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 June 30, 2000

                         Commission file number 1-12055

                        PARACELSUS HEALTHCARE CORPORATION

              (Exact name of registrant as specified in its charter)


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

                  515 W. Greens Road, Suite 500, Houston, Texas
                    (Address of principal executive offices)

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

         Securities registered pursuant to Section 12(b) of the Act:
                      Common Stock, no stated value
                           (Title of Class)

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

                                  Yes[X] No[ ]

As of  August  14,  2000,  there  were  outstanding  58,967,721  shares  of  the
Registrant's Common Stock, no stated value.










<PAGE> 2



                        PARACELSUS HEALTHCARE CORPORATION

                                    FORM 10-Q

                         FOR THE QUARTERLY PERIOD ENDED

                                  JUNE 30, 2000

                                      INDEX

                                                                 Page Reference
                                                                   Form 10-Q

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

PART I.            FINANCIAL INFORMATION
------

       Item 1.     Financial Statements-- (Unaudited)

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

                   Consolidated Statements of Operations--
                   Three and Six Months Ended June 30, 2000 and 1999        5

                   Condensed Consolidated Statements of Cash Flows--
                   Six Months Ended June 30, 2000 and 1999                  6

                   Notes to Interim Condensed Consolidated

                   Financial Statements                                     7

       Item 2.     Management's Discussion and Analysis of Financial

                   Condition and Results of Operations                     12

       Item 3.     Quantitative and Qualitative Disclosures about Market   18
                   Risks

PART II.           OTHER INFORMATION                                       19
-------

SIGNATURE                                                                  20





















<PAGE> 3


Forward-Looking Statements

         Paracelsus   Healthcare   Corporation  ("PHC")  and  its  subsidiaries,
collectively,  are herein  referred to as the "Company."  Certain  statements in
this Form 10-Q are "forward-looking statements" made pursuant to the safe harbor
provisions   of  the  Private   Securities   Litigation   Reform  Act  of  1995.
Forward-looking  statements  involve a number of risks  and  uncertainties.  All
statements  regarding the Company's expected future financial position,  results
of  operations,  cash flows,  liquidity,  financing  plans,  business  strategy,
budgets, projected costs and capital expenditures,  competitive position, growth
opportunities,  plans and  objectives of management  for future  operations  and
words such as "anticipate,"  "believe," "plan," "estimate,"  "expect," "intend,"
"may"  and  other  similar  expressions  are  forward-looking  statements.  Such
forward-looking  statements  are inherently  uncertain,  and  stockholders  must
recognize  that  actual  results  may  differ   materially  from  the  Company's
expectations as a result of a variety of factors, including, without limitation,
those discussed below.

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

o Competition and general economic,  demographic and business conditions, both
  nationally and in the regions in which the Company operates;
o Existing   government   regulations  and  changes  in  legislative
  proposals for healthcare reform, including changes in Medicare and
  Medicaid reimbursement levels;
o The ability to enter into managed care  provider  arrangements  on  acceptable
  terms;
o Liabilities and other claims asserted  against the Company;
o The loss of  any  significant  customer,  including  but  not  limited  to
  managed  care contracts;
o The ability to attract and retain qualified personnel,  including physicians;
o The Company's  ability to develop and consummate an acceptable and
  sustainable  alternative  financial  structure,   considering  the
  Company's liquidity and limited financial resources;
o The likelihood that PHC will file for protection  under Chapter 11
  of the  Federal  Bankruptcy  Code  or  the  possibility  that  its
  creditors could file an involuntary  petition seeking to place PHC
  in bankruptcy.

         The Company is generally  not required to, and does not  undertake  to,
update or revise its forward-looking statements.

























<PAGE> 4

PART I.             FINANCIAL INFORMATION

ITEM 1.             FINANCIAL STATEMENTS

                        PARACELSUS HEALTHCARE CORPORATION

                      CONDENSED CONSOLIDATED BALANCE SHEETS

                                  ($ in 000's)

<TABLE>
<CAPTION>
<S>                                            <C>                  <C>
                                                    June 30,             December 31,
                                                      2000                  1999
                                               ----------------     --------------------
                                                  (Unaudited)              (Note 1)
Assets
Current assets:

    Cash and cash equivalents.   .............     $     14,872          $    22,723
    Restricted cash...........................           12,513               12,991
    Accounts receivable, net..................           63,636               30,796
    Supplies............................................  8,873                8,655
    Income taxes receivable..........................     6,321                6,152
    Other current assets.............................    19,953               14,212
                                                      ---------           ----------
        Total current assets......................      126,168               95,529

Property and equipment............................      342,093              339,528
Less: Accumulated depreciation and amortization...     (124,245)            (113,052)
                                                     ----------           ----------
                                                        217,848              226,476

Goodwill...........................................      86,368               87,684
Other assets.......................................      27,046               27,369
                                                     ----------           ----------
        Total assets...............................$    457,430         $    437,058
                                                     ==========           ==========

Liabilities and Stockholders' Equity (Deficit)
Current liabilities:

    Accounts payable.............................  $     29,354         $     35,563
    Accrued interest payable.....................        29,951               12,598
    Accrued liabilities and other................        16,388               20,426
    Long-term debt in default classified as
        current (Note 2).       ..............          335,270              335,445
    Long-term debt due within one year........              495                  654
                                                     ----------           ----------
        Total current liabilities..............         411,458              404,686

Long-term debt (Note 3).......................           39,692                3,685
Other long-term liabilities...................           18,750               23,490
Stockholders' equity (deficit):
    Common stock..............................          216,045              215,761
    Additional paid-in capital................           11,821               12,105
    Accumulated deficit.......................         (240,336)            (222,669)
                                                     ----------           ----------
        Total stockholders' equity (deficit) ..         (12,470)               5,197
                                                      ---------           ----------
Total Liabilities and Stockholders' Equity
    (Deficit).            ......................     $  457,430           $  437,058
                                                       ========           ==========

</TABLE>
                           See accompanying notes.

