and productivity  gains  resulting  from  the
implementation    of   improved   operating   standards   and
benchmarks, (iii) divestiture  or  closure of underperforming
facilities and (iv) negotiation of new  contracts  under more
favorable terms that resulted in lower operating costs.  Such
increase in operating margin was further due to the write off
of  working  capital  assets in 1996 related to the hospitals
exchanged in May 1996 and  a hospital closed in March 1996.

     Interest  expense  increased   $3.8  million  from  $9.4
million in 1996 to $13.2 million in 1997,  primarily  due  to
(i) an increase in outstanding indebtedness from the issuance
of  the  Notes  in  August 1996, (ii) an increase in interest
<PAGE> 19

rate on the Credit Facility  during  1997,  net  of (iii) the
redemption   in  August  1996  of  $75.0  million  of  senior
subordinated notes.

     Depreciation  and  amortization expense decreased $.4 million to
$7.1 million in the third  quarter  of 1997 from $7.5 million
for  the  same  period  of 1996. The decrease  was  primarily
attributable to recording  the  acute care LA metro hospitals
held for sale at their net realizable  value  as of September
30,   1996,   in   accordance  with  Statement  of  Financial
Accounting Standards  ("SFAS")  No.  121  "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived  Assets to
Be Disposed Of."

     Income  from  continuing operations before income  taxes
for the quarter ended  September  30, 1997 excluded a loss of
$.4 million attributable to PHC Regional  Hospital, which was
charged  to the loss contract accrual previously  established
at December 31, 1996.

     Loss before income taxes of the discontinued psychiatric
hospitals  was  $.6  million  in  1997,  as  compared to $7.3
million for the comparable period of  1996. The loss recorded
in  1996  was primarily attributable to additional  provision
for bad debt  recorded  on uncollectible accounts receivable.
The loss recorded in 1997  was  significantly  reduced  as  a
result  of  management's decision to close an underperforming
facility  and   consolidate   services   of   certain   other
facilities. After income taxes, the loss from  operations  of
discontinued  operations  for the quarter ended September 30,
1996 was $4.3 million. The Company also recorded in September
1996 an after-tax disposal  loss  of  $14.9  million on these
facilities  to  reduce the related assets to their  estimated
net realizable value  and  to  accrue for estimated after-tax
operating losses of approximately  $1.5  million  during  the
phase  out  period.  In accordance with Accounting Principles
Board  Opinion  ("APB")  No.  30,  the  operating  loss  from
discontinued  operations  during  1997  of  $.6  million  was
charged to the  disposal  loss accrual previously established
in September 1996. Accordingly, such amount was not reflected
in the 1997 Consolidated Statement of Operations.

     The Company's effective  tax rate was 61.5% for 1997, as
compared  to 39.6% for the comparable  period  in  1996.  The
increase in income tax rate for  1997 resulted primarily from
nondeductible  goodwill  amortization expense recorded during
1997,  offset by a $.3 million  reduction  in  the  valuation
allowance  related  to  the  use of previously unrealized tax
assets.

     Net income for the quarter  ended September 30, 1997 was
$.1  million, compared to a net loss  of  $69.1  million,  or
$1.63  per  share,  for  the  same  period  of 1996. Weighted
average  common  and  common  equivalent  shares  outstanding
increased 36.5% from 42.3 million in 1996 to 57.7 million  in
1997,  primarily  from the issuance of 19.8 million shares in
connection with the  merger with Champion and from the public
<PAGE> 20

offering of 5.2 million shares of the Company's common stock,
both completed in August 1996. Included in the 1996 loss from
continuing operations  before  income taxes and extraordinary
loss,  net  loss  and net loss per  share  were  nonrecurring
charges of $60.2 million,  $59.3 million and $1.40 per share,
respectively, which consisted  of  the  following items ($ in
thousands, except per share amounts):

