Irvine, Calif. (Feb. 2, 2006): Sun Healthcare Group, Inc. (NASDAQ NM: SUNH) addressed the Deficit Reduction Act passed by the House of Representatives on February 1, 2006. Pursuant to the Act, the Medicare home health rates were frozen effective as of January 1, 2006, thereby eliminating the previously announced 2.8 percent increase in rates. Richard K. Matros, Sun's chairman and chief executive officer explained, "The impact to SunPlus Home Health Services, Sun's home health subsidiary, is expected to be $0.9 million in revenue for calendar year 2006, an amount the Company views as immaterial and expects to mitigate through ongoing strategic initiatives in that business segment."
     Matros added, "SunDance Rehabilitation Corporation, Sun's contract rehabilitation business, could also be impacted by the Deficit Reduction Act. Although the therapy cap, under existing law, went into effect at the beginning of the year, the Act provides for an exception process. The Centers for Medicare and Medicaid Services (CMS) is diligently working on regulations to implement such a process that is in the best interest of the beneficiaries. Management cannot assess, at this point, to what extent, if any, the exception process will negate the impact of the therapy cap since that process has not yet been confirmed. Management believes there are operational and structural initiatives that the Company can execute to mitigate any potential negative ramifications," continued Matros.
     Mr. Matros also noted that the integration of Sun's recent acquisition of Peak Medical Corporation is proceeding as expected.
     The Company will issue guidance for 2006 as soon as practical after taking into consideration the issues discussed above.

About Sun Healthcare Group, Inc.
     Sun Healthcare Group, Inc., with executive offices located in Irvine, California, owns SunBridge Healthcare Corporation and other affiliated companies that operate long-term and postacute care facilities in many states. In addition, the Sun Healthcare Group family of companies provides therapy through SunDance Rehabilitation Corporation, medical staffing through CareerStaff Unlimited, Inc. and home care through SunPlus Home Health Services, Inc.