<PAGE> 5
                        PARACELSUS HEALTHCARE CORPORATION

                      CONSOLIDATED STATEMENTS OF OPERATIONS

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

<TABLE>
<CAPTION>
<S>                              <C>                                <C>
                                        Three Months Ended                 Six Months Ended
                                             June 30,                          June 30,
                                 ---------------------------------- -------------------------------
                                      2000              1999              2000             1999
                                 ---------------- ----------------- ---------------- --------------

Net revenue                        $   91,039        $  143,267        $  186,123       $  294,211

Costs and expenses:
  Salaries and benefits                39,371            58,135            80,071          117,100
  Other operating expenses             35,232            56,939            71,391          115,024
  Provision for bad debts               5,626             9,087            12,584           21,485
  Interest                             10,215            13,079            19,225           26,183
  Depreciation and amortization         7,951             9,970            16,164           19,785
  Restructuring costs (Note 4)          1,808                 -             4,355                -
  Unusual items                             -             6,545                 -            7,668
  Loss on sale of facilities                -             2,387                 -            2,387
                                   ----------        ----------        ----------       ----------
        Total costs and expenses      100,203           156,142           203,790          309,632
                                   ----------        ----------        ----------       ----------

Loss before minority interests
  and income taxes                     (9,164)          (12,875)          (17,667)         (15,421)
Minority interests                          -                58                 -              121
                                   ----------        ----------        ----------       ----------
Loss before income taxes               (9,164)          (12,817)          (17,667)         (15,300)
Income tax benefit                          -            (5,208)                -           (6,105)
                                   -------------     ----------        ----------       ----------
Net loss                          $    (9,164)      $    (7,609)     $    (17,667)     $    (9,195)
                                   ==========        ==========        ==========       ==========

Net loss per share - basic
  and assuming dilution           $     (0.16)      $     (0.14)    $       (0.30)     $     (0.17)
                                   ==========        ===========       ===========      ==========

</TABLE>
                                       See accompanying notes.






















<PAGE> 6


                        PARACELSUS HEALTHCARE CORPORATION

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 ($ in 000's)
                                 (Unaudited)

<TABLE>
<CAPTION>
<S>                                                    <C>
                                                                Six Months Ended
                                                                   June 30,

                                                       --------------------------------------
                                                              2000                1999
                                                       ------------------  ------------------



 Cash Flows from Operating Activities:
 Net loss                                                   $    (17,667)       $    (9,195)
 Non-cash expenses and changes in operating assets
    and liabilities                                               12,040             18,729
                                                             -----------         ----------
 Net cash provided by (used in) operating activities             (5,627)              9,534
                                                             -----------         ----------

 Cash Flows from Investing Activities:

 Proceeds from sale of facilities, net of expenses                    -               1,925
 Additions to property and equipment, net                        (2,736)            (14,644)
 (Increase) decrease in other assets, net                        (1,036)              1,923
                                                             ----------          ----------
 Net cash used in investing activities                           (3,772)            (10,796)
                                                             ----------          ----------

 Cash Flows from Financing Activities:

 Borrowings under revolving credit facility                      36,000              17,000
 Repayments under revolving credit facility                           -             (11,420)
 Termination of obligations under the commercial
     paper financing program                                    (32,000)                  -
 Repayments of debt, net                                           (327)             (3,898)
 Deferred financing costs                                        (2,125)                  -
                                                             ----------          ----------
 Net cash provided by financing activities                        1,548               1,682
                                                             ----------          ----------

 Increase (decrease) in cash and cash equivalents                (7,851)                420
 Cash and cash equivalents at beginning of period                22,723              11,944
                                                             ----------          ----------
 Cash and cash equivalents at end of period                  $    14,872         $   12,364
                                                             ==========          ==========

 Supplemental Cash Flow Information:
    Interest paid                                            $     1,006         $   26,542
    Income taxes (refunded) paid                             $       715         $      (26)

 Noncash Investing Activities:
    Notes receivable from sale of hospitals                  $         -         $    6,169
    Capital lease obligations                                $         -         $    1,124

</TABLE>
                             See accompanying notes.



<PAGE> 7





                        PARACELSUS HEALTHCARE CORPORATION

          NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)

                                  June 30, 2000

NOTE 1.    ORGANIZATION AND BASIS OF PRESENTATION

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

Basis  of  Presentation  - The  accompanying  unaudited  condensed  consolidated
financial  statements  of the  Company  have been  prepared in  accordance  with
generally accepted accounting  principles for interim financial  information and
with the instructions to Form 10-Q. Accordingly,  they do not include all of the
information and notes required by generally accepted accounting principles for a
complete  set  of  financial  statements.  In the  opinion  of  management,  all
adjustments, consisting of normal recurring accruals, 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 three and six months ended June 30, 2000,
are not necessarily  indicative of the results that may be expected for the year
ending  December  31,  2000.  These  financial  statements  should  be  read  in
conjunction with the audited consolidated financial statements and notes thereto
for the year ended December 31, 1999, included in the Company's 1999 Form 10-K.

