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, 1998 

                                  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, 1998, there were 8,554,938 shares of the registrant's Common
Stock outstanding.

Reference is made to the listing beginning on page 14 of all exhibits filed
as a part of this report.

<PAGE>

                             NEXTHEALTH, INC.
                                 FORM 10-Q
                             TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION                                         PAGE
------------------------------                                        ------
<S>                                                                   <C>
Item 1.  Financial Statements

         Consolidated Balance Sheets as of March 31, 1998 (unaudited) 
         and December 31, 1997........................................   3

         Unaudited Consolidated Statements of Operations for the three
         months ended March 31, 1998 and 1997.........................   4

         Unaudited Consolidated Statements of Cash Flows for the three
         months ended March 31, 1998 and 1997.........................   5

         Unaudited Consolidated Statements of Changes in Stockholders'
         Equity for the three months ended March 31, 1998 ............   6

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

Item 2.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations........................................  10


PART II - OTHER INFORMATION

Item 1.  Legal Proceedings ...........................................  14

Item 4.  Submission of Matters to a Vote of Security Holders..........  14

Item 6.  Exhibits and Reports on Form 8-K ............................  14

Signatures ...........................................................  15
</TABLE>
<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, 
                                                             1998           1997
                                                           ---------    ------------  
                                                           (Unaudited)
<S>                                                        <C>           <C>
ASSETS
  Current Assets: 
   Cash and equivalents . . . . . . . . . . . . . . . .     $   969      $   829
    Accounts receivable, less allowance for doubtful 
     accounts of $290 and $298, respectively. . . . . .         917          954
    Prepaid expenses . . . . . . . . . . . . . .. . . .         352          232
    Other current assets . . . . . . . . . . . .. . . .         531          567 
                                                            --------     --------
      Total current assets . . . . . . . . . . .  . . .       2,769        2,582

  Property and equipment, net. . . . . . . . . . . .. .      35,401       35,918
  Long-term receivables, less allowance for doubtful 
   accounts of $55 and $50, respectively . . . . . . ..         165          151
  Intangible assets, less amortization of $191 and $158, 
   respectively . . . . . . . . . . . . . . . . . . . .         289          322
  Other assets . . . . . . . . . . . . . . . . . . .  .          38           38 
                                                            --------     --------
      Total assets . . . . . . . . . . . . . . . . . .      $38,662      $39,011 
                                                            ========     ========
LIABILITIES AND STOCKHOLDERS' EQUITY
  Current Liabilities:
    Accounts payable, trade. . . . . . . . . . . . . .      $   710      $   838
    Accrued expenses and other liabilities . . . . . .        6,492        6,638 
                                                            --------     --------
      Total current liabilities. . . . . . . . . . . .        7,202        7,476
 
  Long-term debt and financing obligation  . . . . . .        9,382        9,730 
                                                            --------     --------
      Total liabilities. . . . . . . . . . . . . . . .       16,584       17,206 

  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, 1998
    and December 31, 1997, respectively. . . . . . . .           --           --
   Common stock, $.01 par value, 16,000,000 shares authorized; 
    8,554,938 shares outstanding at March 31, 1998 and
    December 31, 1997, respectively. . . . . . . . . .           86           86
   Additional paid-in capital. . . . . . . . . . . . .       47,997       47,997
   Accumulated deficit . . . . . . . . . . . . . . . .      (26,005)     (26,278)
                                                            --------     --------
      Total stockholders' equity . . . . . . . . . . .       22,078       21,805 
                                                            --------     --------
      Total liabilities and stockholders' equity . . .      $38,662      $39,011 
                                                            ========     ========
</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,
                                                   -------------------
                                                     1998        1997      
                                                   --------     ------
<S>                                                <C>          <C>
Revenue:
  Net operating revenue . . . . . . . . . . . .    $  6,821   $  5,730        
  Other revenue . . . . . . . . . . . . . . . .          26         68 
                                                   --------   -------- 
      Total net revenue . . . . . . . . . . . .       6,847      5,798

