UNITED STATES  SECURITIES AND EXCHANGE COMMISSION
                 WASHINGTON, D.C.  20549
                      FORM 10-Q

(Mark One)
[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE              
     SECURITIES EXCHANGE ACT OF 1934

        For the Quarterly Period Ended March 31, 1999 

                          OR

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

  For the Transition Period from ___________ to ___________


               Commission File Number: 0-17969

                       NEXTHEALTH, INC.     
           ----------------------------------------
      (Exact Name of Registrant as Specified in its Charter)


      Delaware	                                  86-0589712           
-------------------------------     ----------------------------------
(State or Other Jurisdiction of     (I.R.S. Employer Identification No.)
Incorporation or Organization)	


16600 N. Lago Del Oro Parkway, Tucson, Arizona           85739   
----------------------------------------------        ----------
(Address of Principal Executive Offices)             (Zip Code)

	                          (520) 792-5800                            
                -----------------------------------
       	(Registrant's Telephone Number, including Area Code)


	                            N/A                                    
      --------------------------------------------------------------
	(Former name, former address and former fiscal year, if changed since 
   last report).

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.  [X]  YES   [  ]  NO

On May 1, 1999, there were 8,554,938 shares of the registrant's Common Stock 
outstanding.

Reference is made to the listing beginning on page 15 of all exhibits filed as 
a part of this report.
<PAGE>

                              	NEXTHEALTH, INC.
                                  	FORM 10-Q
                              	TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION	                                PAGE
------------------------------                                 ----
Item 1. Financial Statements

        Consolidated Balance Sheets as of March 31, 1999
        (unaudited) and December 31, 1998...................     3

        Unaudited Consolidated Statements of Operations for
        the three months ended March 31, 1999 and 1998......  		 4

        Unaudited Consolidated Statements of Cash Flows for 
        the three months ended March 31, 1999 and 1998......  		 5

        Unaudited Consolidated Statements of Changes in 
        Stockholders' Equity for the three months ended 
        March 31, 1999......................................  		 6

        Unaudited Notes to the Consolidated Financial 
        Statements..........................................  		 7

Item 2.	Management's Discussion and Analysis of Financial 
        Condition and Results of Operations.................  		 9

PART II - OTHER INFORMATION

Item 1.	 Legal Proceedings..................................  		15

Item 4.	 Submission of Matters to a Vote of Security
         Holders............................................  		15

Item 6.	 Exhibits and Reports on Form 8-K...................  		15

Signatures.................................................. 		16
<PAGE>

PART I - FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS

                	NEXTHEALTH, INC. AND SUBSIDIARIES
                  	CONSOLIDATED BALANCE SHEETS
          	(000s, except share and per share amounts)
<TABLE>
<CAPTION>

                                                  March 31,      December 31, 
                                                    1999            1998     
                                                 -----------    -------------
			       	                                      (Unaudited)
<S>                                              <C>             <C>
ASSETS
  Current Assets: 
    Cash and equivalents.....................   		$  2,541      		$     843
    Accounts receivable, less allowance for 
     doubtful accounts of $242 and $233, 
     respectively............................  		    1,102	     	       955
    Prepaid expenses.........................  		      511	             313
    Other current assets..................... 		       537 	    	       554  
                                                  ---------       ----------
       Total current assets..................		      4,691		          2,665

  Property and equipment, net................	   	  34,086       		  34,347
  Long-term receivables, less allowance for 
   doubtful accounts of $30 and $45, 
   respectively..............................		         89	     	       135
  Intangible assets, less amortization of 
   $148 and $93, respectively................	         593	     	       648
  Other assets...............................		         20     	         20 
                                                  ---------      -----------
      Total assets...........................	    	$39,479 	       	$37,815  
                                                  =========      ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
  Current Liabilities:
    Accounts payable, trade..................   		$    893		      $     561
    Accrued expenses and other liabilities...		      3,974      		    3,610 
                                                  ---------      -----------
      Total current liabilities..............  		    4,867    	  	    4,171
 
  Long-term debt and financing obligation....	   	  12,807      		   12,815  
                                                  ---------      -----------
      Total liabilities......................   		  17,674    	  	   16,986 