         The Company incurred operating losses in the three and six months ended
June 30, 2000 and the year ended  December 31, 1999,  and had a working  capital
deficit at June 30,  2000 and  December  31,  1999.  These  matters  and certain
liquidity  issues  described in Note 2 have raised  substantial  doubt as to the
Company's  ability to continue as a going concern.  The  accompanying  unaudited
condensed  consolidated  financial  statements  have been prepared  assuming the
Company will  continue as a going concern and  contemplate  the  realization  of
assets and the settlement of liabilities and commitments in the normal course of
business.  The financial statements do not include further adjustments,  if any,
reflecting the possible future effects on the  recoverability and classification
of assets or the amount and  classification  of liabilities that may result from
the outcome of the uncertainties discussed herein.





















<PAGE> 8

Earnings Per Share - The following table sets forth the computation of basic and
diluted net loss per share (dollars in thousands, except per share amounts).

<TABLE>
<CAPTION>
<S>                               <C>                                <C>
                                      Three Months Ended June 30,         Six Months Ended June 30,
                                  ------------------------------     ------------------------------
                                        2000             1999              2000             1999
                                  -------------    -------------     -------------    -------------
Numerator (a):
   Loss before extraordinary charge    $ (9,164)       $ (7,609)         $(17,667)        $ (9,195)
                                       ========         ========          ========         =======

Denominator:
  Weighted average shares used for
    basic earnings per share             58,350          55,118              58,343         55,118
   Effect of dilutive securities:
     Employee stock options                   -               -                   -              -
                                       --------         -------            --------         ------
   Dilutive potential common shares           -               -                   -              -
                                       --------         -------            --------         ------
   Shares used for diluted earnings
     per share                           58,350          55,118              58,343         55,118
                                       ========          ======              ======         ======

Loss before extraordinary charge
  per share:
    Basic                              $  (0.16)       $  (0.14)         $   (0.30)       $  (0.17)
                                       ========        ========          =========        =========
   Diluted                             $  (0.16)        $  (0.14)         $   (0.30)       $ (0.17)
                                       ========        ========          =========        =========

</TABLE>
------------------

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

         Options to purchase 1.5 million shares of the Company's common stock at
a weighted  average  exercise  price of $3.57 per share and warrants to purchase
414,906  shares at a  weighted  average  exercise  price of $9.00 per share were
outstanding  during the six months ended June 30, 2000, but were not included in
the  computation  of diluted EPS because the exercise price was greater than the
average market price of the common shares.

Comprehensive  Loss - Comprehensive loss for the three and six months ended June
30, 2000 of $9.4 million and $18.0 million,  respectively,  included $284,000 of
deferred  compensation  costs related to the issuance of restricted stock grants
under an employment  agreement.  Comprehensive loss for the three and six months
ended June 30, 1999 equaled reported net loss for each of the respective period.

Restricted  Cash - The Company had  restricted  cash of $12.5  million and $13.0
million at June 30, 2000 and December 31, 1999, respectively,  as collateral for
outstanding letters of credit and other commitments.

NOTE 2 . ISSUES AFFECTING LIQUIDITY

         As previously reported in the Company's 1999 Form 10-K, on February 15,
2000,  the  Company did not make the  interest  payment of  approximately  $16.3
million due on the Company's $325.0 million 10% Senior  Subordinated  Notes (the
"Notes") due 2006,  which upon the  expiration of a 30-day grace period on March
16,  2000,   constituted   an  event  of  default  under  the  Note   indenture.
Additionally,  the Company  does not expect to make the $16.3  million  interest
payment due on the Notes on August 15, 2000.



<PAGE> 9
         The Company is working with the holders of the majority of the Notes to
develop a  financial  restructuring  plan.  Considering  the  Company's  limited
financial  resources,  there can be no  assurance  that the Company and the Note
holders will succeed in formulating an acceptable alternative capital structure,
in which case the Note holders are entitled, at their discretion,  to accelerate
all  principal  and  interest  due on the  Notes.  Based  upon the  most  recent
discussions  with the Note  holders,  the  Company  believes it is likely that a
restructuring plan (the "Plan") will be implemented in the near future through a
voluntary  filing of  bankruptcy  under Chapter 11 of the  Bankruptcy  Code (the
"Bankruptcy  Code").  The bankruptcy filing will be limited to PHC and will not,
as presently  contemplated,  include any of PHC's  subsidiaries  (except for PHC
Finance,  Inc, as discussed below). The Plan will likely result in a substantial
dilution of the  ownership  interest of the  existing  holders of PHC's
common  stock.  There can be no  assurance  that a bankruptcy  proceeding  would
result in a reorganization  of PHC rather than liquidation under Chapter
7 of the Bankruptcy Code. If a liquidation or a protracted  reorganization  were
to occur,  there is a substantial risk that there would be insufficient  cash or
property available for payment in full of all claims of PHC's  creditors
and/or for any distribution to the holders of PHC's common stock.

         Relating  to  the  matters  discussed  above,  on  March  15,  2000,  a
wholly-owned,  second-tier  subsidiary  of  PHC,  PHC  Finance,  Inc.,  filed  a
voluntary  petition for  reorganization  under Chapter 11 of the Bankruptcy Code
with the U.S.  Bankruptcy  Court for the Southern  District of Texas in Houston.
The  subsidiary,  whose principal  assets are several medical office  buildings,
does not own or operate any hospital facilities,  and neither PHC nor any of the
Company's hospital operating  subsidiaries is a guarantor for any obligations of
PHC Finance, Inc.

