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

                                 FORM 10-Q/A

                              AMENDMENT NO. 1

                                    TO

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

             For the quarterly period ended September 30, 1996


                      Commission file number 1-12055


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


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




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


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


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

                                   YES_X_    NO__

As of September 30, 1996, there were 54,813,417 outstanding shares of the
Registrant's Common Stock, no stated value.





<PAGE> 2
                          PARACELSUS HEALTHCARE CORPORATION

                                      FORM 10-Q/A

                              Three and Nine Months Ended
                                  September 30, 1996

                                  TABLE OF CONTENTS


                                                                         Page
                                                                         ----
PRELIMINARY STATEMENT                                                      3

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements - (Unaudited)

        Condensed Consolidated Balance Sheets -
        September 30, 1996 and December 31, 1995                           4

        Consolidated Statements of Operations -
        Three and Nine months ended September 30, 1996 and 1995            6

        Condensed Consolidated Statements of Cash Flows -
        Nine months ended September 30, 1996 and 1995                      8

        Notes to Interim Condensed Consolidated Financial Statements       9

Item 2. Management's Discussion and Analysis of Financial
        Condition and Results of Operations                                22

PART II. OTHER INFORMATION                                                 32

SIGNATURE                                                                  36























<PAGE> 3
PRELIMINARY STATEMENT

Paracelsus Healthcare Corporation (the "Company") is filing this report on Form
10-Q/A   to amend and restate the Quarterly Report on Form 10-Q for the quarter
ended September  30,  1996,  filed  with the Securities and Exchange Commission
(the "Commission") on November 19, 1996.

In  October  1996,  the  Board  of  Directors  appointed  a  Special  Committee
consisting of non-management members, to supervise and direct the conduct of an
inquiry by outside legal counsel regarding,  among  other things, the Company's
accounting  and financial reporting practices and procedures  for  the  periods
prior to the quarter ended September 30, 1996.  As a result of the inquiry, the
Company restated  its financial information for periods commencing with January
1, 1992 through the  nine  months ended September 30, 1996, as reflected in the
Company's Annual Report on Form  10-K  for  the  year  ended December 31, 1996,
filed with the Commission on April 15, 1997. Adjustments  and reclassifications
were necessary to correct errors and irregularities relating to (i) receivables
due from Medicare and other government programs (ii) use of corporate reserves,
(iii)  provisions  for  bad debt expense relating principally  to  two  of  the
Company's psychiatric hospitals  in  the  Los Angeles area and (iv) deferral of
facility  closure  costs which only affected  the  1996  quarterly  information
(collectively, the "restatement  entries").  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  Annual  Report  on  Form  10-K  for such period, which  include
restated financial results for calendar years 1992  through  1995  and  for the
quarterly 1995 and 1996 periods.

To  show  the  impact  of  the  restatement  entries with respect to previously
reported amounts for the three months and nine  months ended September 30, 1996
and 1995, the Company has provided a description of the restatement entries and
a reconciliation of historical results for the three  months  and  nine  months
ended  September  30,  1996  and  1995,  as  previously  reported  in the filed
quarterly report on Form 10-Q, to the restated results for such periods.

On September 12, 1996, the Company elected to change its fiscal year end from
September 30 to December 31. Accordingly, the Quarterly Report on Form 10-Q
for the three and nine months ended September 30, 1996 is filed for  the  third
quarter of the new calendar year ending on December 31, 1996.

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,  general  economic and business conditions, both nationally
and  in  the  regions  in  which  the   Company  operates;  industry  capacity;
demographic changes; existing government  regulations  and  changes  in, or the
failure  to  comply  with  government  regulations;  legislative  proposals for
healthcare reform; the ability to enter into managed care provider arrangements
on  acceptable  terms;  changes in Medicare and Medicaid reimbursement  levels;
liability and other claims  asserted against the Company; competition; the loss
of any significant customer; changes in business strategy or development plans;
the ability to attract and retain  qualified  personnel,  including physicians;
the significant indebtedness of the Company; and the availability  and terms of
capital  to  fund  the  expansion  of  the  Company's  business,  including the
acquisition of additional facilities.
<PAGE> 4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

                       PARACELSUS HEALTHCARE CORPORATION
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                            (Dollars in thousands)

                                                 Restatement - See Note 2
                                                 ------------------------
                                                 September      December
                                                     30,            31,
                                                    1996           1995
                                                  ---------      ---------
                                                 (Unaudited)      (Note 1)
<TABLE>
<CAPTION>
<S>                                                <C>           <C>
ASSETS
Current Assets:
   Cash and cash equivalents                       $  14,611     $   4,418
   Marketable securities                              16,713        12,643
   Accounts receivable, net                           93,550        53,538
   Deferred income taxes                              48,459        13,742
   Refundable income taxes                            33,500        15,083
   Other current assets                               31,575        26,948
   Current assets of discontinued operations, net      1,767             -
                                                      ------        ------
     Total current assets                            240,175       126,372

Property and equipment                               442,894       273,685
Less: Accumulated depreciation and amortization      (64,647)     (106,306)
                                                      ------        ------
                                                     378,247       167,379

Long-term assets of discontinued operations, net      28,533             -
Assets held for sale, net                             24,527             -
Investment in Dakota Heartland Health System          48,586             -
Goodwill                                             113,531         2,697
Other assets                                          40,823        36,938
                                                      ------        ------
     Total Assets                                  $ 874,422     $ 333,386
                                                     =======       =======

</TABLE>














<PAGE> 5
                        PARACELSUS HEALTHCARE CORPORATION
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                            (Dollars in thousands)
                                  (Unaudited)
                                                 Restatement - See Note 2
                                                 ------------------------
                                                 September      December
                                                     30,            31,
                                                    1996           1995
                                                 ---------      ---------
                                                                 (Note 1)
<TABLE>
<CAPTION>
<S>                                                <C>           <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
   Accounts payable and other current liabilities  $ 131,129     $  64,211
   Current maturities of long-term debt                2,245         5,150
                                                     -------        ------
     Total current liabilities                       133,374        69,361

Long-term debt                                       490,202       130,352
Other long-term liabilities                           50,297        25,408
Deferred income taxes                                 18,503        21,544
Stockholders' equity
   Common stock                                      213,465         4,500
   Additional paid-in capital                            390           390
   Unrealized (losses)gains on marketable securities      62           212
   Retained earnings                                 (31,871)       81,619
                                                      ------        ------
     Total stockholders' equity                      182,046        86,721
                                                     -------        ------
     Total Liabilities and Stockholders' Equity    $ 874,422     $ 333,386
                                                     =======       =======
</TABLE>
                            See accompanying notes.























<PAGE> 6             PARACELSUS HEALTHCARE CORPORATION
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                          (Dollars in thousands)
                              (Unaudited)
                                             Restatement - See Note 2
                                     -----------------------------------------
                                     Three Months Ended       Nine Months Ended
                                       September 30,            September 30,
                                     ------------------      -----------------
                                       1996      1995          1996      1995
                                     --------   --------      -------   -------
<TABLE>
<CAPTION>
<S>                                 <C>         <C>          <C>       <C>
Net revenue                         $ 126,008  $ 104,650     $ 361,194 $317,551

Costs and expenses:
  Salaries and benefits                58,767     50,888       165,272  148,220
  Other operating expenses             54,868     45,051       155,676  128,849
  Provision for bad debts              10,039      4,998        24,003   17,057
  Interest                              9,397      4,133        18,411   12,004
  Depreciation and amortization         7,539      4,110        15,818   12,081
  Impairment charge                    13,349          -        13,349        -
  Merger costs                         46,818          -        46,818        -
  Unusual charges                           -          -         2,438        -
                                       ------    -------       -------   ------
Total costs and expenses              200,777    109,180       441,785  318,211
Gain from sale of a hospital                -      9,026             -    9,026
Income (loss) from continuing
  operations before minority
  interests, income taxes and
  extraordinary loss                  (74,769)     4,496       (80,591)   8,366
Minority interests                       (362)      (131)       (1,767)  (1,234)
                                       ------    -------       -------    ------
Income (loss) from continuing
  operations before income taxes
  and extraordinary loss              (75,131)     4,365       (82,358)   7,132
Provision (benefit) for income taxes  (29,783)     1,791       (32,846)   2,927
                                       ------     ------        ------   ------
Income (loss) from continuing
 operations before extraordinary
 loss                                 (45,348)     2,574       (49,512)   4,205
Discontinued operations:
 Income (loss) from operations of
   discontinued psychiatric
   hospitals, net                     ( 4,294)    (4,847)      (19,641)  (2,786)
 Loss on disposal of discontinued
   psychiatric hospitals, net         (14,902)         -       (14,902)       -
                                       ------     ------       -------   ------
Income (loss) before extraordinary
   loss                               (64,544)    (2,273)      (84,055)   1,419
Extraordinary loss from early
   extinguishment of debt, net         (4,557)         -        (4,557)       -
                                       ------     ------       -------   ------
Net Income (Loss)                   $ (69,101)   $(2,273)     $(88,612) $ 1,419
                                       ======     ======       =======   ======
</TABLE>
                                      (Continued)