Operating expenses:
  Salaries and related benefits . . . . . . . .       3,074      3,091
  General and administrative. . . . . . . . . .       2,511      2,418
  Depreciation and amortization . . . . . . . .         636        656
  Interest expense  . . . . . . . . . . . . . .         353        268 
                                                   ---------   --------
      Total operating expenses  . . . . . . . .       6,574      6,433 

Income (loss) before income taxes . . . . . . .         273       (635)

Income tax provision (benefit)  . . . . . . . .          --         -- 
                                                   ---------   --------
Net income (loss) . . . . . . . . . . . . . . .    $    273    $  (635)
                                                   =========   ========
Shares used in diluted per share
  calculation . . . . . . . . . . . . . . . . .    13,181,358  8,554,938
                                                   =========   =========
Shares used in basic per share
  calculation . . . . . . . . . . . . . . . . .     8,554,938  8,554,938
                                                   =========   =========
Diluted income (loss) per common
  share. . .  . . . . . . . . . . . . . . . . .    $      .02  $    (.07)
                                                   ==========  =========
Basic income (loss) per common
  share. . .  . . . . . . . . . . . . . . . . .    $      .03  $    (.07)
                                                   ==========  =========
</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,
                                                         ------------------ 
                                                          1998        1997   
                                                         ------      ------
<S>                                                      <C>         <C>
Cash flows from operating activities:
  Net income (loss). . . . . . . . . . . . . . . . .     $  273      $( 635)
  Adjustments to reconcile net income (loss) to cash
   provided by (used) in operating activities:
    Depreciation and amortization. . . . . . . . . .        660         681                                
    Provision for bad debts  . . . . . . . . . . . .         51         123
    Minority Interest  . . . . . . . . . . . . . . .         15          14
Changes in operating assets and liabilities:
  Decrease (increase) in assets:
    Accounts receivable  . . . . . . . . . . . . . .        (27)       (212)
    Other assets . . . . . . . . . . . . . . . . . .        (84)        436
  Increase (decrease) in liabilities:
    Accounts payable, accrued expenses  
     and other liabilities . . . . . . . . . . . . .       (290)     (1,090)
                                                        --------     -------
Net cash provided by (used in) operating activities.        598      (  683)

Cash flows from investing activities:
  Purchase of property and equipment  . . . . . . .         (86)       ( 94)
                                                        --------     -------
Net cash used in investing activities . . . . . . .         (86)        (94)

Cash flows from financing activities:
  Reduction of long-term borrowings and 
   financing obligation . . . . . . . . . . . . . .        (372)        ( 7)
                                                        --------     -------
Net cash used in financing activities . . . . . . .        (372)        ( 7)
                                                        --------     -------

Net increase (decrease) in cash and 
 equivalents  . . . . . . . . . . . . . . . . . . .         140      (  784)

Cash and equivalents at beginning of period . . . .         829       1,373
                                                        --------     -------

Cash and equivalents at end of period . . . . . . .     $   969      $  589
                                                        ========     =======
</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>

                          Common Stock      Additional                  Total
                         --------------       Paid-in   Accumulated  Stockholder's
                         Cost     Shares      Capital      Deficit     Equity  
                         ----   --------    ----------  -----------  -----------
<S>                      <C>    <C>         <C>         <C>          <C>
Balance at 
 December 31, 1997       $ 86   8,554,938   $  47,997   $ (26,278)   $  21,805

Net income for the 
 three months ended
 March 31, 1998            --          --          --         273          273 
                         -----  ---------   ---------   ----------   ----------
Balance at
 March 31, 1998          $ 86   8,554,938   $  47,997   $ (26,005)   $  22,078 
                         =====  =========   =========   ==========   ==========
</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. is a leading provider of addiction treatment and
therapeutic services, as well as programs and activities for a life-changing 
vacation alternative in a luxury resort setting.  For over
ten years, the Company has developed effective treatment models 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 health disorders.  The Health
and Leisure segment, Sierra Healthstyles, Inc. d/b/a Miraval(TM)
("Miraval"), is a unique vacation experience blending stress
management and self-discovery programs in a luxury 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, 1997.  The accompanying
interim consolidated financial statements as of March 31, 1998 and for
the three-month periods ended March 31, 1998 and 1997 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, 1998 are not
necessarily indicative of the results that may be expected for the
year ended December 31, 1998. 