         Given  the  Company's   default  on  the  Notes  and  the   uncertainty
surrounding the ultimate resolution of the Company's  negotiations with its Note
holders,  the principal  amount of the Notes and certain other debt  obligations
have  been  presented  as  current   liabilities  in  the  Company's   condensed
consolidated  balance  sheet at June 30,  2000,  which has resulted in a working
capital deficit of $285.3 million.

NOTE 3 . LONG TERM DEBT

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

         The  termination  of the  off-balance-sheet  commercial  paper  program
effectively resulted in the Company's reacquisition of $32.0 million in accounts
receivable  previously  sold to an unaffiliated  trust on a non-recourse  basis,
which was financed with borrowings under the Credit Facility.  Consequently, the
accompanying  balance sheet as of June 30, 2000 reflects offsetting increases in
accounts  receivable  and long-term  debt. As of June 30, 2000,  the Company had
$36.0  million in  outstanding  borrowings  under the Credit  Facility and $12.3
million  in  outstanding  letters  of  credit,  which are fully  secured by cash
collateral held by the lenders. The Company recorded deferred financing costs of
$2.1 million in connection with the Credit Facility as of June 30, 2000.


<PAGE> 10

NOTE  4 . RESTRUCTURING COSTS AND UNUSUAL CHARGES

         In  the  six  months  ended  June  30,  2000,   the  Company   recorded
approximately $4.4 million of restructuring costs for professional fees incurred
in connection with its efforts to restructure the Notes. In the six months ended
June 30,  1999,  the  Company  recorded  unusual  items of $7.7  million,  which
included a $2.2 million net charge  associated with an executive  agreement with
certain  former senior  executives  and a $5.5 million  corporate  restructuring
charge.

NOTE 5 . INCOME TAXES

         During the fourth quarter of 1999, the Company  recorded a deferred tax
valuation allowance  aggregating $26.8 million to reserve the full amount of the
Company's  net  deferred  tax assets at  December  31,  1999,  due to the issues
affecting  liquidity and related  uncertainties  discussed in Note 2, which,  if
unfavorably  resolved,  would adversely affect the Company's future  operations.
The Company  recorded  no income tax  benefit in the three and six months  ended
June 30, 2000, as the result of recording an additional  valuation  allowance of
$3.6  million and $6.8  million,  respectively,  to reserve all net deferred tax
assets  generated  during the  respective  periods.  The deferred tax  valuation
allowance as of June 30, 2000 totaled $81.9 million.

NOTE 6 . OPERATING SEGMENTS

         There has been no material change in the Company's  reportable segments
as previously  reported in the Company's 1999 Form 10-K. "Same  Hospitals," as a
reportable segment, consist of acute care hospitals currently owned and operated
by the Company. "All Other" is comprised of closed/sold  facilities and overhead
costs.  Selected segment information for the three and six months ended June 30,
2000 and 1999, were as follows:

<TABLE>
<CAPTION>
<S>                                                   <C>
                                                                 Three Months ended
                                                                   June 30, 2000
                                                      ---------------------------------------
                                                           Same
                                                         Hospitals    All Other      Total
                                                      ------------    ---------    ---------
          Net revenue.................................   $ 90,400     $    639     $  91,039
          Adjusted EBITDA (a)..........................  $ 13,602     $ (2,792)    $  10,810


                                                                  Three Months ended
                                                                    June 30, 1999
                                                      ---------------------------------------
                                                           Same
                                                         Hospitals    All Other      Total
                                                      ------------   ----------    ---------
          Net revenue..................................  $ 90,700    $  52,567     $ 143,267
          Adjusted EBITDA (a)..........................  $ 16,384    $   2,780     $  19,164















<PAGE> 11

                                                                    Six Months ended
                                                                     June 30, 2000

                                                      ---------------------------------------
                                                           Same
                                                         Hospitals    All Other      Total
                                                      ------------   ----------    ---------
          Net revenue.................................   $ 184,557   $   1,566     $ 186,123
          Adjusted EBITDA (a).......................... $   27,420   $  (5,343)    $  22,077


                                                                    Six Months ended
                                                                     June 30, 1999
                                                      ---------------------------------------
                                                           Same
                                                         Hospitals    All Other      Total
                                                      ------------   ----------    ---------
          Net revenue..................................  $ 186,604   $ 107,607     $ 294,211
          Adjusted EBITDA (a)..........................  $ 33,399    $   7,324      $ 40,723

</TABLE>
-------------------------------------

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

NOTE 7. CONTINGENCIES

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























<PAGE> 12

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

          The  Company  incurred  operating  losses in the three and six  months
ended June 30,  2000 and the year ended  December  31,  1999,  and had a working
capital  deficit at June 30,  2000 and  December  31,  1999.  These  matters and
certain liquidity issues described below have raised substantial doubt as to the
Company's  ability to continue as a going concern.  The  accompanying  unaudited
condensed  consolidated  financial  statements  have been prepared  assuming the
Company will  continue as a going concern and  contemplate  the  realization  of
assets and the settlement of liabilities and commitments in the normal course of
business.  The financial statements do not include further adjustments,  if any,
reflecting the possible future effects on the  recoverability and classification
of assets or the amount and  classification  of liabilities that may result from
the outcome of the uncertainties discussed herein.

ISSUES AFFECTING LIQUIDITY

         As previously  reported in the Company's 1999 Form 10-K on February 15,
2000,  the  Company did not make the  interest  payment of  approximately  $16.3
million due on the Notes,  which upon the expiration of a 30-day grace period on
March 16,  2000,  constituted  an event of  default  under  the Note  indenture.
Additionally,  the Company  does not expect to make the $16.3  million  interest
payment due on the Notes on August 15, 2000.