<PAGE> 7             PARACELSUS HEALTHCARE CORPORATION
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                          (Dollars in thousands)
                              (Unaudited)
                                             Restatement - See Note 2
                                     -----------------------------------------
                                     Three Months Ended       Nine Months Ended
                                       September 30,            September 30,
                                     ------------------      -----------------
                                       1996      1995          1996      1995
                                     --------   --------      -------   -------
<TABLE>
<CAPTION>
<S>                                 <C>         <C>          <C>       <C>
Income (loss) per share:
   Continuing operations              $ (1.08)   $  0.09     $   (1.46) $  0.14
   Discontinued operations              (0.45)     (0.17)        (1.01)   (0.09)
   Extraordinary losses                 (0.10)         -         (0.14)       -
                                       ------     ------        ------  -------
Income (loss) per share               $ (1.63)   $ (0.08)    $   (2.61) $  0.05
                                       ======     ======        ======  =======
Weighted average common and common
  equivalent shares outstanding        42,290     29,772        33,975   29,772

         See notes to interim condensed consolidated financial statements.

</TABLE>































<PAGE> 8                     PARACELSUS HEALTHCARE CORPORATION
                     CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (Dollars in thousands)
                                        (Unaudited)
                                                       Restatement - See Note 2
                                                      -------------------------
                                                           Nine Months Ended
                                                               June 30,
                                                      -------------------------
                                                           1996          1995
                                                      -----------     ---------
<TABLE>
<CAPTION>
<S>                                                       <C>         <C>
Cash Flows from Operating Activities:
Net income (loss)                                         $(88,612)   $  1,419
Non-cash expenses and changes in
  operating assets and liabilities, excluding
  acquisitions                                              58,664      16,748
                                                            ------      ------
Net cash (used in) provided by operating activities        (29,948)     18,167
                                                            ------      ------
Cash Flows from Investing Activities:
Purchase of marketable securities                           (4,104)     (4,392)
Acquisitions, net of cash acquired                        (123,072)     (3,010)
Proceeds from disposal of facilities                             -      18,564
Purchase of property and equipment, net                     (3,260)    (14,165)
Decrease in minority interests                              (2,747)     (1,315)
(Increase)decrease  in other assets                            712      (2,062)
                                                          --------     -------
Net cash used in investing activities                     (132,471)     (6,380)
                                                           -------      ------
Cash Flows from Financing Activities:
Net proceeds from issuance of common stock                  39,841           -
Borrowings under Credit Facility                           441,500      33,000
Repayments under Credit Facility                          (342,000)    (37,500)
Net proceeds from issuance of debt                         320,342           -
Repayment of long-term debt                               (262,193)     (1,064)
Dividends to stockholder                                   (24,878)     (5,278)
                                                           -------     -------
Net cash provided by (used in) financing activities        172,612     (10,842)
                                                           -------     -------
Increase in cash and cash equivalents                       10,193         945
Cash and cash equivalents at beginning of period             4,418       2,004
                                                            ------     -------
Cash and cash equivalents at end of period                $ 14,611    $  2,949
                                                            ======     =======
Supplementary cash flow information:
  Cash paid during the period for:
   Income taxes                                           $  1,971    $ 13,908
   Interest                                                 15,713      10,438
Purchase of businesses, net:
   Fair value of assets acquired                          $(478,173)  $ (3,010)
   Liabilities assumed                                      207,859          -
   Stock and stock options issued                           147,242          -

</TABLE>
            See notes to interim condensed consolidated financial statements.

<PAGE> 9
                       PARACELSUS HEALTHCARE CORPORATION

                      NOTES TO INTERIM CONDENSED CONSOLIDATED
                                FINANCIAL STATEMENTS
                                    (Unaudited)

                                 September 30, 1996

Note 1. Organization and Basis of Presentation
----------------------------------------------
Organization
------------
Paracelsus Healthcare Corporation (the Company") was incorporated in November
1980 for the principal purpose of owning and operating acute care and related
healthcare businesses in selected markets. Prior to August 16, 1996, the
Company was wholly owned by Park Hospital GmbH, a German company that is
wholly owned by Dr. Manfred G. Krukemeyer, the Company's Chairman
of the Board of Directors. On August 16, 1996, the Company acquired Champion
Healthcare Corporation ("Champion") (the "Merger")and completed an initial
public equity offering . The results of Champion have been included in the
operations of the Company since August 16, 1996. As of September 30, 1996, the
Company operated 31 hospitals with 3,245 licensed beds in 11 states (including
five psychiatric hospitals with 437 licensed beds (see Note 4)).

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, 1995 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 and nine months ended September 30, 1996 are not
indicative of the results that may be expected for the year ending December 31,
1996. These financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto for the year ended December
31, 1996 included in the Company's Annual Report on Form 10-K for such period,
which include restated financial results for calendar years 1992 through 1995
and for the quarterly 1995 and 1996 periods.

On September 12, 1996, the Company changed its fiscal year end from September
30 to December 31. Accordingly, this Quarterly Report on Form 10-Q for the
three and nine months ended September 30, 1996 is filed for the third quarter
of the new calendar year ending on December 31, 1996.

Concurrent with the change in fiscal year end, the Company has adopted
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," effective for the third quarter of the calendar year ending December 31,
1996 (see Note 5).


<PAGE> 10

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

Certain account balances for the three and nine months ended September 30, 1995
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 since it equals
primary net income (loss) per share.

Weighted average number of common and common equivalent shares outstanding for
the quarter and nine months ended September 30, 1995 have been adjusted to
reflect the 66,159.426-for-one stock split in conjunction with the Merger.

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.

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

     The impact  of  the restatement entries on the Company's financial results
for the quarterly and  nine  month  periods  ended  September 30, 1996 and 1995
is summarized  in  the  following  tables. Certain reclassifications between
reporting line items and between continuing operations and discontinued
operations is also being reflected under the "Adjustments" column. 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 income/loss revision amounts for the applicable periods.







<PAGE> 11
QUARTER ENDED SEPTEMBER 30, 1996
--------------------------------
                                     As Previously   Adjustments        As
                                        Reported         to          Restated
                                        Quarter        Quarter        Quarter
                                         Ended          Ended          Ended
                                       Sept. 30,      Sept. 30,       Sept.30,
(In 000's)                               1996           1996            1996
                                       ---------      ----------     ----------
<TABLE>
<CAPTION>
<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
QUARTER ENDED SEPTEMBER 30, 1995
--------------------------------
                                          As
                                       Reported      Adjustments        As
                                          on             to          Restated
                                        Quarter        Quarter        Quarter
                                         Ended          Ended          Ended
                                       Sept. 30,      Sept. 30,       Sept.30,
                                         1995(a)         1995           1995
                                       ---------      ----------     ----------
(IN 000'S)
<TABLE>
<CAPTION>
<S>                                    <C>            <C>            <C>
Net revenue                            $111,056       $ (6,406)      $ 104,650
Costs and expenses:
   Salaries and benefits (b)             49,773          1,115          50,888
   Other operating expenses              48,303         (3,252)         45,051
   Provision for bad debts                7,700         (2,702)          4,998
   Interest                               4,142             (9)          4,133
   Depreciation and amortization          4,111             (1)          4,110
                                        -------          -----          ------
Total costs and  expenses               114,029         (4,849)        109,180
Gain from sale of a hospital              9,026              -           9,026
Income from continuing operations
   before minority interests, income
   taxes and extraordinary loss           6,053         (1,557)          4,496
Minority interests                         (131)             -            (131)
                                        -------         ------          ------
Income from continuing operations
   before income taxes and
   extraordinary loss                     5,922         (1,557)          4,365
Provision for income taxes                2,429           (638)          1,791
                                         ------         ------           -----
Income from continuing operations         3,493           (919)          2,574
Loss from operations of
   discontinued operations, net            (170)        (4,677)         (4,847)
                                         ------          -----           -----
Net income (loss)                      $  3,323         (5,596)        $(2,273)
                                         ======          =====           =====
Income (loss) per share:
   Continuing operations               $   0.12      $   (0.03)        $  0.09
   Discontinued operations                (0.01)         (0.16)          (0.17)
                                           ----          -----            ----
Loss per share                         $   0.11      $   (0.19)        $ (0.08)
                                           ====           ====            ====