<TABLE>
<CAPTION>
                                 PRE-TAX         NET LOSS           EPS
                                 -------         --------          ----
<S>                              <C>             <C>               <C>
Impairment charge                $(13,349)       $  (7,876)        $(0.19)
Merger costs                      (46,818)         (27,623)         (0.66)
Discontinued operations                 -          (19,196)         (0.45)
Extraordinary loss                      -           (4,557)         (0.10)
                                  -------           ------          -----
Total impact of  nonrecurring
  items                          $(60,167)       $ (59,252)        $(1.40)
                                  =======           ======           ====
</TABLE>

RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1997
COMPARED WITH NINE MONTHS ENDED SEPTEMBER 30, 1996

     Net revenue for the nine months ended September 30, 1997
was $502.4 million, an increase of $141.2  million, or 39.1%,
from $361.2 million for the same period of 1996.  The  $141.2
million  increase  was  attributable to an increase of $132.0
million contributed by hospitals  acquired,  net  of divested
hospitals,  since  March  1996  and an increase of $9.2  from
"same  hospitals."  The  $9.2  million   increase   in  "same
hospitals"   was   primarily   attributable   to  incremental
contribution by a joint venture formed in May 1997  involving
two hospitals located in the LA metro area (see Note  4)  and
additional   services  offered  at  certain  hospitals.  Such
increase was partially  offset  by  a decrease in net revenue
attributable  to  a  decline  in reimbursement  at  hospitals
located   primarily  in  Tennessee   and   the   closure   of
underperforming operating units.

     The Company's  acute  care  volumes  experienced a 31.5%
increase  in  inpatient  admissions from 40,330  in  1996  to
53,031 in 1997.  Patient days  increased from 196,487 in 1996
to  248,567  in  1997.   Outpatient  visits  (including  home
health) increased 33.0% from  879,543 in 1996 to 1,169,581 in
1997.  Admissions in "same hospitals"  decreased  from 28,295
in  1996  to  27,563  in  1997,  primarily  as  a  result  of
management's  decision  to  close  underperforming  operating
units.

     Expressed  as  a  percentage  of  net revenue, operating
expenses (salaries and benefits, other operating expenses and
provision for bad debts)  decreased from   95.8% in 1996 to
87.9%  in 1997 as operating margin increased from  4.2%  to
12.1%. General  factors  contributing  to  the improvement in
<PAGE> 21

operating margin percentage include (i) management's  efforts
to   control  costs,  including  a  corporate  reorganization
completed  in  May  1997  to reduce corporate overhead costs,
(ii) efficiency and productivity  gains  resulting  from  the
implementation    of   improved   operating   standards   and
benchmarks, (iii) divestiture  or  closure of underperforming
facilities and (iv) negotiation of new  contracts  under more
favorable terms that resulted in lower operating costs.  Such
increase  in  operating  margin was further due to  the write
off  of  working  capital assets  in  1996   related  to  the
hospitals exchanged  in  May  1996  and  a hospital closed in
March 1996.

     Interest  expense  increased $16.3  million  from  $18.4
million in 1996 to $34.7  million  in  1997, primarily due to
(i) an increase in outstanding indebtedness from the issuance
of the Notes in August 1996 and additional  borrowings  under
the  Credit  Facility  to  finance  acquisitions  and to fund
certain  lawsuit  settlement  costs,  Champion  merger costs,
working  capital requirements and capital expenditures,  (ii)
an increase  in  interest  rate on the Credit Facility during
1997, net of (iii) the redemption  in  August  1996  of $75.0
million  of  senior  subordinated  notes.  Approximately $2.7
million of interest expense incurred in 1997,  which  related
to  borrowings  to  finance  the  acquisition of PHC Regional
Hospital, was charged to the loss contract accrual previously
established  at December 31, 1996. Accordingly,  such  amount
was  not  reflected   as   interest   expense   in  the  1997
Consolidated Statement of Operations.