         The Company is working with the holders of the majority of the Notes to
develop a  financial  restructuring  plan.  Considering  the  Company's  limited
financial  resources,  there can be no  assurance  that the Company and the Note
holders will succeed in formulating an acceptable alternative capital structure,
in which case the Note holders are entitled, at their discretion,  to accelerate
all  principal  and  interest  due on the  Notes.  Based  upon the  most  recent
discussions  with the Note holders,  the Company  believes it is likely that a
restructuring  plan will be  implemented  in the near future through a voluntary
filing of bankruptcy  under Chapter 11 of the  Bankruptcy  Code.  The bankruptcy
filing will be limited to PHC and will not, as presently  contemplated,  include
any of PHC's subsidiaries (except for PHC Finance, Inc, as discussed below). The
Plan will likely result in a substantial  dilution of the ownership  interest of
the existing  holders of PHC's  common stock.  There can be no assurance
that a bankruptcy  proceeding  would result in a  reorganization  of PHC
rather than liquidation under Chapter 7 of the Bankruptcy Code. If a liquidation
or a protracted  reorganization  were to occur, there is a substantial risk that
there would be  insufficient  cash or property  available for payment in full of
all claims of PHC's  creditors and/or for any distribution to the holders of
PHC's common stock.

         Relating  to  the  matters  discussed  above,  on  March  15,  2000,  a
wholly-owned,  second-tier  subsidiary  of  PHC,  PHC  Finance,  Inc.,  filed  a
voluntary  petition for  reorganization  under Chapter 11 of the Bankruptcy Code
with the U.S.  Bankruptcy  Court for the Southern  District of Texas in Houston.
The  subsidiary,  whose principal  assets are several medical office  buildings,
does not own or operate any hospital facilities,  and neither PHC nor any of the
Company's hospital operating  subsidiaries is a guarantor for any obligations of
PHC Finance, Inc.

         Given  the  Company's   default  on  the  Notes  and  the   uncertainty
surrounding the ultimate resolution of the Company's  negotiations with its Note
holders,  the principal  amount of the Notes and certain other debt  obligations
have  been  presented  as  current   liabilities  in  the  Company's   condensed
consolidated  balance  sheet at June 30,  2000,  which has resulted in a working
capital deficit of $285.3 million.








<PAGE> 13
         On May 16, 2000, the Company entered into a new credit agreement with a
lending  group,  which provides a $62.0 million  revolving  credit and letter of
credit guaranty  facility expiring May 15, 2003. The Credit Facility was used to
refinance  obligations  outstanding  under the Company's prior off balance sheet
commercial  paper  financing  program,  to  replace  existing  letters of credit
outstanding under the previously  existing interim financing  arrangement and to
fund normal working  capital and certain  capital  expenditures of the Company's
hospitals.  The Credit  Facility is an  obligation  of certain of the  Company's
subsidiaries and is secured by all of the Company's eligible patient receivables
and certain other assets of the  Company's  hospitals and a first lien on two of
its  hospitals.  Accordingly,  the Credit  Facility is not an obligation of PHC.
Borrowings  under the Credit  Facility bear interest at prime plus 1.5% or LIBOR
plus 3.75% per annum and are  limited to  hospitals'  eligible  receivables  and
certain  operating  measurements,  as defined.  The Company is  obligated to pay
certain  commitment fees based upon amounts borrowed and available for borrowing
during the terms of the Credit Facility.  The Company is also subject to certain
default  provisions  and a covenant on certain  minimum levels of cash generated
from operations.

         As of June 30,  2000,  the  Company  had $36.0  million in  outstanding
borrowings under the Credit Facility and $12.3 million in outstanding letters of
credit,  which are fully secured by cash collateral  held by the lenders.  As of
August 14, 2000,  the Company had $4.5 million in available  borrowing  capacity
under the Credit  Facility,  subject to  limitations  of  eligible  receivables,
EBITDA  performance  of certain  subsidiaries  and  limitation  on  advances  to
non-borrower affiliates.

RESULTS OF OPERATIONS

         On August 1, 2000, the Health Care Financing  Administration  adopted a
prospective  payment system ("PPS") for outpatient  hospital services.  PPS is a
fixed payment system in which outpatient services are classified into Ambulatory
Payment  Classifications  ("APCs")  without  considering  a specific  hospital's
costs. A hospital is reimbursed a fixed payment amount for each Medicare patient
by APC.  Generally,  under PPS, if the costs of meeting the health care needs of
the patient are greater than the  predetermined  payment rate, the hospital must
absorb the loss.  Revenue  associated with APC related  services is not material
relative to the Company's total net revenue.  Consequently, the Company does not
expect the adoption of PPS for outpatient  services to have a material impact on
its results of operations or liquidity.

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

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

         Net  revenue  for the  three  months  ended  June 30,  2000,  was $91.0
million, a decrease of $52.3 million, or 36.5%, from $143.3 million for the same
period in 1999. The decrease in net revenue was directly  related to the sale of
nine  hospitals  included in the results of  operations  for the 1999 quarter.

         Net revenue at Same  Hospitals for the three months ended June 30, 2000
was $90.4 million compared to $90.7 million in 1999. Net revenue for the quarter
reflects  the  continuing  shift in payor  mix  from the  traditional  Medicare,
Medicaid and indemnity plans to managed care,  from which the Company  generally
receives lower reimbursements, and a decline in patient volumes primarily at the
Company's Richmond, Virginia hospital, as more fully discussed below. The impact
of increased managed care patients on net revenue was partially mitigated in the
current period by an overall rate increase.