Weighted average shares outstanding      29,772         29,772          29,772

(a) As reported in the Quarterly Report on Form 10-Q for the quarter ended
    September 30, 1996, filed on November 19, 1996.
(b) Includes special bonuses of $4.2 million paid to certain senior executive
    officers of the Company which was previously reported as an unusual charge.
</TABLE>




<PAGE> 13
NINE MONTHS ENDED SEPTEMBER 30, 1996
------------------------------------
                                      As Previously  Adjustments        As
                                        Reported         to          Restated
                                       Nine Months   Nine Months    Nine Months
                                         Ended          Ended          Ended
                                       Sept. 30,      Sept. 30,       Sept.30,
(In 000's)                               1996           1996            1996
                                       ---------      ----------     ----------
<TABLE>
<CAPTION>
<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> 14
NINE MONTHS ENDED SEPTEMBER 30, 1995
------------------------------------

                                          As         Adjustments        As
                                       Reported           to          Restated
                                      Nine Months     Nine Months   Nine Months
                                         Ended           Ended         Ended
                                       Sept. 30,      Sept. 30,       Sept.30,
                                         1995(a)         1995           1995
                                       ---------      ----------     ----------
(IN 000'S)
<TABLE>
<CAPTION>
<S>                                    <C>            <C>            <C>
Net revenue                            $332,836       $(15,285)      $ 317,551
Costs and expenses:
   Salaries and benefits (b)            147,306            914         148,220
   Other operating expenses             133,976         (5,127)        128,849
   Provision for bad debts               19,758         (2,701)         17,057
   Interest                              12,002              2          12,004
   Depreciation and  amortization        12,092            (11)         12,081
                                        -------          -----          ------
Total costs and  expenses               325,134         (6,923)        318,211
Gain from sale of a hospital              9,026              -           9,026
Income from continuing operations
   before minority interests and
   income taxes                          16,728         (8,362)          8,366
Minority interests                       (1,234)             -          (1,234)
                                        -------         ------          ------
Income from continuing operations
   before income taxes and
   extraordinary loss                    15,494         (8,362)          7,132
Provision for income taxes                6,351         (3,424)          2,927
                                         ------         ------           -----
Income from continuing operations         9,143         (4,938)          4,205
Loss from operations of
   discontinued operations, net           1,362         (4,148)         (2,786)
                                         ------          -----          ------
Net income (loss)                      $ 10,505      $  (9,086)        $ 1,419
                                         ======          =====           =====
Income (loss) per share:
   Continuing operations               $   0.31      $   (0.17)        $  0.14
   Discontinued operations                 0.04          (0.13)          (0.09)
                                           ----           ----            ----
Loss per share                         $   0.35      $   (0.30)        $  0.05
                                           ====           ====            ====

Weighted average shares outstanding      29,772         29,772          29,772

(a) As reported in the Quarterly Report on Form 10-Q for the quarter ended
    September 30, 1996, filed on November 19, 1996.
(b) Includes special bonuses of $4.2 million paid to certain senior executive
    officers of the Company which was previously reported as an unusual charge.
</TABLE>




<PAGE> 15
Note 3. Marketable Securities
-----------------------------
On November 15, 1995, the Financial Accounting Standards Board staff issued a
Special Report, A Guide to Implementation of  SFAS No. 115 on Accounting for
Certain Investments in Debt and Equity Securities. In accordance with the
provisions in that Special Report, the Company chose to reclassify securities
from held-to-maturity to available-for-sale (or trading). The amortized cost of
those securities when transferred was $2.0 million and the unrealized loss on
those securities was $13,000, which was included in stockholders' equity in
December 1995. The Company's wholly owned insurance subsidiary maintains the
marketable securities for statutory purposes.

Note 4. Discontinued Operations
---------------------------------
The Company's operations are classified into two lines of business: acute care
and psychiatric care. In September 1996, the Company approved a plan to exit
the psychiatric hospital business through the disposition of all of its
psychiatric hospitals (the "discontinued operations"), including one of which
was previously closed in April 1995. Management anticipates that the sale or
closure of all such operations will be completed on or before December 31, 1997.
The Company recorded an estimated net loss on disposal of the discontinued
operations of $14.9 million (net of tax benefit of $10.4 million) to reduce the
related assets to estimated realizable value and for estimated after-tax
operating losses of approximately $1.5 million  during the phase out period.

Current and long-term net assets of $1.8 million and $28.5 million,
respectively, of the discontinued operations have been segregated in the
Condensed Consolidated Balance Sheet at September 30, 1996 under the captions
"Current assets of discontinued operations, net" and "Long-term assets of
discontinued operations, net", respectively.

During the quarter ended March 31, 1996, the Company recognized a charge for
settlement costs totaling $22.4 million regarding two lawsuits, of which $19.9
million ($11.8 million net of tax) was related to a case involving the
operation of its psychiatric programs. Such charge consisted primarily of
settlement payments, legal fees, and the write off of certain psychiatric
accounts receivable. The Company did not admit liability in either case but
resolved its dispute through the settlements in order to facilitate the Champion
acquisition, re-establish a business relationship and/or avoid further legal
costs in connection with the disputes. Operating results of the discontinued
operations through the 1996 third quarter, including the after-tax settlement
charge of $11.8 million but excluding the estimated disposal loss, have been
reported separately as "Discontinued operations - Loss from operations of
discontinued psychiatric hospitals" in the Consolidated Statements of
Operations and are as follows:
                                               Restatement - See Note 2
                                     ------------------------------------------
                                     Three months ended       Nine months ended
                                        September 30,            September 30,
                                     ------------------       -----------------
(Dollars in thousands)                 1996      1995            1996     1995
                                     --------   -------       --------  -------
Net revenue                         $  3,649  $  10,954      $  27,477 $ 43,921
Operating expenses                    10,927     19,173         60,767   48,649
Loss before income tax benefit        (7,278)    (8,219)       (33,290)  (4,728)
Income tax benefit                    (2,984)    (3,372)       (13,649)  (1,942)
Net loss from discontinued operations (4,294)    (4,847)       (19,641)  (2,786)

<PAGE> 16

Note 5 - Facilities Held for Disposition / Impairment Charge
----------------------------------------------------------
In September 1996, the Company approved a plan to exit the Los Angeles
metropolitan ("LA metro") market principally through the disposition of the
under performing hospitals in that area, including one which was previously
closed in March 1996. Such dispositions will enable the Company  to exit a
market heavily penetrated by managed care organizations where the Company is
not a preeminent provider of healthcare services. Management anticipates that
the sale or closure of all such operations will be completed on or before
December 31, 1997. At September 30, 1996, net assets of $ 24.5 million related
to these facilities were segregated from the remaining assets of the Company
and classified in the Condensed Consolidated Balance Sheet as "Assets held for
sale, net." Operating results of the LA metro hospitals included in the
Consolidated Statements of Operations are as follows:

                                               Restatement - See Note 2
                                     ------------------------------------------
                                     Three months ended       Nine months ended
                                        September 30             September 30
                                     ------------------       -----------------
                                       1996      1995            1996     1995
                                     --------   -------       --------  -------
                                              (Dollars in thousands)

Net revenue                          $ 20,602  $ 29,311       $ 71,236  $ 88,555
Operating income(loss)(a)              (3,432)    4,617         (3,852)   10,301
____________________
(a) Operating income (loss) was derived by subtracting from net revenue,
    salaries and benefits, provision for bad debts and other operating
expenses.

In conjunction with the disposition plan of these hospitals and the Company's
adoption of SFAS No. 121, in the third quarter of 1996, the Company recorded an
after-tax impairment charge of $ 7.9 million, or $(0.19) and $(0.23) per share,
for the three and nine months ended September 30, 1996, respectively, to reduce
the net assets of these facilities to their estimated fair value. The estimated
impairment loss may be subject to further adjustments following completion
of valuations by independent appraisers and ultimate disposition of the
hospitals. In the opinion of management, there were no other events or
circumstances which warrant impairment assessment for the Company's other
assets.

Note 6. Acquisitions / Closures / Merger Costs
----------------------------------------------
On August 16, 1996, the Company acquired Champion, through the merger of a
wholly owned subsidiary of the Company with and into Champion. The Company
issued approximately 19.8 million shares of its common stock in exchange
for all of the issued and outstanding shares of Champion's common stock and
preferred stock, and assumed all of Champion's outstanding liabilities
totaling approximately $236.2 million. Additionally, outstanding options,
subscription rights, warrants and convertible notes to acquire Champion's
common stock were converted to similar rights to acquire approximately 1.9
million shares of the Company's common stock. The total purchase price,
including all costs associated with the transaction and liabilities assumed,
was approximately $399.8 million. The Merger was accounted for using the
purchase method of accounting. The Company has allocated the purchase price
to the estimated fair value of the assets acquired and liabilities assumed.
<PAGE> 17

The excess of purchase price over the net assets acquired of approximately
$83.0 million has been recorded as goodwill and is being amortized over an
estimated composite useful life of 25 years. The purchase price allocation is
preliminary, and management is presently evaluating fair values assigned to
assets acquired and liabilities assumed. Management is awaiting appraisals
from third party consultants on values assigned to fixed assets and certain
intangible assets.