  Stockholders' Equity:
   Preferred stock - undesignated, $.01 par
    value, 3,924,979 shares authorized,
    no shares outstanding.....................	          --	             --
   Preferred stock, Series A, $.01 par value,
    46,065 shares authorized; 46,065 shares 
    outstanding at March 31, 1999
    and December 31, 1998.....................           --		            --
   Common stock, $.01 par value, 16,000,000
    shares authorized; 8,554,938 shares 
    outstanding at March 31, 1999 and
    December 31, 1998.........................	          86	             86
   Additional paid-in capital.................  		   47,997	     	   47,997
   Accumulated deficit........................  		  (26,278)      	 (27,254)
                                                    --------       ---------
      Total stockholders' equity..............  		   21,805       	  20,829  
                                                    --------       ---------
      Total liabilities and stockholders'
       equity.................................   		$ 39,479        	$37,815  
                                                   =========       =========
</TABLE>

	The accompanying notes are an integral part of the consolidated financial 
 statements.
<PAGE>

                 	NEXTHEALTH, INC. AND SUBSIDIARIES
               	CONSOLIDATED STATEMENTS OF OPERATIONS
             	(000s, except share and per share amounts)
                           	(Unaudited)
<TABLE>
<CAPTION>
		
                                          Three Months Ended
                                               March 31,              
                                          ------------------
                                   	 	    1999          1998      
                                          ----         ------
<S>                                       <C>          <C>
Revenue:
   Net operating revenue..............  		$  8,092     	$  6,821	 
   Other revenue...................... 		       45   	        26 	 
                                          --------      ---------
      Total net revenue...............       8,137	        6,847 	

Operating expenses:
   Salaries and related benefits......    	  3,361	        3,074	        
   General and administrative.........  	    2,827	        2,511	        
   Depreciation and amortization......    	    671	          636	
   Interest expense................... 	       302           353 	 
                                          ---------     ---------
      Total operating expenses........       7,161	        6,574 	 
                                          ---------     ---------
Income before income taxes............         976	          273             
                                     
Income tax provision (benefit)........     	    --  	         --  
                                          ---------     ---------
Net income............................  		$    976 	    $    273 	
                                          =========     =========
Shares used in basic per share
  calculation.........................		   8,554,938	    8,554,938  
                                          ==========    ==========
Shares used in diluted per share
  calculation.........................  		13,195,495   	13,181,358  
                                          ==========    ==========
Basic income per common
  share............................... 			$      .11	   $      .03  
                                          ==========    ==========
Diluted income per common
  share............................... 			$      .07   	$      .02  
                                          ==========    ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial 
statements.
<PAGE>

                  	NEXTHEALTH, INC. AND SUBSIDIARIES
                	CONSOLIDATED STATEMENTS OF CASH FLOWS
                              	(000s)
                           	(Unaudited)
<TABLE>
<CAPTION>
                                           Three Months Ended
                                               March 31,             
                                           ------------------
                                           1999           1998    
                                           ----           ----
<S>                                        <C>           <C>
Cash flows from operating activities:
  Net income..........................  	 	$    976	     $     273	
  Adjustments to reconcile net income 
   to cash provided by operating 
   activities:
     Depreciation and amortization....	  	      671   	        660
     Loss on disposal of assets.......  	        20	            --
     Provision for bad debts.......... 		       (10)      	     51       
     Minority Interest................ 		        23	            15	           
Changes in operating assets and liabilities:
  (Increase) decrease in assets:
     Accounts receivable..............     		  ( 92)	          (27)	        
     Other assets.....................     		  (181)	          (84)       
   Increase (decrease) in liabilities:
     Accounts payable, accrued expenses  
       and other liabilities..........  		       673  	       (290)	
                                              -------     ---------
Net cash provided by operating activities      2,080           598      

Cash flows from investing activities:
   Purchase of property and equipment...        (323) 	        (86)	
                                             --------    ----------
Net cash used in investing activities...  	     (323)	         (86)	 

Cash flows from financing activities:
   Reduction of long-term borrowings and 
     financing obligation............... 	     (  59) 	       (372)	
                                             --------    ----------
Net cash used in financing activities..  	     (  59)	        (372)	
                                             --------    ----------
Net increase in cash and 
  equivalents..........................   		   1,698	          140      

Cash and equivalents at beginning
  of period............................          843 	         829 	
                                             --------    ----------
Cash and equivalents at end of period..     	$ 2,541    	$     969 	
                                             ========    ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial 
statements.
<PAGE>