NOTE 3 - NET INCOME (LOSS) PER SHARE

In 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 128, Earnings per Share.  SFAS No. 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted
earnings per share.  Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants and
convertible securities.  Diluted earnings per share is very similar to
the previously computed fully diluted earnings per share.  The net
income (loss) per share amounts previously reported by the Company are
now reported as basic income (loss) per share, as such amounts were
historically calculated excluding the dilutive (or anti-dilutive)
effect of options, warrants and convertible securities.  Diluted
earnings per share are equal to basic earnings per share for the
period ending March 31, 1997, as the effect of all applicable
securities is anti-dilutive (decrease the loss per share amount). 
Shares used in the diluted per share calculation for the period ending
March 31, 1998 are as stated below:

          Common shares                   8,554,938
          Convertible preferred shares    4,606,500
          Dilutive options                   19,920
                                         ---------- 
          Diluted shares                 13,181,358
                                         ==========

NOTE 4 - SEGMENT INFORMATION

In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information, which is effective for
fiscal years beginning after December 15, 1997.  SFAS No. 131
establishes standards for the way that public business enterprises
report information about operating segments in annual financial
statements and requires that those enterprises report selected

<PAGE>

information about operating segments in interim financial reports.  It
also establishes standards for related disclosures about products and
services, geographic areas, and major customers.  The Company has
elected to voluntarily provide segment disclosures in its interim
financial statements in the initial year of application.

The Company operates in two principal business segments; Treatment,
and Health and Leisure through which it provides both health care and
wellness and preventive health services.  The Treatment segment,
Sierra Tucson, is a 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 are derived from inpatient
charges, therapy, professional fees and pharmacy charges.  The Health
and Leisure segment, Miraval, offers a unique vacation experience
blending stress management and self-discovery programs in a luxury
resort environment.  Substantially all revenues result from guest
bookings, group bookings and retail charges.  No single customer
accounted for more than 10% of either of the principal business
segment's revenue in the period ending March 31, 1998 or 1997.

Information about the Company's operations in different business
segments for the period ending March 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>

                                                    Corporate
                                        Health &       and
                           Treatment    Leisure    Other Items   Consolidated
                           ---------    --------   -----------   ------------
                                               1998        
                           --------------------------------------------------
<S>                        <C>          <C>        <C>           <C>
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

                                                1997        
                            ------------------------------------------------                                            
Total Revenue              $ 2,890      $ 2,883      $    25      $  5,798

Income (loss) before
 income tax benefit            711         (548)      (  798)         (635)

Identifiable assets          4,701       31,144        4,127        39,972

Capital expenditures and
 intersegment transfers,net    394          506       (  806)           94

Depreciation & amortization
 expense                        97          488           71           656

Interest expense                 0            0          268           268
</TABLE>

<PAGE>

NOTE 5- INCOME TAXES

No provision for income taxes was recorded in the three-month period
ended 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,
1998.  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, as well as programs and activities for a life-changing 
vacation alternative in a luxury resort setting.  For over
ten years, the Company has developed effective treatment models 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
health disorders. The Health and Leisure segment,  Miraval, is a
unique vacation experience blending stress management and self-discovery 
programs in a luxury resort environment. 

The Company, as part of its long range plan, believes that it has
positioned itself to capitalize on the newly emerging health and
leisure segment of the health care services industry by developing
Miraval, a luxury health and leisure resort providing a full range of
self-discovery, stress management and recreational activities.  The
Company is also seeking additional opportunities to increase market
share for its existing Treatment segment.  For the three-month period
ended March 31, 1998, the Treatment segment accounted for
approximately 42%  of the Company's operating revenues and
approximately 33% of operating expenses while the Health and Leisure
segment accounted for approximately 57% of the Company's operating
revenue and approximately  56% of operating expenses. 

RESULTS OF OPERATIONS

Three-month period ended March 31, 1998 compared to three-month period
ended March 31, 1997

The significant changes in results of operations and net cash provided
by (used in) operating activities for the three-month period ended
March 31, 1998, compared to the same period in 1997 are discussed
below.  