The Company incurred approximately $63.2 million in Merger-related costs,
of which $46.8 million was expensed in the quarter ended September 30, 1996
and $16.4 million was capitalized as part of the purchase price of Champion.
Merger costs of $46.8 million consisted primarily of cash payments, provision
for benefits and  grants of stock options to certain executives and employees
of the Company in accordance with the Merger terms and corporate office
consolidation costs. Capitalized merger costs of $16.4 million consisted
primarily of payments for legal and other closing costs, cash payments and
benefits provided to certain former Champion executives.

On May 17, 1996, the Company acquired the 125-bed PHC Salt Lake Regional
Hospital (the "PHC Hospital") in Salt Lake City, Utah, including certain
current assets,  for  approximately  $71.0  million  in cash. The Company 
financed  the acquisition with amounts borrowed under the then  existing Credit
Facility. The Company  recorded  goodwill of $16.0 million, which is  being
amortized  on  a straight line basis  over  an estimated useful life of 20
years. The results of PHC Regional Hospital have been included in the operations
of the Company since May 17, 1996.

On May 17, 1996, the Company acquired the 139-bed Pioneer Valley Hospital
in West Valley City, Utah, the 120-bed Davis Hospital and Medical Center in
Layton, Utah and the 129-bed Santa Rosa Medical Center in Milton, Florida
from Columbia/HCA Healthcare Corporation ("Columbia")(the "Columbia
Hospitals"). In exchange, Columbia received  the Company's 119-bed Peninsula 
Medical Center in Ormond Beach, Florida, the 135-bed Elmwood Medical Center in
Jefferson, Louisiana, the  190-bed Halstead Hospital in Halstead, Kansas (the
"Exchanged Hospitals")and $38.5 million in cash, net of a working capital
differential, which is subject to final agreement of the parties. The Company
also purchased the real property of Elmwood and Halstead from a real estate
investment trust ("REIT"), exchanged the Elmwood and Halstead real property
for Pioneer real property and then sold the Pioneer real property to the REIT.
The acquisition of the Columbia Hospitals was accounted for as a purchase
transaction. The Company financed the cash portion of the acquisition from
borrowings under the then existing Credit Facility. The Company recorded
goodwill of $12.3 million, which is being amortized on a straight line basis
over  an estimated useful life  of  20  years.  The  results  of  the  Columbia
Hospitals  have  been  included  in the operations of the Company since May 17,
1996. No material gain or loss was recorded on the disposition of the Exchanged
Hospitals.

On March 15, 1996, the Company closed the 119-bed Desert Palms Community
Hospital, an acute care hospital located in Palmdale, California.

The following unaudited pro forma consolidated results of operations for the
nine months ended September 30, 1996 and 1995, assume that the following
transactions were consummated on January 1, 1995: (i) the acquisition of
Champion (ii) the acquisition and disposition of the Columbia Hospitals and the
Exchanged Hospitals, (iii) the completion of a public debt offering and the
redemption of the $75 million Senior Subordinated Notes (see Note 7) and
<PAGE>18

(iv) the completion of an equity offering (see Note 8). In addition, the
operating results of the five psychiatric hospitals (see Note 4), have been
restated for all periods presented to reflect as a loss from operations of
discontinued operations. PHC Hospital has not been included in the pro formas
because the predecessor owner operated the hospital as a captive cost center;
accordingly, the inclusion of its historical operations would not be
meaningful. The pro forma financial information does not reflect nonrecurring
expenses of $46.8 million related to the Merger. It does not purport to be
indicative of the results that would have been attained had the transactions
described above occurred on January 1, 1995.

                                                 Restatement - See Note 2
                                                 -----------------------
                                                    Nine months ended
                                                       September 30
                                                   --------------------
                                                     1996(a)      1995
                                                   --------     -------
                                                   (Dollars in thousands,
                                                   except per share data)

            Net revenue                             $495,759   $428,973 
                                                     =======    =======

            Income(loss) from continuing operations  (18,301)       810 
            Loss from discontinued
               operations, net                       (33,096)    (1,271)
                                                     -------    -------
            Loss before extraordinary loss           (51,397)      (461)
            Extraordinary loss, net                   (4,557)        -
                                                     -------    -------
            Net loss                                $(55,954)  $   (461) 
                                                     =======    =======

            Loss per common share:
               Continuing operations                $  (0.33)  $   0.01 
               Discontinued operations                 (0.61)     (0.02)
               Extraordinary losses                    (0.08)        -
                                                    --------     ------
            Net loss per common share               $  (1.02)  $  (0.01)
                                                    ========     ======
            Weighted average common and common
               equivalent shares outstanding          54,813     54,813
___________________
(a) Results for the nine months ended September 30, 1996 include after-tax
    impairment charge of $7.9 million, lawsuit settlement costs of $13.2
    million and loss on disposal of the discontinued operations of $10.4
    million.

Note 7 - Long Term Debt
-----------------------
Credit Facility
---------------
On August 16, 1996, the Company entered into a new credit agreement (the
"Credit Agreement"), which provides for a $400.0 million five-year Reducing
Revolving Credit Facility (the "Credit Facility"). The Credit Facility
is available for (i) general corporate purposes, including funding working
<PAGE> 19

capital needs, acquisitions and capital expenditures, (ii) issuance of letters
of credit up to $40.0 million, (iii) refinancing of  existing indebtedness
including the previous $230.0 million revolving line of credit and (iv) funding
of Merger expenses. The Credit Facility is subject to mandatory reductions of
$50.0 million on August 15, 1999 and an additional $50.0 million on August 15,
2000. Borrowings under the Credit Facility bear interest at the Company's
option, at (i) LIBOR plus a margin ranging from .875% to 2.0% or (ii) the prime
rate plus a margin ranging from zero to .75%. The Company is required to pay
annual commitment fees ranging from .25% to .50% of the unused portion of the
Credit Facility. Letters of credit issued under the Credit Facility require
annual fees ranging from .875% to 2.0% of the outstanding amount of the letters
of credit.

The Company recognized an extraordinary loss for the write-off of deferred loan
costs relating to the previous line of credit of $1.0 million (net of income
tax benefit of $.7 million).

As of September 30, 1996, the Company had outstanding borrowings of $141.0
million and outstanding letters of credit of $9.7 million under the Credit
Facility. The Credit Facility is secured by a first priority interest in the
capital stock of substantially all of the Company's present and future
subsidiaries and upstream guarantees of these subsidiaries.

Senior Subordinated Notes
-------------------------
On August 16, 1996, the Company completed a $325.0 million registered offering
of 10% Senior Subordinated Notes (the "Notes"). Of the $315.2 million net
proceeds received from the offering, $81.6 million was used to repay the
9.875% Senior Subordinated Notes (the "9.875% Notes"), including $3.9 million
in tender and consent fees, $177.7 million to repay certain Champion existing
debt assumed upon the consummation of the merger and other related merger
costs, and the remaining $55.9 million to repay amounts outstanding under the
Company's previous revolving line of credit. The Notes are general unsecured
senior subordinated obligations of the Company and will mature on August 15,
2006. The Notes are not subject to any mandatory redemption and may not be
redeemed prior to August 15, 2001.

On August 22, 1996, all of the 9.875% Notes were redeemed, which resulted in
an extraordinary loss of $3.6 million (net of income tax benefits of $2.5
million), consisting of $2.3 million in tender and consent fees and $1.3
million for the write-off of deferred financing costs.

Other Debt
----------
Pursuant to the terms of the Merger, the Company assumed approximately $179.1
million of Champion existing indebtedness, of which $172.6 million was repaid
on August 16, 1996, using net proceeds from the Notes offering. The remaining
assumed liabilities consisted primarily of capital lease obligations
and miscellaneous notes payable. Pursuant to an agreement in conjunction with
the Merger, Dr. Manfred G. Krukemeyer, the Company's Chairman of the Board,
received a $7.2 million 6.51% subordinated note from the Company. The note
provides for payments of principal and interest in an aggregate annual amount
of $1.0 million over a term of 10 years.

The terms of the various debt agreements include certain restrictive covenants.
Among other restrictions, the covenants include limitations on investments,
borrowings, liens, acquisitions and dispositions of assets and transactions
<PAGE> 20

with affiliates, and require maintenance of certain ratios regarding interest
coverage and leverage.