                    NEXTHEALTH, INC. AND SUBSIDIARIES
        CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                     (000s, except share amounts)
                             (Unaudited)
<TABLE>
<CAPTION>

                                             Additional	  		            Total
                          Common Stock        Paid-in	  	Accumulated  Stockholders'
                         Cost       Shares    Capital      Deficit      Equity 
                         ----      -------   ----------  -----------  ------------
<S>                      <C>      <C>        <C>          <C>          <C>  
Balance at 
 December 31, 1998	      $  86     8,554,938  $  47,997   	$ (27,254)   $  20,829

Net income for the 
 three months ended
 March 31, 1999		           --           --         --           976          976 
                         -----     ---------  ---------    ----------   ---------
Balance at
 March 31, 1999	        	$  86     8,554,938  $  47,997   	$ (26,278)   $  21,805 
                         =====     =========  =========    ==========   =========
</TABLE>

The accompanying notes are an integral part of the consolidated 
financial statements.
<PAGE>

                            NEXTHEALTH, INC.
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                (000s)
                             (Unaudited)

NOTE 1 - ORGANIZATION

NextHealth, Inc. (the "Company") is a leading provider of addiction treatment 
and therapeutic services, and a provider of programs and activities for a 
life-changing vacation alternative in a luxury resort setting.  For over ten 
years, the Company has developed effective programs and services which 
address individual wellness and quality-of-life issues through a whole 
person, mind-body approach.

The Company operates in two distinct business segments.  The Treatment 
segment, Sierra Tucson, LLC, owns Sierra Tucson(TM), ("Sierra Tucson") an 
inpatient, state licensed psychiatric hospital and behavioral health care 
center for the treatment of substance abuse and a broad range of mental 
health and behavioral disorders. The Health and Leisure segment, Sierra 
Health-Styles, Inc. d/b/a Miraval(TM), owns Miraval ("Miraval"), a unique 
vacation experience blending stress management, self-discovery and 
recreational activities in a luxury health and leisure resort environment.  

NOTE 2 - BASIS OF PRESENTATION

The unaudited consolidated financial statements presented herein should be 
read in conjunction with the consolidated financial statements and notes 
thereto included in the Company's Annual Report on Form 10-K for the year 
ended December 31, 1998.  The accompanying interim consolidated financial 
statements as of March 31, 1999 and for the three-month periods ended March 
31, 1999 and 1998 included herein are unaudited, but reflect, in the opinion 
of management, all adjustments (consisting of normal recurring adjustments) 
considered necessary to fairly present the results for such periods.  
Operating results for the three-month period ended March 31, 1999 are not 
necessarily indicative of the results that may be expected for the year ended 
December 31, 1999. 

NOTE 3 - NET INCOME PER SHARE

Shares used in the diluted per share calculation for the three-month periods 
ending March 31, 1999 and 1998 are as stated below:
<TABLE>
<CAPTION>

		
                               		March 31, 1999	       March 31, 1998
                                 --------------        --------------
<S>                              <C>                   <C>
Common shares	                	    8,554,938		            8,554,938
Convertible preferred shares      	4,606,500	            	4,606,500
Dilutive options	                		   34,057	                19,920
                                   ---------              ---------
Diluted shares			                 13,195,495		           13,181,358  
                                  ==========             ==========
</TABLE>
<PAGE>

NOTE 4 - BUSINESS SEGMENT AND OTHER OPERATING DATA

The Company operates in two principal business segments; Treatment, and 
Health and Leisure (the Segments) through which it provides both health care 
and wellness and preventive health services.  The Segments are located in and 
derive all their revenues from their facilities in Tucson, Arizona.  The 
Treatment Segment includes an inpatient, state licensed, special psychiatric 
hospital and behavioral health care center for the treatment of substance 
abuse and mental health disorders, including eating disorders and dual 
diagnosis.  Substantially all revenues in this Segment result from inpatient 
charges, therapy, professional fees, and pharmacy charges.  The Health and 
Leisure Segment consists of a luxury resort providing a full range of self-
discovery, stress management and recreational activities.  Substantially all 
revenues in this Segment result from guest bookings, group bookings and 
retail sales of goods and services.  Beginning in August 1998, each segment 
became responsible for interest expense.