     Depreciation and amortization expense increased to $23.0 million
in 1997 from $15.8 million for the same period of  1996.  The
increase  consisted of $9.6 million primarily attributable to
the facilities  acquired,  net  of divested facilities, since
March 1996, offset by a decrease of $2.4 million at the acute
care  LA  metro  hospitals held for  sale,  as  a  result  of
recording these facilities  at  their net realizable value as
of September 30, 1996 in accordance with SFAS No. 121.

     Income from continuing operations  before  income  taxes
for  the  nine  months ended September 30, 1997 included $6.0
million  in  unusual  charges,  consisting  of  $3.5  million
relating to the  closure  of  PHC  Regional Hospital and $2.5
million relating to a corporate reorganization  completed  in
May  1997  (see  Note 2). It excluded a loss of $11.2 million
attributable to PHC  Regional  Hospital, which was charged to
the loss contract accrual previously  established at December
31, 1996. Loss from continuing operations before income taxes
and  extraordinary  loss  for  the  comparable   1996  period
included nonrecurring charges of $62.6 million consisting  of
items listed in the table below.

     Loss before income taxes of the discontinued psychiatric
hospitals was $.6 million in 1997,  as  compared to a loss of
$13.4  million  (excluding  a  charge  of  $19.9  million for
settlement costs related to a lawsuit settled in March  1996)
for  the comparable period of 1996. The loss recorded in 1996
<PAGE> 22
was primarily  attributable  to  additional provision for bad
debts on uncollectible accounts receivable. The loss recorded
in 1997 was significantly reduced as a result of management's
decision to close an underperforming facility and consolidate
services of certain other facilities. After income taxes, the
loss  from  operations  of discontinued  operations  for  the
nine months  ended  September  30, 1996 was $19.6 million, of
which  $11.8  million was related  to  a  lawsuit  settlement
charge. The Company  also recorded an after-tax disposal loss
of $14.9 million in September  1996  on  these  facilities to
reduce  the related assets to their estimated net  realizable
value and  to accrue for estimated after-tax operating losses
of approximately $1.5 million during the phase out period. In
accordance  with   APB   No.  30,  the  operating  loss  from
discontinued  operations  during  1997  of  $.6  million  was
charged to the disposal loss  accrual  previously established
in September 1996. Accordingly, such amount was not reflected
in the 1997 Consolidated Statement of Operations.

     The Company's effective tax rate was  33.0% for 1997, as
compared  to  39.9% for the comparable period  in  1996.  The
decrease in income tax rate for  1997 resulted primarily from
a $1.4 million  reduction  in the valuation allowance related
to the use of previously unrealized  tax  assets,  offset  by
nondeductible  goodwill  amortization expense recorded during 1997.

     Net income for the nine  months ended September 30, 1997
was $2.3 million, or $0.04 per  share, compared to a net loss
of $88.6 million, or $2.61 per share,  for the same period of
1996.  Weighted average common and common  equivalent  shares
outstanding increased 67.0% from 34.0 million in 1996 to 56.8
million  in 1997, primarily from the issuance of 19.8 million
shares in  connection  with the merger with Champion and from
the public offering of 5.2  million  shares  of the Company's
common stock, both completed in August 1996. Included in 1997
income  before  income taxes, net income and net  income  per
share were nonrecurring charges of $6.0 million, $4.0 million
and $0.07 per share,  respectively,  relating  to the unusual
charges described at Note 3. Included in the 1996  loss  from
continuing  operations  before income taxes and extraordinary
loss,  net  loss and net loss  per  share  were  nonrecurring
charges of $62.6  million, $76.0 million and $2.24 per share,
respectively, which  consisted  of  the following items ($ in
thousands, except per share amounts):
<TABLE>
<CAPTION>
                                   PRE-TAX          NET LOSS            EPS
                                   -------           --------            ---
<S>                                <C>              <C>                 <C>
Impairment charge                  $(13,349)        $  (7,876)          $(0.23)
Merger costs                        (46,818)          (27,623)           (0.82)
Unusual charges                      (2,438)           (1,438)           (0.04)
Discontinued operations                   -           (34,543)           (1.01)
Extraordinary loss                        -            (4,557)           (0.14)
                                    -------            ------             -----
Total impact of nonrecurring items $(62,605)         $(76,037)          $(2.24)
                                    =======            ======             =====
</TABLE>
<PAGE> 23