Note 8 - Stockholders' Equity
------------------------------
Pursuant to the Amended and Restated Articles of Incorporation adopted on
August 13, 1996, the Company has 150.0 million authorized shares of common
stock no stated value per share. Each share is entitled to one vote and does
not have any cumulative voting rights. The Company is also authorized to issue
25.0 million shares of preferred stock at $.01 par value per share, which may
be issued in such series and have such rights, preferences and other provisions
as may be determined  by the Board of Directors without approval by the holders
of common stock.

In connection with the adoption of a Shareholder Protection Rights Agreement
on August  16, 1996, the Company designated 1.5 million of its 25.0 million
authorized preferred shares as Participating Preferred Stock ("Preferred
Share") and paid a dividend of one Preferred Share purchase right ("Right")
for each outstanding share of the Company's common stock to stockholders of
record as of August 15, 1996. Similar rights will be issued in respect of
common stock subsequently issued. Each Preferred Share will be entitled to an
aggregate quarterly dividend  equal to the greater of 25% of each Right's 
exercise price or 100 times the quarterly dividend declared on the Company's
common stock. In the event of liquidation, the holder of each Preferred Share
will be entitled to receive a liquidation payment of $100 per share plus any
accrued but unpaid dividends. Each Preferred Share will have 100 votes, voting
together with the common stock. No Preferred Shares are currently outstanding.
Each Right entitles the registered holder to purchase from the Company, one
one-hundredth of a Preferred Share at a price of $42.50, subject to adjustment.
The Rights currently are not exercisable and will be exercisable only if a
person or group acquires beneficial ownership of 25% or more of the Company's
outstanding shares of common stock (i.e. becomes an "Acquiring Person" as
defined in the related Rights Agreement). The Rights, which expire on August 16,
2006, are redeemable in whole, but not in part, at the Company's option at any
time prior to such time as any person or group becomes an Acquiring Person, at a
price of $.01 per Right.

In connection with the Merger, in August 1996, all 450 outstanding shares of
the Company's common stock, which were solely owned by Dr. Krukemeyer, were
split into an aggregate of 29.8 million shares as a result of a 66,159.426-
for-one stock split. Upon the consummation of the Merger, each share of
Champion common and preferred stock was exchanged for one and two shares of the
Company's common stock, respectively. Accordingly, the Company issued 19.8
million shares of its common stock in connection with such exchange. On August
16, 1996, the Company's common stock began trading on the New York Stock
Exchange under the symbol "PLS."

During the 1996 period prior to the Merger, the Company paid cash dividends of
$3.8 million to Dr. Krukemeyer. In conjunction with the Merger, the Company
declared a dividend of $21.1 million to Dr. Krukemeyer, which was paid on
August 30, 1996. After receipt of the $21.1 million dividend and accrued
interest of $104,000, and pursuant to a related agreement, Dr. Krukemeyer paid
approximately $3.0 million plus accrued interest in full satisfaction of a note
payable to the Company. Additionally, Dr. Krukemeyer loaned the Company $7.2
million and received a $7.2 million 6.51% subordinated note from the Company
(see Note 7).

<PAGE> 21
On August 16, 1996, the Company completed a sale of 5.2 million shares of its
common stock at $8.50 per share. Net proceeds of $39.8 million were used along
with proceeds from the Notes offering (see Note 7) to repay existing and
acquired indebtedness as well as pay for Merger related costs (see Note 6).

On July 15, 1996, the Company adopted the 1996 Stock Incentive Plan (the
"Incentive Plan") to provide stock-based incentive awards, including incentive
stock options, non-qualified stock options, restricted stock, performance
shares, stock appreciation rights and deferred stock, to key employees,
consultants and advisors. A total of 8.7 million shares has been reserved for
issuance under the Incentive Plan. Pursuant to the termination of the Company's
Phantom Equity Long-Term Incentive Plan in connection with the Merger, options
to purchase 1.6 million shares of the Company's common stock at an exercise
price of $.01 per share ("Value Options") were granted to certain directors and
officers of the Company in addition to aggregated cash payments of $20.7
million, which if combined, approximated the accrued value of the canceled
phantom stock appreciation rights and/or preferred stock units thereunder.
Additionally, pursuant to the various employment agreements, Value Options were
granted to certain senior executive officers to purchase 1.2 million shares in
addition to options to purchase 2.8 million shares of the Company's common
stock at an exercise price of $8.50 per share. The Company recognized merger
expenses totaling $36.9 million related to the cancellation of the Phantom
Equity Long-Term Incentive Plan and the issuance of certain Value Options.

In connection with the Merger, the Company also assumed and converted all
Champion outstanding options, subscription rights, warrants and convertible
notes to similar rights to acquire approximately 1.9 million shares of the
Company's common stock.

Note 9 - Supplemental Executive Retirement Plan ("SERP")
-------------------------------------------------------
As a result of a change in control from the Merger, officers and employees of
the Company who were participants in the SERP prior to the Merger became fully
vested in all benefits thereunder. The Company recognized Merger expenses of
$5.1 million  related to the vesting of such benefits. Pursuant to their
respective employment agreements, certain Champion executives became
participants in the SERP and received retroactive benefits for their years of
service with Champion. The Company capitalized approximately $1.9 million of
such non-cash charges as part of the purchase price of Champion.

Note 10 - Contingencies
---------------------
The Company is a party to pending litigation in connection with several
stockholder related matters. See "Item 1. Legal Proceedings" in Part II of this
report for a description of such litigation. Due to the recent nature of such
litigation, management is unable to determine the ultimate outcome of such
lawsuits.

The Company maintains insurance policies related to Directors and Officers
liability which it believes to be adequate.

The Company is subject to claims and suits in the ordinary course of business,
including those arising from care and treatment afforded at its facilities. The
Company maintains insurance and, where appropriate, reserves with respect to
the possible liability arising from such claims. The Company believes that its
insurance and loss reserves are adequate to cover  potential claims that may be
asserted and that the outcome of such claims will not have a material effect
on the Company's financial position, results of operations or cash flows.
<PAGE> 22

PART 1. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
        FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

The following table presents a summary of the impact  of  the restatements on
the quarterly and nine months periods ended September 30, 1996 and 1995 ($ in
000's). 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 and are summarized
under the "Reallocation to prior periods" column.

QUARTER ENDED SEPTEMBER 30, 1996
--------------------------------
<TABLE>
<CAPTION>

<S>                     <C>                 <C>                <C>
                        As Previously
                          Reported                             As Restated
                           Quarter                               Quarter
                            Ended                                 Ended
                        September 30,         Reallocation     September 30,
                            1996             to prior periods     1996
                         ------------         ---------------  -----------
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>










<PAGE> 23
QUARTER ENDED SEPTEMBER 30, 1995
--------------------------------
<TABLE>
<CAPTION>
<S>                     <C>                 <C>                <C>
                        As Previously
                          Reported                             As Restated
                           Quarter                               Quarter
                            Ended                                 Ended
                        September 30,                         September 30,
                            1995(a)             Adjustments        1995
                         ------------         ---------------  -----------
Net Revenue                $111,056            $ (6,406)         $104,650
Net income (loss)             3,323              (5,596)           (2,273)
Income per share           $   0.11            $  (0.19)         $  (0.08)

</TABLE>
_____________________
(a) As reported in the Quarterly Report on Form 10-Q for the quarter ended
    September 30, 1996, filed on November 19, 1996.

NINE MONTHS ENDED SEPTEMBER 30, 1996
------------------------------------
<TABLE>
<CAPTION>
<S>                     <C>                 <C>                <C>
                        As Previously
                          Reported                                As Restated
                         Nine months                              Nine months
                            Ended                 Reallocation       Ended
                        September 30,                  to         September 30,
                            1996        Adjusmts.  prior periods      1996
                         ------------  ---------- --------------- ------------

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>

NINE MONTHS ENDED SEPTEMBER 30, 1995
------------------------------------
<TABLE>
<CAPTION>
<S>                     <C>                 <C>                <C>
                        As Previously
                          Reported                             As Restated
                         Nine Months                           Nine Months
                            Ended                                 Ended
                        September 30,                         September 30,
                            1995(a)            Adjustments        1995
                         ------------         ---------------  -----------
Net Revenue                $332,836            $ (15,285)         $317,551
Net income                   10,505               (9,086)            1,419
Income per share           $   0.35            $   (0.30)         $   0.05
</TABLE>
_____________________
(a) As reported in the Quarterly Report on Form 10-Q for the quarter ended
    September 30, 1996, filed on November 19, 1996.
<PAGE> 24

  Net revision from previously reported amounts consisted primarily of:

                                                       Three Months Ended
                                                          September 30,
                                                       ---------------------
                                                        1996           1995
                                                       --------       ------
<TABLE>
<CAPTION>
<S>                                                    <C>            <C>
Adjustments:
-----------
(i)   Increase in deductions from
      revenue for receivables from Medicare and
      other government programs                       $    -       $ (8,432)
(ii)  Increase in operating expenses from the
      reversal of corporate reserves                       -              -
(iii) Recording of bad debt expense that
      was deferred at two of the psychiatric hospitals
          - Increase in deductions from net revenue        -           (766)
          - Increase in provision for bad debts            -           (151)
(iv)  Increase in operating expenses for
      deferred facility closure costs                      -           (140)
                                                       -------       ------
Pre-tax adjustments                                        -         (9,489)
Income tax benefit at 41%                                  -         (3,893)
                                                       -------       ------
Net adjustments                                            -         (5,596)
Net Reallocation to prior periods                       11,022            -
                                                       -------       ------
Net revision to previously reported net income/loss   $ 11,022      $(5,596)
                                                        ======       ======
</TABLE>

























<PAGE> 25

                                                       Nine Months Ended
                                                           September 30,
                                                       ---------------------
                                                        1996           1995
                                                       --------       ------
<TABLE>
<CAPTION>
<S>                                                    <C>            <C>
(i)   Increase in deductions from
      revenue for receivables from Medicare and
      other government programs                       $ (4,205)       $(16,010)
(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)            902
          - Increase in provision for bad               (5,885)           (151)
(iv)  Increase in operating expenses for
      deferred facility closure costs                   (2,497)           (140)
                                                       -------          -------
Pre-tax adjustments                                    (22,055)        (15,399)
Income tax benefit at 41%                               (9,043)         (6,313)
                                                       -------          ------
Net adjustments                                        (13,012)         (9,086)
Net Reallocation to prior periods                       11,264               -
                                                       -------           -----
Net revision to previously reported net income/loss   $ (1,748)       $ (9,086)
                                                        ======           =====
</TABLE>

Result of Operations
--------------------
Paracelsus has made numerous acquisitions and divestitures during the three
and nine months ended September 30, 1996. Accordingly, the Company's portfolio
of operating hospitals during 1996 is substantially different from that which
the Company operated during the three and nine months ended September 30,
1995. To more fully understand the comparability of the results of operations,
management has included a discussion of same hospital results.

Same hospitals as used in the following discussion consisted of hospitals
owned throughout both quarters and nine months ended September 30, 1996 and
1995. "Same hospitals" exclude (i) Bellwood Health Center, Womans Hospital and
Desert Palms Community Hospital which were closed or disposed in April 1995,
September 1995 and March 1996, respectively, (ii) PHC Salt Lake Hospital which
was acquired in May 1996, (iii) the "Exchanged Hospitals" and the "Columbia
Hospitals" which were part of the exchange transaction completed in May 1996
and (iv) the Champion hospitals acquired in August 1996 pursuant to the Merger.
Operating results of the Company's five psychiatric hospitals, including two of
which were acquired through the Merger with Champion, for the periods prior to
September 30, 1996 have been reclassified and presented under the caption
" Discontinued Operations - Loss from operations of psychiatric hospitals" in
the Consolidated Statements of Operations. The following information should be
read  in  conjunction with the consolidated  financial statements  of the
Company, and the related  notes  thereto,  included  in  the Annual Report on
Form 10-K for the year ended December 31, 1996, which included restated
financial results for periods prior thereto.
<PAGE> 26

Quarter ended September 30, 1996
Compared with Quarter ended September 30, 1995
----------------------------------------------

Net revenue for the three months ended September 30, 1996 was $126.0 million,
an increase of $21.3 million , or 20.4%, from $104.7 million for the same
period of 1995. The $21.3 million increase was primarily attributable to
(i) an increase of $20.0 million contributed by hospitals acquired since
October 1995, net of disposed hospitals and (ii) an increase of $1.3 million
from "same hospitals." The $1.3 million increase in "same hospitals" net revenue
was attributable to an increase of $5.1 million at hospitals located outside of
the LA metro area, offset by a decrease of $3.8 million at hospitals located
inside the LA metro area (the "LA metro hospitals"). The $5.1 million increase
was due primarily to additional services offered and medical staff development
efforts. The $3.8 million decrease was due mainly to the continued decline in
net revenue as a result of a change in payor mix from private insurance to
managed care and Medicare/Medicaid, which increased deductions from revenue, and
a decline in patient acuity level.

Expressed as a percentage of net revenue, operating expenses (salaries and
benefits, provision for bad debts and other operating expenses) increased
from 96.5% in 1995 to 98.1% in 1996 and operating margin decreased from
3.5% to 1.9%. The 1.6% decrease in operating margin in 1996 was primarily
attributable to (i) the write off of assets related to the Exchanged Hospitals
and other closed facilities and (ii) lower margins associated with the LA metro
hospitals due to a reduction in net revenue attributable to factors other than
volume (i.e., payor mix), offset by (iii) a decrease in salaries and wages, as
a percentage of net revenue, as a result of special bonuses of $4.2 million
paid in 1995 to certain senior executive officers.

Depreciation and amortization increased to $7.5 million in 1996 from $4.1
million for the same period of 1995. Of the $3.4 million increase, $2.4 million
was attributable to the facilities acquired, net of those that were sold since
October 1995, and the remaining increase of $1.0 million was primarily from
purchases of medical equipment, facility improvements, purchase of physician
practices and clinics.

Interest expense increased $5.3 million from $4.1 million in 1995 to $9.4
million in 1996, primarily due to an increase in outstanding indebtedness
during 1996 from the issuance of the Notes in August 1996 and additional
borrowings under the Credit Facility to finance acquisitions and to fund
Merger costs, working capital requirements and capital expenditures, net of
the redemption in August 1996 of $75.0 million of senior subordinated notes.

Loss from operations of the discontinued psychiatric hospitals for the three
months ended September 30, 1996 was $4.3 million, compared to $4.8 million
for the same period in 1995. The Company also recorded 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.







<PAGE> 27

Net loss for the three months ended September 30, 1996 was $69.1 million, or
$(1.63) per share, compared to $2.3 million, or $(0.08) per share, for the same
period in 1995. Included in 1996 loss from continuing operations before income
taxes, net loss and net loss per share were nonrecurring charges of $60.2
million, $59.3 million and $(1.40) per share, respectively. Included in 1995
income from continuing operations before income taxes, net loss and net loss
per share were nonrecurring gains of $9.0 million, $.5 million and $0.02 per
share, respectively. Aggregate nonrecurring gains (charges) for the three
months ended September 30, 1996 and 1995 were comprised of the following items
($ in thousands, except per share amounts):

                                      Three months ended September 30,
                       --------------------------------------------------------
                                     1996                     1995
                       --------------------------- ----------------------------
                       Pre-Tax  Net Loss     EPS    Pre-Tax    Net Loss    EPS
                       -------  ---------- ------- ---------  ----------  -----
Impairment charge     $(13,349) $ (7,876)  $(0.19)
Merger costs           (46,818)  (27,623)   (0.66)        -           -       -
Gain from sale of
 a hospital                  -         -        -     9,026       5,325    0.18
Discontinued operations      -   (19,196)   (0.45)        -      (4,847)  (0.16)
Extraordinary losses         -    (4,557)   (0.10)        -           -       -
                      -------  ---------  -------    ------      ------   -----
Total impact of
 nonrecurring items   $(60,167) $(59,252)  $(1.40) $  9,026     $   478 $  0.02
                      ========  ========   ======    ======      ======   =====






























<PAGE> 28
Nine Months ended September 30, 1996
Compared with Nine Months ended September 30, 1995
--------------------------------------------------

Net revenue for the nine months ended September 30, 1996 was $361.2 million,
an increase of $43.6 million, or 13.7%, from $317.6 million for the same
period of 1995. The $43.6 million increase was primarily attributable to
(i) an increase of $25.3 million contributed by hospitals acquired since
October 1995, net of disposed hospitals and (ii) an increase of $18.3 million
from "same hospitals." The $18.3 million increase in "same hospitals" net
revenue was attributable to an increase of $24.8 million at hospitals located
outside of the LA metro area, offset by a decrease of $6.5 million at the LA
metro hospitals. The $24.8 million increase was due primarily to additional
services offered, medical staff development efforts and an increase in home
health agency business. The $6.5 million decrease was due mainly to a continued
decline in net revenue as a result of a change in payor mix from private
insurance to managed care and Medicare/Medicaid, which increased deductions
from revenue, and a decrease in patient acuity level.

Expressed as a percentage of net revenue, operating expenses (salaries and
benefits, provision for bad debts and other operating expenses) increased
from 92.6% in 1995 to 95.5% in 1996 and operating margin decreased from
7.4% to 4.5%. The 2.9% decrease in operating margin in 1996 was primarily
attributable to (i) the write off of assets related to the Exchanged Hospitals
and other closed facilities, (ii) lower margins associated with the LA metro
hospitals due to a reduction in net revenue attributable to factors other than
volume (i.e., payor mix) and (iii) additional home health business which was
profitable but produced lower margins than other types of services, offset by
(iv) a decrease in salaries and wages, as a percentage of net revenue, as a
result of special bonuses of $4.2 million paid in 1995 to certain senior
executive officers.