Information about the Company's operations in different business segments for 
the three-month periods ending March 31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>

                                                     Corporate
                                          Health &	     and
                              Treatment 	 Leisure  	 Other Items  	Consolidated
                              ---------   --------   -----------   ------------
<S>                           <C>         <C>         <C>          <C>
1999                                          
----------------------------
Total revenue...............		  $ 4,010	  $  4,097	   $     30	     $   8,137
Income (loss) before
 income tax benefit.........      1,347       (139)     (  232)	          976
Identifiable assets.........	     4,920     32,887	      1,672	        39,479
Capital expenditures........      	 219	       104           0	           323
Depreciation & amortization
  expense...................         80      	 586	          5	           671
Interest expense............        192        110	          0	           302

1998                                          
----------------------------
Total revenue............... 	  $ 2,943  	$  3,878		   $    26   	  $   6,847
Income (loss) before
 income tax benefit.........        756	       227      (  710)	          273
Identifiable assets.........	     4,191	    30,078       4,393	        38,662
Capital expenditures........     	   29	        57	          0	            86
Depreciation & amortization
 expense	...................	        76	       495          65      	     636
Interest expense............		        0	         0   	     353	           353
</TABLE>

NOTE 5- INCOME TAXES

No provision for income taxes was recorded in the three-month periods ended 
March 31, 1999 or March 31, 1998 due to the existence of deferred tax assets 
(net operating loss carryforwards) not previously benefited.

NOTE 6 - COMPREHENSIVE INCOME

The Company adopted SFAS No. 130, Reporting Comprehensive Income, on January 
1, 1998.  At present, the Company does not have any account balances which 
cause comprehensive income (loss) to differ from net income (loss).
<PAGE>

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

The following discussion and analysis relates to factors which have affected 
the consolidated financial condition and results of operations of the Company 
for the three-month period ended March 31, 1999.  Reference should also be 
made to the Company's unaudited consolidated financial statements and related 
notes thereto included elsewhere in this document.

GENERAL

NextHealth, Inc. is a leading provider of addiction treatment and therapeutic 
services, and a provider of programs and activities for a life-changing 
vacation alternative in a luxury resort setting.  For over ten years, the 
Company has developed effective programs and services which address 
individual wellness and quality- of-life issues through a whole person, mind-
body approach.

The Company operates in two distinct business segments.  The Treatment 
segment, Sierra Tucson, is a state licensed, special psychiatric hospital and 
behavioral health care center for the treatment of substance abuse and a 
broad range of mental health and behavioral disorders. The Health and Leisure 
segment, Miraval, is a unique vacation experience blending stress management, 
self-discovery and recreational activities in a luxury health and leisure 
resort environment. 

By developing Miraval, the Company believes that it has positioned itself to 
capitalize on the emerging health and leisure segment of the health care 
services industry.  The Company is also seeking additional opportunities to 
increase market share for its existing Treatment segment, Sierra Tucson.  The 
Company is currently expanding the Sierra Tucson facilities through the 
addition of space for sixteen beds and additional administrative offices.  
For the quarter ended March 31, 1999, the Treatment segment accounted for 
approximately 49% of the Company's operating revenues and approximately 37% 
of expenses, while the Health and Leisure segment accounted for approximately 
50% of the Company's operating revenue and approximately 59% of operating 
expenses.  The Company believes that the Health and Leisure segment will make 
more significant contributions to the Company's operating results in the 
future.

RESULTS OF OPERATIONS

Three-month period ended March 31, 1999 compared to three-month period ended 
March 31, 1998

The significant changes in results of operations and net cash provided by 
operating activities for the three-month period ended March 31, 1999, 
compared to the same period in 1998 are discussed below.  
<TABLE>
<CAPTION>
                                                Three Months Ended
                                                      March 31,     
                                          ---------------------------------
                                           1999       1998       % Change  
                                           ----       ----       --------
<S>                                       <C>        <C>          <C>
Financial results:
 (000s, except per share amounts)
  Total net revenue...................   		$ 8,137	   $ 6,847     18.8 % 
  Total operating expenses............   		  7,161	     6,574      8.9 %
  Net income..........................   		    976	       273    257.5 %
  Basic income per common share.......   		    .11	       .03 	  266.7 %
  Diluted income per common share.....    	    .07    		  .02	   250.0 %
  Net cash provided by operating 
   activities.........................   		  2,080	       598	   247.8 %