<PAGE> 14

         For the three months ended June 30, 2000,  the Company's Same Hospitals
reported  inpatient  admissions  of 9,398  as  compared  to 9,422 in 1999.  Same
Hospitals patient days decreased 2.8% from 46,665 in 1999 to 45,371 in 2000. The
decrease in admissions was due primarily to the departure of several  physicians
at the Richmond, Virginia facility as the result of a revision to the hospital's
medical staff bylaws. Excluding home health visits,  outpatient visits increased
5.7% from  75,209 in 1999 to 79,472 in 2000.  Outpatient  visits at eight of the
Company's  hospitals outpaced prior year as the result of increased services and
physicians in many of these  markets and due to the industry  trend of increased
outpatient  utilization.  Same Hospitals home health visits  decreased 5.8% from
67,163 in 1999 to 63,259 in 2000 due largely to the cancellation of certain home
health  contracts at the Richmond  facility.  Excluding  the Richmond  facility,
admissions,  outpatient  visits  (excluding  home health) and home health visits
increased 0.4%, 9.3% and 0.7%, respectively,  although patient days decreased by
2.5%. The decline in patient days resulted from the Company's  effectiveness  in
reducing the average length of stay per admission by 2.9% from 4.75 days in 1999
to 4.61 days in 2000.

         Operating expenses (salaries and benefits, other operating expenses and
provision  for bad debts)  decreased  $44.0  million from $124.2  million in the
three months ended June 30, 1999 to $80.2  million in 2000 due primarily to sold
facilities.  Excluding  sold  facilities,  operating  expenses at Same Hospitals
increased  by  approximately  $2.5 million  primarily  due to (i) a $1.1 million
increase  in salaries  and  benefits  due to tight labor  markets for nurses and
other personnel at several  facilities,  which resulted in increases in both pay
rates and the use of overtime  and  contract  labor and (ii) an increase of $1.2
million in other operating  costs primarily from higher supply costs  associated
with volume related increases at certain facilities and increased
pharmaceutical cost.

         Operating  expenses,  expressed  as a percentage  of net revenue,  were
88.1% and  86.7% in 2000 and  1999,  respectively.  Operating  expenses  at Same
Hospitals  increased  to 85.0% of net  revenue in 2000 from  82.0% in 1999,  and
operating margins decreased to 15.0% from 18.0%, respectively.  The reduction in
operating margins resulted from higher operating costs as previously discussed.

         Interest expense decreased $2.9 million from $13.1 million in the three
months ended June 30, 1999 to $10.2 million in 2000, due primarily to a decrease
in the average borrowings  outstanding,  partially offset by higher average rate
of interest in the current period, which reflected, in part, additional interest
on the  defaulted  interest  payment due  February  15,  2000 on the Notes.  The
weighted  average  interest rates on borrowings  were 11.4% and 9.6% in 2000 and
1999, respectively.

         Depreciation and amortization expense decreased $2.0 million from $10.0
million in the three  months  ended June 30,  1999 to $8.0  million for the same
period  in 2000  primarily  due to the sale of nine  hospitals  included  in the
results of operations for the 1999 quarter, partially offset by an increase from
additions to property and equipment.

         Loss before  income  taxes was $9.2  million for the three months ended
June 30, 2000, and included  restructuring  costs of approximately  $1.8 million
for  professional  fees  incurred in connection  with the  Company's  efforts to
restructure the Notes.  Loss before income taxes was $12.8 million for the three
months  ended June 30, 1999 and included  (i) unusual  charges of $6.5  million,
which  consisted of a $5.5  million  corporate  restructuring  charge and a $1.0
million charge  associated with an executive  agreement and (ii) loss on sale of
hospitals of $2.4 million.

         The Company  recorded no income tax benefit in the three  months  ended
June 30, 2000 as the result of recording an  additional  valuation  allowance to
reserve all net deferred tax assets generated  during the current  quarter.  The
Company recognized an income tax benefit of $5.2 million in 1999.





<PAGE> 15
         Net loss for the three months ended June 30, 2000 was $9.2 million,  or
$0.16 per diluted share,  compared to $7.6 million,  or $0.14 per diluted share,
for the same  period of 1999.  Weighted  average  common and  common  equivalent
shares  outstanding  increased to 58.4 million in 2000 from 55.1 million in 1999
due to the  issuance  of  common  stock in  connection  with the  settlement  of
litigation in September 1999 and an employment agreement in March 2000.

Results of Operations - Six Months ended June 30, 2000
compared with Six Months ended June 30, 1999

         Net revenue for the six months ended June 30, 2000, was $186.1 million,
a decrease of $108.2 million,  or 36.7%, from $294.2 million for the same period
in 1999.  The decline in net revenue is largely due to the sale of ten hospitals
in 1999.

         Net revenue at Same  Hospitals  for the six months  ended June 30, 2000
was  $184.6  million  compared  to $186.6  million in 1999,  a decrease  of $2.0
million,  or  1.1%.  The  decline  in  net  revenue  was  due  in  part  to  the
aforementioned  shift in payor mix from the traditional  Medicare,  Medicaid and
indemnity plans to managed care and to a decline in patient volumes primarily at
the Company's Richmond, Virginia facility, as more fully discussed below.

