Sun Healthcare

     Irvine, Calif. (Feb. 27, 2007) - Sun Healthcare Group, Inc. (NASDAQ GM: SUNH) today announced results for the fourth quarter and year ended Dec. 31, 2006.

Consolidated Earnings
     For the quarter ended Dec. 31, 2006, Sun reported total net revenues of $268.3 million and net income of $20.5 million or $0.62 per fully-diluted share, based on 33.1 million weighted-average shares outstanding. For the comparable quarter ended Dec. 31, 2005, total net revenues were $216.5 million and net income was $11.7 million or $0.65 per fully-diluted share, based on 18.1 million weighted-average shares outstanding.
     From continuing operations for the quarter ended Dec. 31, 2006, Sun reported income of $10.6 million or $0.32 per fully-diluted share, as compared to income from continuing operations of $2.7 million or $0.15 per fully-diluted share for the same period in 2005.
     Comparing the quarter ended Dec. 31, 2006, to the same period in 2005, including the historical operating results for Peak Medical Corporation on a pro forma basis for the 2005 quarter and adjusting for charges and credits for releases of prior year insurance reserves and purchase accounting adjustments, Sun reported (see attached tables for 2005 pro forma results and such adjustments):

revenue increased $10.5 million, or 4.1 percent, to $268.3 million from $257.8 million;

EBITDAR increased $8.0 million, or 41.0 percent, to $27.4 million from $19.4 million;

EBITDAR margin for 2006 was 10.2 percent compared to 7.5 percent in 2005;

EBITDA increased $6.6 million, or 96.1 percent, to $13.5 million from $6.9 million;

EBITDA margin for 2006 was 5.0 percent compared to 2.7 percent in 2005;

pre-tax income increased $6.7 million to $5.9 million from a loss of $0.8 million; and

from continuing operations increased $9.3 million to $8.5 million from a loss of $0.8 million.
     For the year ended Dec. 31, 2006, Sun reported total net revenues of $1,045.6 million and net income of $29.6 million or $0.93 per fully-diluted share, based on 31.8 million weighted-average shares outstanding. For the comparable year ended Dec. 31, 2005, total net revenues were $765.8 million with net income of $24.8 million or $1.55 per fully-diluted share, based on 16.0 million weighted-average shares outstanding.
     From continuing operations for the year ended Dec. 31, 2006, Sun reported income of $17.2 million or $0.54 per fully-diluted share, as compared to a loss from continuing operations of $2.0 million or a loss of $0.12 per fully-diluted share, for the same period in 2005.
    Comparing the year ended Dec. 31, 2006, to the same period in 2005, including the historical operating results for Peak on a pro forma basis for 2005 and adjusting for charges and credits for releases of prior year insurance reserves, purchase accounting adjustments, gains on sales of assets and other non-operating adjustments, and in the accompanying tables, Sun reported:

revenue increased $54.7 million, or 5.5 percent, to $1,045.6 million from $990.9 million;

EBITDAR increased $14.2 million, or 17.0 percent, to $98.0 million from $83.8 million;

EBITDAR margin for 2006 was 9.4 percent compared to 8.5 percent in 2005;

EBITDA increased $11.1 million, or 34.0 percent, to $43.8 million from $32.7 million;

EBITDA margin for 2006 was 4.2 percent compared to 3.3 percent in 2005;

pre-tax income increased $10.7 million to $10.3 million from a loss of $0.4 million;

income from continuing operations increased $9.4 million to $9.8 million from $0.4 million;

net income increased $6.0 million, or 151.1 percent, to $9.9 million from $3.9 million; and

income from continuing operations per fully-diluted share increased $0.29 to $0.31 from $0.02.
"The company finished the year with a strong fourth quarter. For the full year, we have exceeded the expectations established with our guidance even after our upward revision of that guidance in our third-quarter earnings release," said Richard K. Matros, Sun’s chairman and chief executive officer. "The acquisition of Harborside Healthcare Corporation is proceeding as expected with an anticipated close in the next few months. Given the continued improvement in Sun’s operating performance and Harborside’s strong historical performance, we look forward to the opportunities presented by the new combined platform," Matros continued.

Inpatient Business
Comparing the quarter ended Dec. 31, 2006, to the same period in 2005, including the historical operating results for Peak on a pro forma basis for the 2005 quarter and adjusting for certain items as described above and in the accompanying tables, Sun reported:

revenue increased $9.6 million, or 4.4 percent, to $226.2 million from $216.6 million;

net segment EBITDAR increased $5.4 million, or 17.4 percent, to $36.4 million from $31.0 million;

net segment EBITDAR margin for 2006 was 16.1 percent compared to 14.3 percent in 2005;

net segment EBITDA increased $3.9 million, or 21.1 percent, to $22.7 million from $18.8 million;

net segment EBITDA margin for 2006 was 10.1 percent compared to 8.7 percent in 2005; and

net segment income increased $4.8 million, or 39.6 percent, to $17.1 million from $12.3 million.
The revenue gain of $9.6 million was primarily attributable to:

a 60 basis point improvement in Medicare patient mix going from 13.3 percent in fourth-quarter 2005 to 13.9 percent in fourth-quarter 2006, or $2.7 million in revenues;

a 6.9 percent increase in our LTC Part A Medicare rates from $335.57 in fourth- quarter 2005 to $358.76 in fourth-quarter 2006, or $3.4 million in revenues; and

an increase of $3.7 million in revenue for Medicaid and commercial insurance from fourth-quarter 2005 as compared to fourth-quarter 2006.
     "Our core inpatient business continues to show improvement in the margin primarily as a result of our initiatives to move up the acuity continuum. As our short-term rehabilitation units open in 2007, we expect to see this trend continue," said Matros.

2007 Guidance
     For 2007, excluding the pending acquisition of Harborside Healthcare Corporation, Sun expects that its total revenues will be approximately $1,100 million to $1,110 million. EBITDAR is expected to be approximately $110 million to $114 million and EBITDA is expected to be approximately $54 million to $58 million. Annual depreciation and amortization is expected to be approximately $17 million to $18 million. Annual net interest expense is expected to be approximately $10 million, which includes estimated annual interest income on short-term investments anticipated to be used in the acquisition of Harborside. Pre-tax earnings are expected to be approximately $28 million to $30 million. Assuming an effective income tax rate of approximately 40 percent and no impact of possible net operating loss carry-forwards, net income is expected to be approximately $16.5 million to $18 million ($0.38 per basic share to $0.42 per basic share). This guidance does not include certain assets that were reclassified as held for sale in the fourth quarter of 2006 and had revenues of $49.5 million and EBITDA of $4.7 million during 2006. This guidance also assumes, among other things, no additional acquisitions, a stable Medicaid reimbursement environment and no net changes in the Medicare reimbursement environment.
     Following the completion of the Harborside acquisition, Sun will update guidance to reflect Harborside’s anticipated contribution through year end as well as the impact of the financings associated with the transaction.

Conference Call
      Sun’s senior management will hold a conference call to discuss the Company’s 2006 operating results on Wednesday, Feb. 28, 2007, at 1 p.m. EST / 10 a.m. PST. To listen to the conference call, dial (877) 516-8526 and refer to Sun Healthcare Group. A recording of the call will be available from 4 p.m. EST on Feb. 28 until midnight EST on March 7, by calling (800) 642-1687 and using access code 8095156.

About Sun Healthcare Group, Inc.
      Sun Healthcare Group, Inc., with executive offices 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, hospice services through SolAmor Hospice and medical staffing through CareerStaff Unlimited, Inc.

     Statements made in this release that are not historical facts are "forward-looking" statements (as defined in the Private Securities Litigation Reform Act of 1995) that involve risks and uncertainties and are subject to change at any time. These forward-looking statements may include, but are not limited to, statements containing words such as "anticipate," "believe," "plan," "estimate," "expect," "hope," "intend," "may" and similar expressions. Factors that could cause actual results to differ are identified in the public filings made by the company with the Securities and Exchange Commission and include changes in Medicare and Medicaid reimbursements; potential liability for losses not covered by, or in excess of, our insurance; the effects of government regulations and investigations; our ability to generate cash flow sufficient to operate our business; our ability to complete the acquisition of Harborside Healthcare Corporation and integrate its operations; increasing labor costs and the shortage of qualified healthcare personnel; and our ability to receive increases in reimbursement rates from government payors to cover increased costs. More information on factors that could affect our business and financial results are included in our public filings made with the Securities and Exchange Commission, including our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, copies of which are available on Sun’s web site, www.sunh.com.
     The forward-looking statements involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond our control. We caution investors that any forward-looking statements made by Sun are not guarantees of future performance. We disclaim any obligation to update any such factors or to announce publicly the results of any revisions to any of the forward-looking statements to reflect future events or developments.
     EBITDA and EBITDAR as used in this press release, and EBITDAM and EBITDARM as used in the accompanying tables, which are non-GAAP financial measures, are each reconciled to net income (loss) in the accompanying tables. In addition, the adjustments to EBITDA, EBITDAR, pre-tax income and income from continuing operations discussed in this press release and shown in the accompanying tables are non-GAAP adjustments.
     Any documents filed by Sun with the SEC may be obtained free of charge at the SEC’s web site at www.sec.gov. In addition, investors and stockholders of Sun may obtain free copies of the documents filed with the SEC by contacting Sun’s investor relations department at (505) 468-2341 (TDD users, please call (505) 468-4458) or by sending a written request to Investor Relations, Sun Healthcare Group, Inc., 101 Sun Avenue N.E., Albuquerque, N.M. 87109. You may also read and copy any reports, statements and other information filed by Sun with the SEC at the SEC public reference room at Room 1580, 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at (800) SEC-0330 or visit the SEC’s web site for further information on its public reference room.

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Fourth Quarter 2006 Earnings Tables