LIQUIDITY AND CAPITAL RESOURCES

     Net  cash used in operating activities  for   the   nine
months ended September 30, 1997 was $7.0 million, compared to
$29.9 million  for  the  same  period  of   1996.  The  $22.9
million decrease in net cash used in operating activities was
mainly  attributable to (i) net income recorded  for the nine
months  ended  September  30,  1997  as compared to net  loss
recorded for the nine months ended September  30, 1996, which
was   primarily  attributable  to  Merger-related  costs,   a
settlement charge for certain lawsuits and a deterioration in
the operating  condition at the LA metro hospitals and (ii) a
related increase in deferred tax assets at September 30, 1996
resulting from such  loss,  offset  by (iii) payments made in
1997  for  (a)  increased  interest  expense,  (b)  the  loss
contract  at  PHC  Regional  Hospital  and  (c)  the  Special
Committee's  investigation.  Net cash provided  by  investing
activities was $16.6 million during  1997, as compared to net
cash  used in investing activities of $132.5  million  during
1996. The  $149.1 million increase was primarily attributable
to (i) a use  of  cash of $123.1 million to acquire hospitals
during 1996, as compared  to  $12.2  million in cash received
from a sale of certain hospitals during 1997 and (ii) cash of
$19.3  million received from the liquidation  of   marketable
securities  held   by  the Company's wholly-owned subsidiary,
Hospital Assurance Company  Ltd., during 1997, as compared to
purchases  of  marketable securities  of  $4.1  million  made
during  1996,  offset   by   (iii)  an  increase  in  capital
expenditures  during  1997.  Net   cash   used  in  financing
activities  during  1997 was $1.5 million,  compared  to  net
cash  provided  by financing  activities  of  $172.6  million
during 1996. Such  decrease  was due to significant financing
transactions completed in 1996  consisting of the issuance of
the  Notes, the issuance of the 5.2  million  shares  of  the
Company's  common  stock and net incremental borrowings under
the Credit Facility,  net  of amounts used therefrom to repay
$75.0   million   of  senior  subordinated   notes,   certain
indebtedness  assumed  from  the  merger  with  Champion  and
amounts  outstanding   under   the  previous  $230.0  million
revolving line of credit.

     Net working capital was $39.6  million  at September 30,
1997,  an  increase  of  $5.8  million from $33.8 million  at
December  31,  1996.  The  Company's   long-term  debt  as  a
percentage  of total capitalization was 90.7%   at  September
30, 1997, compared to 91.0% at December 31, 1996.

    The  Company  entered  into the First Amendment to
the Credit Agreement on April 14, 1997  and  the  Second  and
Third  Amendments  on  August  14,  1997, which provide among
other things: (i) a reduction in the  credit  commitment from
$400.0 million to $165.0 million effective August  14,  1997;
(ii)  a  revision in the borrowing rates as disclosed at Note
6; (iii) future  reductions in the credit commitment and debt
outstanding under  the  Credit  Facility  by:  (a) 60% of the
proceeds from permitted dispositions of certain  hospitals in
the  LA  metro  area  (including  dispositions  of  stock  of
<PAGE> 24

subsidiaries whose only assets are LA Metro Hospitals) and of
certain  other  specified  stock and assets, (b) 100% of  the
proceeds from any other dispositions  and  (c)  60% of income
tax  refunds  received  after August 14, 1997; (iv)  a  first
priority lien in certain  of  the Company's real and personal
properties;   and   (v)  additional   restrictive   financial
covenants as compared  to  those  at  December  31,  1996. On
August 14, 1997, the Company drew approximately $13.4 million
from  its Credit Facility to fund future capital expenditures
and working  capital  requirements.  As of November 12, 1997,
there  was  $.5  million available for borrowings  under  the
Credit Facility.