Operating data:
  Patient days - Sierra Tucson........   	   5,236 	    4,325	    21.1 %
  Average daily census-Sierra Tucson..          58	        48     20.8 %
  Guest days - Miraval................    		 8,070	     8,376   (  3.7)%
  Room occupancy - Miraval............          59%        61%  (  3.3)%	 
</TABLE>
<PAGE>
   
For the three-month period ended March 31, 1999, net income increased 
$703,000 to $976,000 or 258% over the comparable quarter of 1998.  Net cash 
provided by operating activities increased 248% resulting in net cash 
provided by operating activities of $2.1 million compared to the same period 
in 1998. 

Total net revenue increased $1.3 million to $8.1 million, an increase of 19% 
when compared to the same period in 1998.  Results reflect a 5.7% revenue 
increase at Miraval and a 36.6% revenue increase at Sierra Tucson, when 
compared to the corresponding quarter of 1998. 

Salaries and related benefits decreased 3.6% as a percentage of revenue 
during the period. Salaries and related benefits increased $287,000 to $3.4 
million, when compared to the same period in 1998. The increase was 
attributable to staffing adjustments at Miraval and staffing related to 
increased census at Sierra Tucson.

General and administrative expense decreased 2.0% as a percentage of revenue 
during the first quarter of 1999.  General and administrative expense 
increased $316,000 to $2.8 million, an increase of 12.6% when compared to the 
same period in 1998.  The increase was related to the Company's decision to 
emphasize advertising at Miraval during the quarter and increased census at 
Sierra Tucson.

The Company recognized a pre-tax income of $976,000 for the three-month 
period ended March 31, 1999. No provision or benefit for income taxes was 
recorded during this period due to the existence of deferred tax assets not 
previously benefited.

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary sources of liquidity and capital resources have 
typically been cash provided by the Treatment segment's operating activities, 
funds generated from the sale of investments, proceeds from private equity 
offerings and long-term and short-term borrowings.  Historically, these 
sources have been sufficient to meet the needs and finance the operations and 
growth of the Company's business.  

Net cash provided by the Treatment segment's operating activities is 
primarily affected by census levels and net revenue per patient day. This 
segment contributed positive cash flow to the Company's operations during the 
three-month period ended March 31, 1999.  During this period, 43% of patient 
revenue was derived from retail payments and the remaining 57% from third 
party payors.  Based on current census levels and operating expenses, Sierra 
Tucson believes that it will generate adequate cash flows to sustain the 
Treatment segment's ongoing operational requirements as well as to offset any 
potential negative cash flow of the Health and Leisure segment, if needed. 

Results in the Health and Leisure segment are primarily affected by room 
occupancy and average daily rate in addition to expense management.  During 
first quarter 1999, marketing initiatives for creating marketplace awareness 
and demand for Miraval's services resulted in a room occupancy rate of 
approximately 59%.  Management believes that as marketplace demand for the 
Miraval product increases, the Health and Leisure segment will ultimately 
make a significant contribution to the Company's financial condition.  
Miraval also contributed positive cash flow to the Company's operations 
during the first quarter of 1999.

For the three-month period ended March 31, 1999, the Company had capital 
expenditures of approximately $323,000.  At March 31, 1999, the Company's 
cash and equivalents were $2.5 million.

On August 11, 1998, the Company's principal subsidiaries, Miraval and Sierra 
Tucson, completed a debt refinancing loan agreement with Lehman Brothers 
Holdings Inc.  The amount available under the agreement was $14 million, of 
which $2.0 million was reserved for working capital ($1.0 million) and for 
capital improvements ($1.0 million).  $700,000 of the working capital portion 
was available in 1998 and $300,000 is available in 1999.  As of March 31, 
1999, $292,000 had been drawn from the capital improvements reserve 

<PAGE>

and $0 from the working capital reserve.  The unused portion of the working 
capital reserve rolled over to the capital improvements reserve at January 1, 
1999.  Proceeds from the transaction were primarily used to extinguish 
existing mortgage debt with AP LOM, LLC, an affiliate of AP NH, LLC ("APNH"), 
the holder of the Company's outstanding Series A Preferred Stock.  The loan 
matures in three years (a one-year extension is available upon consent of the 
lender and payment of a 2% fee), bears interest at the rate of 4% over the 
30-day London Interbank Offered Rate (LIBOR), adjusted monthly, and is 
payable interest-only through maturity. The LIBOR rate at the date of closing 
was 5.65%.  The Company purchased a rate cap to protect against extreme 
upward movement in the LIBOR rate which limits the maximum rate to be paid by 
the Company to 10.5%.