Depreciation and amortization increased to $15.8 million in 1996 from $12.1
million for the same period of 1995. Of the $3.7 million increase, $ 2.7
million was attributable to the facilities acquired, net of those that were
disposed since October 1995, and the remaining increase of $1.0 million was
from purchases of medical equipment, facility improvements, purchase of
physician practices and clinics.

Interest expense increased $6.4 million from $12.0 million in 1995 to $18.4
million in 1996, primarily due 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 Merger costs, working capital
requirements and capital expenditures, net of the redemption in August 1996 of
the $75.0 million senior subordinated notes.

Loss from operations of the discontinued psychiatric hospitals for the nine
months ended September 30, 1996 was $19.6 million, compared to $2.8 million for
the same period in 1995. The $16.8 million decrease was attributable to (i) an
after-tax charge of $11.8 million relating to a lawsuit settled in March 1996
(see Note 4) and (ii) continuing accounts receivable collection issues
attributable in general to the fact that insurance companies are becoming more
stringent in their payments to providers of psychiatric care, and particularly
in 1996, to the impact of the lawsuit (see Note 4). The Company also recorded
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.
<PAGE> 29

Net loss for the nine months ended September 30, 1996 was $88.6 million, or
$(2.61) per share, compared to net income of $1.4 million, or $0.05 per share,
for the same period of 1995. Included in 1996 loss from continuing operations
before income taxes, net loss and net loss per share were nonrecurring charges
of $62.6 million, $76.0 million and $2.24 per share, respectively. Included in
1995 income from continuing operations before income taxes, net income and net
income per share were net aggregate nonrecurring gains of $9.0 million, $2.5
million and $0.09 per share, respectively. Aggregate nonrecurring gains
(charges) for the nine months ended September 30, 1996 and 1995 were comprised
of the following items ($ in thousands, except per share amounts):

                                      Nine months ended September 30,
                       --------------------------------------------------------
                                     1996                     1995
                       --------------------------- ----------------------------
                       Pre-Tax  Net Loss    EPS    Pre-Tax   Net Income    EPS
                       -------  ---------- ------- ---------  ----------  -----
Impairment charge     $(13,349) $( 7,876)  $(0.23)  $     -   $       -  $    -
Merger costs           (46,818)  (27,623)   (0.82)        -           -       -
Unusual charges         (2,438)   (1,438)   (0.04)        -           -       -
Gain from sale
 of a hospital               -         -        -     9,026       5,325    0.18
Discontinued
 operations                  -   (34,543)   (1.01)        -      (2,786)  (0.09)
Extraordinary loss           -    (4,557)   (0.14)        -           -       -
                       -------   -------    -----    ------     -------   -----
Total impact of
 nonrecurring items   $(62,605) $(76,037)  $(2.24) $  9,026   $   2,539  $ 0.09
                       =======    ======    =====    ======     =======   =====




























<PAGE> 30

Liquidity and Capital Resources
-------------------------------
Net cash used in operating activities for the nine months ended September
30, 1996 was $29.9 million, compared to net cash provided by operating
activities of $18.2 million for the same period of 1995. The $48.1 million
decrease in net cash provided by operating activities was mainly attributable
to cash used during 1996 to pay for Merger-related costs and settlement of
certain lawsuits. Net cash used in investing activities increased $126.1
million to $132.5 million from $6.4 million during 1995, primarily from an
increase in the use of cash to finance the acquisition of hospitals. Net cash
provided by financing activities during 1996 was $172.6 million, compared to 
net cash used in financing activities of $10.8 million during 1995. The $183.4
million increase during 1996 was due to the issuance of the $325.0 million
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 purchase of Champion and amounts outstanding
under the previous $230.0 million revolving line of credit.

Net working capital was $106.8 million, an increase of $49.8 million from
$57.0 million at December 31, 1995. The increase was mainly attributable
to an increase in current portion of deferred income taxes and refundable
income taxes resulting from net loss recorded during 1996. The Company's long-
term debt as a percentage of total capitalization was 72.9% at September 30,
1996, compared to 60.0% at December 31, 1995. The increase was primarily
attributable to the issuance of the $325.0 million Notes, net incremental
borrowings under the Credit Facility and a reduction in retained earnings for a
net loss and dividend paid during 1996. Such increase was offset by the
issuance of 19.8 million shares of the Company's common stock related to the
Champion acquisition, the equity offering of 5.2 million shares of the
Company's common stock and the repayment of certain indebtedness using the
proceeds from the above financing activities.

On August 16, 1996, the Company entered into a new Credit Agreement which
provides for a revolving line of credit in the amount of $400.0 million. The
Credit Facility is available for working capital purposes, to finance capital
expenditures, to fund acquisitions and for the issuance of letters of credit.
As of September 30, 1996, the Company had $249.3 million available under its
Credit Facility.

The Company anticipates that internally generated cash flows from earnings,
proceeds from the sale of hospital accounts receivable under the Company's
commercial paper program and borrowings under its Credit Facility will be
sufficient to fund future acquisitions, capital expenditures and working
capital requirements through fiscal year 1997. There can be no assurance that
future developments in the hospital industry or general economic trends will not
adversely affect the Company's operations or its ability to meet such funding
requirements.

Disposition of the Psychiatric Hospitals and other LA Metro Hospitals
---------------------------------------------------------------------
In September 1996, the Company adopted  a plan to exit the psychiatric hospital
business through the disposition of all of  its  psychiatric hospitals (four in
the LA metro area, of which one was previously closed  in  April 1995). It also
adopted a plan to exit the LA metro market principally through  the disposition
of  the  under  performing  hospitals  in  that  area (including one which  was
previously closed in March 1996).  The disposition of these hospitals  will
<PAGE> 31

enable the Company to remain focused on operating  its acute care hospitals and
to exit a market heavily penetrated by managed care  organizations  where it is
not  a  preeminent  provider  of  healthcare  services. The Company expects  to
complete such dispositions by December 31, 1997.

Disposition of psychiatric hospitals
------------------------------------
Although the psychiatric hospitals have been operated at a loss in recent
years, the deterioration of such operations accelerated significantly during
1996. Such deterioration was largely due to insurance companies becoming more
stringent in their payments to providers of psychiatric care. Management
expects that the deterioration of the psychiatric hospital business will
continue although at a slower pace through the foreseeable future.

To curtail further losses, the Company  closed the inpatient unit at its
Buena Park facility in July 1996 and  may close other facilities. The Company
recorded in September 1996 an estimated disposal loss of $14.9 million related
to these facilities, including operating losses during the phase out period. It
expects to complete the disposition of its psychiatric hospitals by December
31, 1997.

Disposition of Other LA Metro Hospitals
---------------------------------------
Prior  to  1996 , the acute care LA metro hospitals  held  for  sale  had  been
profitable (before  allocation  of  corporate  overhead and interest), although
producing operating margins below the average of the Company's other hospitals.
Commencing  in  1996,  due to a continuing change in  payor  mix  from  private
insurance to managed care  and  Medicare/Medicaid, a change in patient acuity
level and intense competition, and despite  a  combined  increase  in  both
inpatient and outpatient  volume,  the  Company  recorded  a net operating
loss (loss  before allocation of corporate overhead and interest) of $2.6
million and $3.8 million for the three months and nine months ended September
30, 1996, respectively, as related to these hospitals, as compared to net
operating income of $2.3 million and $4.6 million for the same respective 1995
periods.

In conjunction with the disposition of these hospitals and the adoption of
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"  effective September 30, 1996, the Company recorded an after-tax impairment
charge of $7.9 million to reduce the net assets of these facilities to their
estimated fair value. The estimated impairment loss may be subject to further
adjustments following completion of valuations by independent appraisers and
ultimate disposition of the hospitals.

Stockholders' litigation and Special Committee's investigation
--------------------------------------------------------------
The Company is a party to pending litigation in connection with several
stockholder related matters. See "Item 1. Legal Proceedings" in Part II of this
report for a description of such litigation. Because these lawsuits are in
their initial stages, the Company cannot predict their outcome or the length of
time it will take to resolve these lawsuits. The Company maintains Directors
and Officers liability insurance in amounts it believes to be adequate.