     In July 1997,  the  Company received approximately $24.6
million  in  refunds of previously  paid  Federal  and  state
income taxes.   Such  refunds were used to pay interest costs
and for general working capital needs. The Company expects to
receive additional Federal  and  state  income tax refunds of
approximately $7.2 million in 1998.

     In August 1997, the Company received  notice from Dakota
Medical Foundation (the "Foundation") exercising its right to
require the Company to purchase the Foundation's 50% interest
in  Dakota  Heartland Health System ("DHHS").  Based  on  the
agreement, the purchase price will be based on a 5.5 multiple
of DHHS' historical  cash  flow,  but  in no event to be less
than $50.0 million commencing January 1998.  The  Company has
until  August 20, 1998 to complete its purchase of DHHS.  The
Company  is  currently considering various options to finance
such acquisition.  If  the  purchase is  not completed within
the  allowable period, the Foundation  can  exercise  various
options,  including seeking remedies available at law against
the Company for breach of its obligation.

     The Company  anticipates  that internally generated cash
flows from earnings, existing cash  balances,  proceeds  from
the  sale of hospital accounts receivable under the Company's
commercial  paper  program, income tax refunds receivable and
permitted equipment  leasing  arrangements will be sufficient
to  fund  future  capital expenditures  and  working  capital
requirements through 1998. Additionally, the Company believes
that it will be able  to  obtain  additional  funding through
bank  or  other borrowings to finance the purchase  of  DHHS.
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  liquidity.
See  "Pending Litigation" for a discussion regarding  certain
pending  litigation,  the resolution of which could adversely
affect  the Company's liquidity  in  general,  including  the
necessary funding for DHHS.

OPERATING PERFORMANCE OF SALT LAKE CITY, UTAH HOSPITALS

     With respect to the Utah hospitals, the Company recorded
earnings  before  interest,  income   taxes, depreciation and
amortization ("EBITDA") of $7.6 million and $24.0 million, or
36.7%  and  35.7%  of  the Company's consolidated  hospitals'
<PAGE> 25

EBITDA, for the three months  and nine months ended September
30, 1997, respectively, after excluding  operating  losses of
$.4  million  and  $8.5  million  associated  with  the  loss
contract  at  PHC  Regional  Hospital  during each respective
period and closure costs of $3.5 million  in  connection with
the  closing  of that hospital in May 1997. Operating  losses
relating  to the  loss  contract,  in  addition  to  interest
expense of  $2.7  million for the nine months ended September
30,  1997,  attributable   to   borrowings  to   finance  the
acquisition of PHC Regional  Hospital,  were  charged  to the
loss   contract  accrual   previously  established  in  1996.
Excluding  the  impact  of  the loss contract at PHC Regional
Hospital and associated closure costs, the performance of the
Company's  Utah facilities for  the  three  months  and  nine
months ended September  30, 1997 was as expected.

     In August  1997,  the  Company  executed  an Amended and
Restated Provider Agreement with Pacificare of Utah (formerly
FHP  International  Corp.) retroactive to July 1,  1997  (the
"Agreement") to (i) receive  payment for services provided to
FHP enrollees on a per diem basis  instead  of  a  capitation
basis, (ii) revise the contract term from 15 years to 5 years
ending  in  June  2002,  (iii)  no  longer  provide exclusive
service  to  FHP enrollees and (iv) agree on a  mechanism  to
resolve disagreements  regarding  the  administration  of the
capitation  agreement  prior  to  July  1,  1997.  Management
believes the revised agreement will eliminate further  losses
under the Agreement while maintaining an ongoing relationship
with PacifiCare at the Company's Utah facilities.

     The Company is presently considering possible uses
for   PHC   Regional  Hospital  and  is  working  with  local
physicians in  evaluating  the  transfer  of medical/surgical
services  from  Salt  Lake  Regional  Medical Center  to  PHC
Regional Hospital.