The loan is secured by a first lien against all real and personal property of 
Miraval and is guaranteed by the assets of Sierra Tucson. It is also 
partially guaranteed (to the extent of liability arising by reason of certain 
exclusions to the non-recourse provisions of the loan) by the Company and to 
a more limited extent by Apollo Real Estate Investment Fund II, L.P. 
("Apollo").  Apollo, an affiliate of APNH, received a fee in the amount of 
$140,000 in consideration of its guarantee.

Management believes that funds from operations combined with the funds 
available from the Lehman transaction will provide the cash necessary to meet 
its short-term capital needs.  However, it is necessary for the Company to 
increase occupancy levels in its lines of business, and to implement 
additional cost controls to ensure 1999 operating losses do not exceed an 
amount sustainable by these funds. Insufficient occupancy levels at Miraval 
or any significant decrease in Sierra Tucson's patient levels would adversely 
affect the Company's financial position, results of operations and cash 
flows. 

The Year 2000 problem is the result of computer programs being written using 
two digits (rather than four) to define the applicable year.  Any of the 
Company's programs that have time-sensitive software may recognize a date 
using "00" as the year 1900 rather than the year 2000.  This could result in 
a major system failure or miscalculations.

In order to address Year 2000 issues, the Company has established a committee 
consisting of representatives from both the Treatment segment and the Health 
and Leisure segment.  The committee's approach will be to follow four phases: 
assessment, remediation, testing, and implementation.  To date, the Company 
has fully completed its assessment of all systems that could be significantly 
affected by the Year 2000.  The completed assessment indicated that most of 
the Company's significant information technology systems are not affected. Of 
the systems which are not currently Year 2000 compliant, the current vendors 
have tested and implemented (at other customers) a solution to the problem.  
However, if such modifications are not made, or are not completed timely, the 
Year 2000 issue could force Sierra Tucson to operate certain aspects of their 
business on a manual system which could result in a negative impact to cash 
flow (liquidity).  The Company will continue to monitor the progress with the 
modifications and/or replacement systems and develop contingency plans for 
all critical systems not meeting benchmark dates.  The cost for replacement 
or upgrades is between $150,000 and $250,000 and is being funded through 
operating cash flow.  As of March 31, 1999, the Company has incurred 
approximately $23,000 in expenses related to Year 2000.

The Company interfaces directly with credit card companies for payment of 
services rendered.  The Company has successfully completed the testing phase, 
based on the software companies criteria.

The Company has queried its critical vendors and suppliers (external agents) 
that do not share information systems with the Company.  To date, the Company 
is not aware of any external agent Year 2000 issue that would materially 
impact the Company's results of operations, liquidity or capital resources.  
However, the Company has no means of ensuring that external agents will be 
Year 2000 ready. The inability of external agents to complete their Year 2000 
resolution process in a timely fashion could materially impact the Company.  
The effect of non-compliance by external agents is not determinable.

<PAGE>

The Company is finalizing its assessment of its most reasonably likely worst 
case Year 2000 scenario. The responses the Company receives from suppliers 
regarding their Year 2000 readiness will play a critical role in these 
determinations. This and other relevant information will be utilized to 
develop the Company's contingency plan.  It is presently expected that the 
contingency plan will be developed by June 30, 1999.

Like virtually all other public and private companies, the Company's day-to-
day business is dependent on telecommunications services, banking services 
and utility services provided by a large number of entities. At this time, 
the Company is not aware of any of these entities (or of any significant 
supplier) that has disclosed that it will not be Year 2000 compliant by 
January 1, 2000.  However, many of these entities are, like the Company, 
still engaged in the process of attempting to become Year 2000 compliant.  
The Company plans to attempt to obtain written assurance of Year 2000 
compliance from all entities which management considers critical to 
operations of the Company and its subsidiaries.  However, it is likely that 
some critical suppliers will not give written assurance as to Year 2000 
compliance because of concerns as to legal liability.