<PAGE> 32

Regulatory Matters
------------------
Healthcare reform legislation has been proposed at both federal and state
levels. The Company cannot predict the effect that such reforms may have on its
business and there can be no assurance that any such reforms will not have a
material adverse effect on the Company's future revenues or liquidity.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

STOCKHOLDERS' LITIGATION

On April 17, 1996, the Company and Champion were served with a lawsuit filed in
the Court of Chancery of the State of Delaware in and for New Castle County by
a Champion stockholder against certain directors and officers of Champion and
the Company. This lawsuit, which among other things seeks class certification,
alleges that the Merger and the consideration to be paid to Champion's
stockholders are unfair and  grossly inadequate and that the named defendants
have violated their fiduciary duties to Champion and the stockholders
of Champion. In this action, the plaintiff seeks to rescind the Merger
transaction or award Champion stockholders rescissory damages, plus costs and
attorneys' fees. Because the lawsuit is in the initial stages, the
Company cannot predict the outcome of this litigation, the length of time it
will take to resolve this litigation or the effect of any such outcome on the
Company's financial condition or results of operations.

Since October 11, 1996, six complaints have been filed against the Company,
of which four have been served, by current or former stockholders
of the Company, allegedly on behalf of all persons who received the Company's
common stock through the Merger with Champion and who purchased common stock or
a portion of the Notes between August 13, 1996 and October 9, 1996. Two of
these complaints were filed in the Superior Court of the State of California,
County of Los Angeles, one in the District Court of Harris County, Texas and
two in the United States District Court for the Southern District of Texas,
Houston Division. The named defendants in these lawsuits are the Company and
certain current and former officers and directors of the Company.

In these lawsuits, the plaintiffs have alleged violations of Federal,
California and Texas securities laws. Additionally, the plaintiffs
alleged that during the class period, the named defendants disseminated
materially misleading statements and omitted disclosing material facts about
the Company and its business, specifically in the reporting and disclosure of
reserves, bad debt expenses, collection expenses and facility closure costs
and that the price of the Company's common stock was artificially
inflated. The plaintiffs also alleged that the named defendants failed to make
a reasonable investigation and did not possess reasonable grounds for the
belief that the statements contained in the various Registration Statements and
Prospectuses filed during the class period were true, or that there was an
omission of material facts necessary to make the statements contained therein
not misleading. The plaintiffs seek damages in an unspecified amount and
extraordinary, equitable or injunctive relief, plus costs and attorneys' fees.
The Company is carefully considering the allegations made in these lawsuits
and intends to respond to them at the appropriate time.



<PAGE> 33

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

2.1   (a) Amended and Restated Agreement and Plan of Merger dated as of May 29,
          1996, by and among Paracelsus, Champion and PC Merger Sub. Inc.
3.4       Amended and Restated Articles of Incorporation of Paracelsus.
3.5       Amended and Restated Bylaws of Paracelsus.
4.1       Indenture, dated August 16, 1996 between Paracelsus and AmSouth Bank
          of Alabama, as Trustee (including the form of certificate
          representing the 10% Senior Subordinated Notes due 2006).
4.2   (b) Shareholder Protection Rights Agreement between Paracelsus and
          ChaseMellon Shareholder Services, L.L.C, as Rights Agent.
4.5   (c) Form of Warrant issued pursuant to Champion Series E Note Purchase
          Agreement, dated May 1, 1995, as amended.
4.6   (d) Form of Warrant issued pursuant to Champion Series D Note and Stock
          Purchase Agreement dated December 31, 1993, as amended.
4.9       Certificate representing Common Stock.
10.1      $400 Million Reducing Revolving Credit Facility, dated as of August
          16, 1996, among Paracelsus, Bank of America National Trust and
          Savings Association, as agent, and other lenders named therein.
10.16 (e) The Restated Paracelsus Healthcare Corporation Supplemental Executive
          Retirement Plan.
10.17     Amendment No. 1 to the Supplemental Executive Retirement Plan.
10.28 (f) Amended and Restated Partnership Agreement of Dakota/Champion
          Partnership dated December 21, 1994.
10.29 (f) Operating Agreement between Dakota/Champion Partnership and
          Champion, dated December 21, 1994.
10.34     License Agreement between Dr. Manfred George Krukemeyer and
          Paracelsus.
10.36     Registration Rights Agreement between Paracelsus and Park Hospital
          GmbH.
10.37     Voting Agreement between Park Hospital GmbH and Messrs. Miller and
          VanDevender.
10.38     Services Agreement between Paracelsus and Dr. Manfred George
          Krukemeyer.
10.39     Insurance Agreement between Paracelsus and Dr. Manfred George
          Krukemeyer.
10.40     Non-Compete Agreement between Paracelsus and Dr. Manfred George
          Krukemeyer.
<PAGE> 34

10.41     Shareholder Agreement between Paracelsus and Park Hospital GmbH,
          as guaranteed by Dr. Manfred George Krukemeyer.
10.42     Dividend and Note Agreement between Paracelsus and Park Hospital
          GmbH.
10.43     Employment Agreement between Charles R. Miller and Paracelsus,
          including the Management Rights Agreement.
10.44     Employment Agreement between R.J. Messenger and Paracelsus, including
          the Management Rights Agreement.
10.45     Employment Agreement between James G. VanDevender and Paracelsus.
10.46     Employment Agreement between Ronald R. Patterson and Paracelsus.
10.47     Employment Agreement between Robert C. Joyner and Paracelsus.
10.48     Paracelsus 1996 Stock Incentive Plan.
10.49     Paracelsus Healthcare Corporation Executive Officer Performance Bonus
          Plan.
10.50     First Refusal Agreement among Park Hospital GmbH, Dr. Manfred George
          Krukemeyer and Messrs. Messenger, Miller, VanDevender and Patterson.
10.54     Registration Rights Agreement among Paracelsus and certain Champion
          Investors.
10.56     Indemnity and Insurance Coverage Agreement between Paracelsus and
          certain Champion and Paracelsus executive officers.
10.64     Paracelsus' 6.51% Subordinated Notes Due 2006.
11.1      Statement regarding computation of per share earnings of Paracelsus
27        Financial Data Schedule.
__________________________
(a) Incorporated by reference from Exhibit of the same number to the Company's
    Current Report on Form 8-K, dated May 29, 1996.
(b) Incorporated by reference from Exhibit of the same number to the Company's
    Registration Statement on Form 8-A, filed on August 12, 1996.
(c) Incorporated by reference from Exhibit 10.23(g) to Champion's Annual Report
    on Form 10-K for the year ended December 31, 1995.
(d) Incorporated by reference from Exhibit 10.23(f) to Champion's Annual Report
    on Form 10-K for the year ended December 31, 1995.
(e) Incorporated by reference from Exhibit of the same number to the Company's
    Registration Statement on Form S-4, Registration No. 333-8521.
(f) Incorporated by reference from Exhibit 10 to Champion's Current Report on
    Form 8-K, dated December 21, 1994.

(b) Reports on Form 8-K

    - The Company filed on September 13, 1996 a Current Report on Form 8-K,
      dated September 12, 1996, reporting pursuant to Item 8 thereof, that
      the Company had elected to change its fiscal year end from September 30
      to December 31.

    - The Company filed on August 30, 1996 a Current Report on Form 8-K, dated
      August 16, 1996, reporting pursuant to Items 2, 5, and 7 thereof,
      the acquisition through merger of Champion, the completion of a public
      equity offering of 5.2 million shares (including 600,000 over-allotted
      shares ) of the Company's common stock at $8.50 per share and the
      completion of a public debt offering of $325.0 million of the Company's
      10% Senior Subordinated Notes due 2006. In addition, the Company
      completed a tender offer to purchase all of the outstanding $75.0 million
      9.875% Senior Subordinated Notes. Champion financial statements for the
      three years ended December 31, 1995 were incorporated by reference to the
      Company's Registration Statement on Form S-4 (Commission File No.
      333-8521), with financial statements for period ending through June 30,
      1996 filed therein.
<PAGE> 35

    - The Company filed on August 21, 1996 a Current Report on Form 8-K, dated
      August 14, 1996, reporting pursuant to Item 5 thereof, the declaration
      of a dividend of one right for each outstanding share of the Company's
      common stock, no stated value per share, held of record at the close
      of business on August 15, 1996, payable on August 16, 1996.

    - The Company filed on July 24, 1996 an Amendment No. 1 on Form 8-K/A to
      a Current Report on Form 8-K, dated May 17, 1996, reporting pursuant to
      Item 7 thereof, the historical financial statements for Davis Hospital
      and Medical Center, Pioneer Valley Hospital and Santa Rosa Medical Center
      and the Company's pro forma financial statements for the period through
      March 31, 1996.

    - The Company filed on July 24, 1996 a Current Report on Form 8-K, dated
      May 29, 1996, reporting pursuant to Item 5 thereof, the Amended and
      Restated Agreement and Plan of Merger, which amended and restated the
      Agreement and Plan of Merger, dated April 12, 1996, among the Company,
      Champion and Merger Sub.







































<PAGE> 36

                               SIGNATURES

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


                                Paracelsus Healthcare Corporation

                                        (Registrant)


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