OPERATING PERFORMANCE OF LA METRO HOSPITALS

     As a result of actions taken by management subsequent to
the   merger   with  Champion  to  stabilize  the   operating
conditions and curtail  losses  at  the  LA  metro hospitals,
including   closing   underperforming  operating  units   and
eliminating or reducing  unprofitable  services,  the Company
recorded EBITDA  of $.6 million and $4.5 million on   the  LA
metro  acute  care  hospitals  for  the three months and nine
months ended September 30, 1997, as   compared   to   a  loss
of   $2.5  million  and $5.2 million for  the comparable 1996
periods.  Management  expects  the  LA  metro   hospitals  to
generate positive cash flows through their disposition date.

PENDING LITIGATION

STOCKHOLDERS' LITIGATION

     Since the Company filed its 1996 Form 10-K on April  15,
1997,  there  have  been  two amended complaints filed in the
stockholder  class  and  derivative   litigation described in
<PAGE> 26

that filing. A Consolidated Class Action  Complaint was filed
in  the  U.S.  District  Court for the Southern  District  of
Texas,   captioned   IN   RE  PARACELSUS   CORP.   SECURITIES
LITIGATION, Master File No. H-96-3464, which consolidates and
amends several stockholder  class action complaints described
in the 1996 Form 10-K. The state  court  actions described in
the Form 10-K have since been suspended in  deference  to the
Federal  class  action. A  First Amended Derivative Complaint
was  filed  in the  same  Federal  court,  which  amends  the
previously filed  class and derivative action captioned CAVEN
V.  MILLER No. H-96-4291.  In  addition,  another  derivative
action was filed in the Southern District of Texas, captioned
OROVITZ   V.  MILLER,  No.  H-97-2752,  making  substantially
similar claims to those asserted in CAVEN V. MILLER.  Each of
the pending  complaints  now reflects certain facts disclosed
in the 1996 Form 10-K that  were  not alleged in the original
complaints. The stockholder class action  complaint   asserts
claims  against the  Company  under  sections 11 and 12(a)(2)
of the Securities   Act  of  1933, and claims against certain
existing and former officers  and  directors  of  the Company
under sections 11 and 15 of the Securities Act of 1933.   The
Company has entered into an agreement with representatives of
certain   stockholder   claimants   tolling  the  statute  of
limitations  as  to  certain  other  unasserted  claims.  The
derivative action, which purports to be  filed  on  behalf of
Champion Healthcare Corporation,  asserts  various state  law
claims   against  the  Company,  certain  of its existing and
former   officers and directors  or  their   affiliates   and
the lead underwriter for various securities offerings.

     There  are  now  pending  before  the  court  motions to
dismiss some of the claims asserted in the stockholder  class
action and all claims asserted in the derivative actions.  As
discussed  in  the  Company's 1996 Form 10-K, in light of the
Company's restatement  of  financial information contained in
the  various registration statements  and  prospectuses,  the
Company  believes  an  unfavorable outcome is probable for at
least some of the claims  asserted  in  the stockholder class
action. Efforts to settle the stockholder claims are ongoing.
Absent  such  a  settlement  within  the Company's  financial
resources, the Company will continue to defend the litigation
vigorously. Many factors will ultimately affect and determine
the results of the litigation, and the Company can provide no
assurance  that  the  results  will  not have  a  significant
adverse effect on the Company.

OTHER LITIGATION

     In October 1995, two former hospital  employees  of  the
Company  (the  "relators") filed a civil complaint under seal
on behalf of the  United  States  and the State of California
against Paracelsus, certain of its  subsidiaries,  and others
in the United States District Court for the Central  District
of  California. The relators asserted violations of the  U.S.
and  California   False   Claims   Acts,  alleging  that  the
defendants,  among other things, submitted  false  claims  to
obtain payments  from  Medicare and MediCal, paid for patient
<PAGE> 27

referrals, improperly admitted Medicare and MediCal patients,
improperly waived co-payments and deductibles, and billed for
treatments not rendered.  Without  identifying  any  specific
amounts,  the complaint demanded three times the damages  the
United States  sustained from the violations, a civil penalty
for each violation, attorneys' fees, and costs and expenses