         Same Hospitals experienced a 0.7% decrease in inpatient admissions from
19,727 in the six months ended June 30, 1999 to 19,593 in the comparable  period
in 2000. Same Hospital patient days decreased 3.6% from 99,489 in 1999 to 95,880
in 2000.  As  previously  discussed,  the decrease in  admissions  was primarily
related  to the  departure  of  several  physicians  at the  Richmond,  Virginia
facility.   Excluding  home  health  visits,  Same  Hospital  outpatient  visits
increased  4.6%  from  152,055  in 1999 to  159,057  in  2000 as the  result  of
increased  services  and  physicians  in many of  these  markets  and due to the
industry trend of increased outpatient  utilization.  Home health visits in Same
Hospitals decreased 10.3% from 141,515 in 1999 to 126,904 in 2000 largely due to
the cancellation of certain home health contracts at the Richmond facility and a
general slow down of home health  operations  in other  markets.  Excluding  the
Richmond  facility,  admissions and outpatient  visits  (excluding  home health)
increased 0.4% and 8.1%, respectively, while patient days and home health visits
declined by 2.1% and 0.8%,  respectively.  The decline in patient days  resulted
from the  Company's  effectiveness  in reducing  the average  length of stay per
admission by 3.0% from 5.04 days in 1999 to 4.89 days in 2000.

         Operating  expenses,  expressed  as a percentage  of net revenue,  were
88.1% and 86.2%, respectively,  for the six months ended June 30, 2000 and 1999,
respectively.  Operating expenses decreased $89.6 million from $253.6 million in
the six months ended June 30, 1999 to $164.0  million in 2000 due to  reductions
from sold facilities.  Operating  margins were 11.9% and 13.8% in 2000 and 1999,
respectively.

         Operating  expenses at Same Hospitals  increased by approximately  $3.9
million from (i) a $3.2 million increase in salaries and benefits as a result of
generally  tight labor markets,  as discussed above and (ii) an increase of $1.8
million in other operating  costs primarily from higher supply costs  associated
with volume  related  increases at certain  facilities  and with increased
pharmaceutical cost. These increases were offset by a $1.1 million decrease
in bad debt expense due, in part, to the Company's initiatives to strengthen its
hospital   business   office   operations,   which  have  resulted  in  improved
collections,  as well as (i) the Company's  efforts to more timely  identify and
segregate  charity  care and  (ii)  improvements  in the  Company's  ability  to
estimate  amounts due from  managed  care payors as a result of new  information
systems  implemented in the latter part of 1999. The latter two initiatives have
resulted in more  accurate  estimates  of net revenue at the time  services  are
provided.  Additionally,  1999 bad debt  expense  was  unfavorably  impacted  by
collection  issues arising from  information  system  conversions  and personnel
turnover at several facilities.

         Operating  expenses  at Same  Hospitals  increased  from  82.1%  of net
revenue in 1999 to 85.1% in 2000, and operating  margins decreased from 17.9% to
14.9%, respectively. The decline in operating margins reflected higher operating
costs and lower net  revenue in the  current  period as a result of the  factors
discussed above.
<PAGE> 16
         Interest  expense  decreased $7.0 million from $26.2 million in the six
months  ended  June  30,  1999 to $19.2  million  in  2000,  primarily  due to a
reduction in the average borrowings outstanding, partially offset by an increase
in the average rate of interest in the current period, which reflected, in part,
additional interest on the defaulted interest payment due February 15, 2000 on
the Notes.  The weighted  average interest rate on borrowings were 10.9% and
9.7% in 2000 and 1999, respectively.

         Depreciation and amortization expense decreased $3.6 million from $19.8
million in the six  months  ended June 30,  1999 to $16.2  million  for the same
period in 2000  primarily  due to the sale of ten  hospitals in 1999,  partially
offset by an increase from additions to property and equipment.

         Loss before  income  taxes was $17.7  million for the six months  ended
June 30, 2000 and included  restructuring costs of $4.4 million for professional
fees incurred in connection with the Company's efforts to restructure the Notes.
Loss  before  income  taxes for the six  months  ended  June 30,  1999 was $15.3
million and included (i) unusual  charges of $7.7 million,  which consisted of a
$5.5 million corporate restructuring charge and a $2.2 million charge associated
with an  executive  agreement  and  (ii) a loss on  sale of  facilities  of $2.4
million.

         The Company recorded no income tax benefit in the six months ended June
30, 2000 as the result of recording an additional valuation allowance to reserve
all net deferred tax assets  generated  during the current  period.  The Company
recorded  income tax  benefit of $6.1  million in the six months  ended June 30,
1999.

         Net loss for the six months ended June 30, 2000 was $17.7  million,  or
$0.30 per  diluted  share,  compared to net loss of $9.2  million,  or $0.17 per
diluted share,  for the same period of 1999.  Weighted average common and common
equivalent  shares  outstanding  were 58.3  million and 55.1 million in 2000 and
1999,  respectively.   The  increase  in  weighted  average  common  and  common
equivalent  shares  outstanding  resulted  from the  issuance of common stock in
connection with the settlement of litigation in September 1999 and an employment
agreement in March 2000.

LIQUIDITY AND CAPITAL RESOURCES

         The  introductory  information  to this  Item as set  forth in  "Issues
Affecting   Liquidity"   discusses  important  issues  affecting  the  Company's
liquidity and capital resources.