<TABLE>
<CAPTION>  
                                                          Three Months Ended
                                                              March 31,
                                                    -----------------------------                             
                                                    1998        1997     % Change
                                                    ----        ----     --------
<S>                                                 <C>         <C>      <C>    
FINANCIAL RESULTS:(000s,except per share amounts)
 Total net revenue  . . . . . . . . . . . . . . .   $ 6,847     $ 5,798     18.1 %
 Total operating expenses . . . . . . . . . . . .     6,574       6,433      2.2 %
 Net income (loss)  . . . . . . . . . . . . . . .       273     (   635)   143.0 %
 Basic income (loss) per common share . . . . . .       .03     (   .07)   142.9 %
 Net cash provided by(used in)operating activities      598     (   683)   187.6 %

OPERATING DATA:
 Patient days - Sierra Tucson . . . . . . . . . .     4,325       4,379    ( 1.2)%
 Average daily census - Sierra Tucson . . . . . .        48          49    ( 2.0)%
 Guest days - Miraval . . . . . . . . . . . . . .     8,376       7,518     11.4 %
 Average daily guest count - Miraval. . . . . . .        93          84     10.7 %
</TABLE>
<PAGE>

For the three-month period ended March 31, 1998, net income increased
$908,000 to $273,000  and net cash provided by operating activities
increased 188% resulting in net cash provided by operating activities
of $598,000  compared to the same period in 1997. 

Total net revenue increased $1.05 million to $6.8 million, an increase
of 18% when compared to the same period in 1997.  Results reflect
increased revenues from the operations of both Miraval and Sierra
Tucson. 

Salaries and related benefits decreased $17,000 to $3.07 million, 
when compared to the same period in 1997.  The reductions were
achieved even with the growth in revenue.

General and administrative expense increased $93,000 to $2.5 million,
an increase of 3.9% when compared to the same period in 1997.  The
increase was related to the increased occupancy levels at Miraval.

The Company recognized a pre-tax income of $273,000 for the three
month period ended March 31, 1998.  No provision or benefit for income
taxes was recorded during this period due to the existence of deferred
tax assets not yet 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 public and private equity offerings 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 are
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, 1998.  Net
cash provided by the Health and Leisure segment's operating activities
are primarily affected by room occupancy, average daily rate, and
seasonality.  The Health and Leisure segment also provided positive
cash flow to the Company's operations during the three-month period
ended March 31, 1998.

Sierra Tucson continues to experience pressure from third party payors
and managed care review organizations to restrict patient access to
and payment for treatment services.  Consequently, the Treatment
segment's operational focus will be to continue to attract a high
percentage of retail patients.  Sierra Tucson has implemented a case
management system to increase the potential for third party
reimbursement of services.  During this period, 52.8% of patient
revenue was derived from retail payments and the remaining 47.2% 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. 

Building market awareness and acceptance of a new unique vacation
concept requires time.  Vacation travel is a conservative purchase due
to cost and the allocation of the traveler's most precious resource -
leisure time.  Marketing initiatives for creating marketplace
awareness and demand for Miraval's services resulted in a room
occupancy rate of approximately 61.3% for the period ended March 31,
1998.  Customer acceptance plays a key role in determining these
results.  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.

For the three-month period ended March 31, 1998, the Company had
capital expenditures of approximately $86,000.  At March 31, 1998, the
Company's cash and equivalents were $969,000.

To meet its current liquidity requirements, the Company entered into
debt and equity financing transactions which closed on November 15,
1996.  The proceeds from the transactions were approximately
$12,340,000.  The debt financing transaction contains certain
provisions related to a standby commitment for an additional
<PAGE>

$5,000,000, subject to compliance with certain conditions and the
lender's good faith discretion.  As of March 31, 1998, the Company had
drawn $2.8 million on the standby commitment.  To the extent that cash
on hand is not sufficient to meet future operating cash requirements,
and assuming compliance with all conditions, management presently
believes, although there can be no assurance,  that the standby funds
will  be available to 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 1998 operating losses do not exceed
an amount sustainable by the standby commitment, if available. 
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 Company is continuing to consider potential debt financing options
to replace the existing financing agreements with AP LOM, LLC with third
party lenders providing longer term financing.