     Although the  relators  filed  the  complaint in October
1995, the Company did not learn of the case  until  late July
1997 after the Court permitted the United States to provide a
copy  of  the complaint to the defendants solely for purposes
of settlement negotiations. Shortly after the Company learned
of the complaint,  the  Company  received a subpoena from the
Office of the Inspector General of  the  Department of Health
and Human Services seeking documents relating  to  certain of
the   same   matters.  In  early  November  1997,  the  Court
authorized the  Company to disclose certain information about
the complaint and  the  case,  but  not the relators or other
defendants, in its public reports and filings required by the
federal securities laws. Otherwise, a  Court  order continues
to maintain the case under seal and to prohibit  the  Company
from  making  any  disclosure  of  the  complaint or the case
without a further order. The Company has  not  been  formally
served  with  the  complaint,  and  the United States has not
intervened in the case.

     Without relinquishing its rights  to  assert  a vigorous
defense,  the Company is engaged in discussions with  counsel
for the United  States  to  determine whether the parties can
reach  a  mutually acceptable settlement.  Those  discussions
have been devoted  to  a substantially narrower set of issues
than  those  alleged  in  the   complaint  and  have  related
exclusively to certain alleged practices at three Los Angeles
area  hospitals that are currently  closed  and/or  held  for
sale. The  relators have various rights in this type of case,
including a  right  to  object  to  a settlement and continue
litigating  any issues not resolved by  it.  The  Court  must
determine the fairness and adequacy of any settlement.

     The Company is not currently able to predict whether the
litigation will  settle or whether the outcome, by settlement
or litigation, will  have  a  material  adverse effect on the
Company.

REGULATORY MATTERS

     Healthcare reform legislation has been proposed at
both Federal and state levels. In August  1997, the President
signed into law the Balanced Budget Act of  1997  (the  "1997
Act"),  which  projects  to  produce  a  net  savings of $115
billion for Medicare and $13 billion for Medicaid  over  five
years.  The changes in Medicare reimbursement mandated by the
1997 Act include, among others, (i) no increases in the rates
paid  to  acute  care  hospitals  for  inpatient care through
September 30, 1998, (ii) a reduction in capital reimbursement
rate,  (iii)  a conversion of payments for  certain  Medicare
outpatient services  from  a  cost-based approach, subject to
<PAGE> 28

certain  limits, to a prospective  payment  system  and  (iv)
phase-in  reduction  in  reimbursement  for  disproportionate
share and bad  debt.  While  such  changes  in  the  Medicare
program  will  generally  result  in  lower  payments  to the
Company,  management  expects  to negate any material adverse
financial  impact  of  such  changes   through  further  cost
reduction  efforts and other means. As a  result,  management
does not believe  the  reduced  payments mandated by the 1997
Act  will  likely  have  a  material adverse  effect  on  the
Company's  results  of  operations,   financial  position  or
liquidity. However, management cannot predict the effect that
future 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.


PART II.     OTHER INFORMATION

ITEM 1.       LEGAL PROCEEDINGS

     See Part I - Item  2  "Pending Litigation" for an update
of  developments  on  the  pending  stockholders'  litigation
previously disclosed in the  Company's  1996  Form  10-K  and
other litigation matters in 1997.

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

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

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

11.1    Statement regarding computation of per share
        earnings of Paracelsus.
<PAGE> 29

27      Financial Data Schedule.

(b)     Reports on Form 8-K

        None.




















































<PAGE> 30
                         SIGNATURE

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


                               Paracelsus Healthcare Corporation
                                         (Registrant)


Dated: November 12, 1997        By:   /S/ JAMES G VANDEVENDER
                                       ----------------------
                                         James G. VanDevender
                                    Senior Executive Vice President,
                                   Chief Financial Officer & Director