Even where written assurance is provided by critical suppliers and a 
contingency plan is developed by the Company to deal with possible non-
compliance by other critical suppliers, the Year 2000 conversion process will 
continue to create risk to the Company which is outside the control of the 
Company.  There can be no assurance that a major Year 2000 disruption will 
not occur in a critical supplier which would have an impact on the Company 
that could be material to its financial position, results of operations, or 
cash flows.

BUSINESS OUTLOOK

Performance in the Treatment segment (Sierra Tucson) will be driven by 
continued cost control efforts as well as new marketing initiatives.  
Particular emphasis will be placed on increasing awareness of Sierra Tucson's 
innovative treatment programs through a combination of focused advertising, 
direct mail, field sales and outbound telemarketing campaigns. 

Clinically, Sierra Tucson's programs have been strengthened considerably, 
including a restructuring of the Eating Disorders Program, the reformatting 
of the Sexual Recovery/Trauma Program, and the expansion of fitness services 
to provide more individual and group attention to patients.  The range of 
treatment modalities has increased so as to offer acupuncture, EMDR (Eye 
Movement Desensitization Reprocessing) and cognitive behavioral approaches.  
With the establishment of a consulting relationship with a specialist in the 
area of comprehensive neuropsychological testing, Sierra Tucson's assessment 
and diagnostic capabilities have been expanded to meet the demand of 
professional review organizations such as state medical boards, state bar 
associations, clergy, etc.  In addition to continuing its traditional 
marketing efforts to the referent therapist community and alumni, Sierra 
Tucson will utilize direct mail campaigns, media opportunities, enhanced web 
site and internet capabilities, and participation in various conferences and 
professional boards and organizations.  Marketing field representatives will 
continue their efforts to enhance Sierra Tucson's national exposure and to 
increase the number of prospective patients.

In July 1998, the Company relocated the Sierra Tucson operations to the 
facilities previously used by the Company's adolescent care unit (which 
ceased operations in 1993). The facilities are located on State leased land, 
and in October 1998, the Company entered into a 50-year lease agreement for 
the property with the Arizona State Land Department.  The relocation 
initially provided 63 beds, and in March 1999 the Company began construction 
of space for 16 additional beds as well as additional administrative offices. 
 Construction is scheduled for completion in September 1999.

Miraval, the Company's health and leisure resort, has been in operation since 
December, 1995.   In 1998, the resort was recognized nationally as Number 2 
Best Spa for Value by Travel & Leisure magazine; the Number 4 Best Spa in the 
Conde Nast Reader's Choice Awards; and Number 8 Best Spa by Travel & Leisure 
magazine.  Miraval also received media attention in the New York Times 
(Sunday Travel Section), Fitness Magazine, Working Woman, Town and Country, 
and Self Magazine as well as numerous mentions in other publications.

<PAGE>

The frequent individual traveler and return guest have played an integral 
role in Miraval's success to date. Through its quarterly guest newsletter, 
Miraval will offer special return guest programs.  This recognition is aimed 
at stimulating future bookings and recommendations to friends which has 
proven to be one of the most effective means for generating new and repeat 
business.

The importance of the group market is also recognized, and Miraval will 
continue to focus on soliciting groups for team building and corporate 
retreats.  Based on guest comments, special retreats and pilot programs will 
be offered in order to test interest levels.  Some of the programs being 
considered are weight loss, women's health issues, naturalist programs and 
special healing programs.  A day spa mailing was completed in October 1998, 
and the day spa will be advertised in order to promote Miraval to the local 
market.

The operations of Miraval appear to be seasonal, and although seasonally 
adjusted rates were offered in 1998 and 1997, occupancy levels fell off 
during the summer months.  Miraval was closed for two weeks in July 1997 and 
for three weeks in July 1998 in response to the seasonal fluctuation in 
consumer demand as well as to permit certain renovations and improvements to 
the facilities.  A similar closure is not anticipated for 1999.

Management's strategy for Miraval will be to continue to improve its unique 
program structure based on guest feedback. Aggressive public relations 
efforts and increased media placement will also be utilized in order to 
provide improved national exposure for Miraval.  Several public relations 
pieces are being developed and press releases will be submitted to select 
publications throughout the year to insure that a high profile is maintained.