The Company has conducted a review of its computer systems to identify
the systems that could be affected by the "Year 2000" issue and is
developing a plan to resolve the issue.  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.  The Company presently
estimates the cost (including both software and hardware) to correct
the Year 2000 problem to be immaterial to the financial position,
results of operations or cash flows of the Company.

BUSINESS OUTLOOK

Performance in the Treatment segment (Sierra Tucson) will be driven by
continued cost control efforts as well as new marketing initiatives. 
Emphasis will be placed on increasing patient census through a
combination of innovative treatment programs and 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.  Sierra Tucson
will continue its traditional marketing efforts to the referent
therapist community, and look for continued growth in the number of
prospective patients.

The Company is currently planning the relocation of Sierra Tucson to
the facilities previously used by the Company's adolescent care unit
(which ceased operations in 1993) which are currently vacant.  The
relocation will cost approximately $500,000 and initially provide 63
beds which is less than the current availability of 70 beds.  Such a
relocation will facilitate future expansion of both Sierra Tucson and
Miraval should market conditions justify and capital be available for
such expansions.  The zoning for the property currently occupied by
Sierra Tucson and Miraval was recently amended to permit a total of
356 resort hotel rooms and up to 226 residential units.

Miraval, the Company's health and leisure resort, has been in
operation since December, 1995.  The resort continues to receive
favorable press coverage and was named in the Top Ten Spas of the
World in the September 1997 issue of Conde Nast Traveler.  Other
exposure includes such prestigious names as the New York Times, the
Wall Street Journal, USA Today, and Good Morning America.

The operations of Miraval appear to be seasonal, and although
seasonally adjusted rates were offered in 1997, occupancy levels fell
off during the summer months.  Miraval was closed for two weeks in
July 1997 in response to the seasonal fluctuation in consumer demand
as well as to permit certain renovations and improvements to the

<PAGE>

facilities.  Management anticipates similar decreases in occupancy
levels and is planning for a short-term closure in July 1998.

With the improvement of meeting facilities at Miraval, marketing
initiatives, aimed at high level corporate and incentive groups, have
been enhanced.  The Miraval message will be delivered through a blend
of direct sales and advertising -- including print, data base-driven
mail, and public relations activities.

Management's strategy for Miraval is to continuously improve its
unique program structure based on guest feedback.  Increased focus on
the return guest will play a key role in assuring that this highly
desirable market segment continues to grow.  Operational quality and
attention to detail will be critical factors in ensuring continued
word-of-mouth advertising -- the single largest source for attracting
new business.

Cost containment measures will continue to be a critical management
objective during 1998.  Management believes that variable staffing
relative to seasonal occupancy fluctuations, a more structured program
format, and focusing on all aspects of operational quality should
allow the Company to further improve efficiencies and cash flow.

FACTORS THAT MAY AFFECT FUTURE RESULTS

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

Miraval represents a benchmark for the new and growing trend in
hospitality for lifestyle enhancing products.  Although competitive
market data is available for the "spa" category, Miraval's unique
blending of luxury resort recreational activities with stress
management and self-discovery programs clearly differentiates it from
a spa.  Because of Miraval's relatively short history, 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. 
Management believes that the existing capital resources of the Company
and the $2.2 million remaining undrawn as of March 31, 1998 under the
standby commitment from the November 15, 1996 debt transaction, if
available, are sufficient to meet its short-term capital needs. 
Advances on the standby commitment are subject to the lender's good
faith discretion and compliance with applicable conditions.

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

<PAGE>

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.

                    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
    
    NONE
    
  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 14, 1997                  BY: /s/ William T. O'Donnell, Jr.
                                     ---------------------------------
                                     WILLIAM T. O'DONNELL, JR. 
                                     President and Chief Executive Officer
                                         

DATE:  May 14, 1997                  BY: /s/ Loree Thompson
                                     ---------------------------------
                                     LOREE THOMPSON
                                     Principal Financial & Accounting Officer



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