         Net cash  used in  operating  activities  was $5.6  million  in the six
months ended June 30, 2000,  compared to net cash provided by operations of $9.5
million for the same period of 1999.  Cash from operating  activities  decreased
due  to  payments  of  (i)  $7.1  million  to  Medicare/  Medicaid   third-party
intermediaries,  (ii) $4.4  million for  professional  fees  related to the Note
restructuring activities,  (iii) $1.0 million for the working capital settlement
on the Utah hospitals sold in 1999,  (iv) $850,000 of cash collateral on certain
letter of credit  commitments,  and (v) $715,000 for federal  income taxes.  Net
cash used in investing activities was $3.8 million during 2000 compared to $10.8
million during 1999, and reflected primarily a decrease in capital  expenditures
of $8.2 million made at the ten  hospitals  sold in 1999.  Net cash  provided by
financing  activities  during  2000 was  $1.5  million,  which  reflected  total
borrowings  of $36.0  million  under  the  Credit  Facility,  offset  by (i) the
termination  of  $32.0  million  of  obligations  under  the   off-balance-sheet
commercial  paper  program and (ii) the payment of $2.1 million in loan costs on
the Credit Facility.

         In connection  with its efforts to restructure  the Notes,  the Company
paid approximately $4.4  million of  professional  fees in the six months ended
June 30, 2000. The Company  expects  that future  restructuring  costs will be
paid as incurred from internally generated cash from operations and existing
cash balances.

         The Company anticipates that internally generated cash from operations,
existing  cash  balances  and  borrowings  under  the  Credit  Facility  will be
sufficient  to fund the  hospitals'  routine  capital  expenditures  and working
capital requirements through 2000.
<PAGE> 17

         The Company is in a highly leveraged financial position.  The Company's
liquidity  and its ability to continue as a going  concern are  dependent  upon,
among other things,  its ability to (i) successfully  negotiate and consummate a
plan to restructure its capital structure,  (ii) achieve  profitable  operations
after the  restructuring  and (iii) generate  sufficient cash from operations to
meet its obligations.

LITIGATION

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

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

ITEM 3.           QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

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

        With respect to the Company's interest-bearing  liabilities,  borrowings
of $36.0  million  under the Credit  Facility  at June 30,  2000 are  subject to
variable  rates  of  interest  and are  affected  by the  general  level of U.S.
interest  rates.  The Company's  variable rate debt bears interest at prime plus
1.5% or LIBOR plus 3.75%. Based on a hypothetical 1% increase in interest rates,
the potential annualized impact on future pretax earnings would be approximately
$360,000.

         All other debt  obligations  of the Company have fixed  interest  rates
ranging from 6.51% to 10.5% and accordingly have no earnings exposure to changes
in interest rates.

PART II.            OTHER INFORMATION

ITEM 1.             LEGAL PROCEEDINGS

         There  have  been  no  other   material   developments   in  the  legal
proceedings.

ITEM 2.             CHANGE IN SECURITIES

None.

ITEM 3.             DEFAULTS UPON SENIOR SECURITIES

         As previously reported in the Company's 1999 Form 10-K, on February 15,
2000,  the  Company did not make the  interest  payment of  approximately  $16.3
million due on the Company's  $325.0 million 10% Senior  Subordinated  Notes due
2006,  which upon the  expiration  of a 30-day  grace  period on March 16, 2000,
constituted  an event of default  under the Note  indenture.  Additionally,  the
Company does not expect to make the $16.3  million  interest  payment due on the
Notes on August 15, 2000. The Company is currently  engaged in negotiations with
the majority of the Note holders to develop a financial restructuring plan.

<PAGE> 18

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

None.

ITEM 5.             OTHER INFORMATION

         On May 23, 2000, the New York Stock Exchange (the "Exchange")  informed
the  Company  that a decision  had been made to suspend  further  trading of the
Company's  common  stock  and that it  planned  to apply to the  Securities  and
Exchange  Commission (the "SEC") to delist the issue. Among the reasons cited by
the  Exchange  were an  abnormally  low  trading  price and that the Company had
fallen below certain of the Exchange's continued listing criteria.

         As a  consequence  thereof,  the  Company  pursued  alternative  public
trading  markets for its stock and on June 5, 2000,  the Company's  common stock
began trading on the National  Association  of Brokers  Dealers Over the Counter
Bulletin Board Service under ticker symbol "PLHC."

         On July 13, 2000,  the SEC granted the  application of the Exchange for
removal of the  Company's  common  stock from  listing and  registration  on the
Exchange  under  the  Securities  Act of 1934.  The  removal  from  listing  and
registration was effective on July 14, 2000.

ITEM 6.             EXHIBIT AND REPORTS ON FORM 8-K

(a)                 Exhibit

10.84  $62,000,000 Credit Agreement dated May 16, 2000 among certain Paracelsus
       subsidiaries and the CIT Group/ Business Credit, Inc., Heller Healthcare
       Finance, Inc., and other lenders.

27        Financial Data Schedule.

(b)                 Reports on Form 8-K

         The  Company  filed on May 17,  2000,  a  Current  Report  on Form 8-K,
reporting  pursuant to Item 5, that it had consummated a $62,000,000  subsidiary
level financing facility.

         The  Company  filed on May 24,  2000,  a  Current  Report  on Form 8-K,
reporting  pursuant to Item 5, to report of the  Exchange's  decision to suspend
and to apply to delist the Company's common stock.


























<PAGE> 19



                                    SIGNATURE

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

                                               Paracelsus Healthcare Corporation
                                                          (Registrant)

                                                   /s/ LAWRENCE A. HUMPHREY
Dated: August 14, 2000                                 --------------------
                                                       Lawrence A. Humphrey
                                                    Executive Vice President &
                                                     Chief Financial Officer