Cost containment measures will continue to be a critical management objective 
during 1999.  Management believes that improvement in the quality and 
uniqueness of Miraval's programs and services in a cost effective manner is 
an important element in its ability to compete successfully in the growing 
spa and resort industry.

In addition, it is anticipated that the Board of Directors will continue to 
consider strategic opportunities for expansion and growth of both the 
Treatment and Health and Leisure segments.

FACTORS THAT MAY AFFECT FUTURE RESULTS

Management's Discussion and Analysis of Financial Condition and Results of 
Operations (particularly as it relates to the Business Outlook section of 
this report, and the growth of the Health and Leisure segment) contains 
forward looking statements within the meaning of the Private Securities 
Litigation Reform Act of 1995 that involve a number of risks and 
uncertainties.  While management believes that such forward looking 
statements are accurate as of the date hereof, the actual results and 
conditions could differ materially from the statements contained herein.  The 
information below should be read in conjunction with the Company's unaudited 
consolidated financial statements and related notes thereto included 
elsewhere and in other portions of this document.

In addition, the following other factors could cause actual results and 
conditions relating to liquidity and capital resources to differ materially.

The Company's Treatment segment participates in the highly competitive mental 
and behavioral health industry, and faces competition for market share 
resulting from aggressive pricing practices and increasing competition from 
companies with greater resources.  Some of these competitors have tax exempt, 
non-profit status, are government subsidized or have endowment-related 
financial support which may provide lower costs of capital.

Sierra Tucson's operations are accredited by the Joint Commission on 
Accreditation of Healthcare Organizations ("JCAHO").  JCAHO accreditation is 
important to the operations of Sierra Tucson since most insurance companies 
require such accreditation in order for the treatment of patients to qualify 
for insurance 
<PAGE>

payment or reimbursement.  The next scheduled survey for Sierra Tucson by 
JCAHO is in May 1999.  If Sierra Tucson were unable to maintain its JCAHO 
accreditation, its business would be adversely affected.

Miraval's unique blending of luxury resort recreational activities with 
stress management and self-discovery programs clearly differentiates it from 
the spas with which it competes.  Because Miraval represents a benchmark for 
the new and growing trend in hospitality for lifestyle enhancing products, 
market data in this niche cannot easily be ascertained.  Due to Miraval's 
relatively short history and the uniqueness of its programs and services, the 
Company cannot project with a high degree of accuracy the future levels of 
occupancy or revenue.  While the Company believes that there is strong 
consumer demand for Miraval's products and services, the historical data does 
not exist to be certain the current trends will continue.

While management believes that Miraval occupies a unique market niche, it 
nevertheless competes in the resort hotel/spa industry.  Currently, its 
competitors have greater name recognition as well as long-standing 
relationships with travel agents and meeting planners.  Market share must be 
obtained from competitors and from introducing new customers to the benefits 
of the Miraval product.  Longevity in the marketplace plays a key role in 
attaining credibility in this highly competitive field.  Management cannot 
anticipate what impact this will have on future occupancy levels.

While the Company anticipates continued growth in revenues and is committed 
to a return to profitability, operating results could be adversely impacted 
if the business is unable to accurately anticipate customer demand, is unable 
to differentiate its products from those of its competitors, is unable to 
offer services expeditiously in response to customer demand, or is negatively 
impacted by managed care restrictions on payor reimbursement.

<PAGE>

                            PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

The Company is involved in various litigation and administrative proceedings 
arising in the normal course of business.  In the opinion of management, any 
liabilities that may result from these claims will not, individually or in 
the aggregate, have a material adverse effect on the Company's financial 
position, results of operations or cash flows.

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

         NONE

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)  Exhibits

      	       Exhibit 27 - Financial Data Schedule

         (b)  Reports on Form 8-K

              NONE
<PAGE>


                          	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.

                               NextHealth, Inc.           
                               ----------------------------------------
                               Registrant



DATE: May 12, 1999             BY:  /s/ William T. O'Donnell, Jr.   
                                  -------------------------------------
                                  WILLIAM T. O'DONNELL, JR. 
                                  President & Chief Executive Officer



DATE: May 12, 1999             BY:  /s/ Loree Thompson     
                                  ------------------------------------
                                  LOREE THOMPSON
                                  Principal Financial & Accounting  
                                   Officer