Irvine, Calif. (March 2, 2005) - Sun Healthcare Group, Inc. (NASDAQ: SUNH) today announced results for the fourth quarter and year ended Dec. 31, 2004.  

Earnings
      For the year ended Dec. 31, 2004, Sun reported income from continuing operations of $8.8 million (earnings per share of $0.61 on a fully-diluted basis) as compared to a loss from continuing operations of $30.0 million (loss per share of $2.98 on a fully-diluted basis) in 2003. For the year ended Dec. 31, 2004, Sun reported total net revenues of $820.1 million and a net loss of $18.6 million, which included a net loss on discontinued operations of $27.4 million resulting primarily from the sale of its California clinical and laboratory operations during the fourth quarter, the divestitures of six inpatient facilities during the year and residual costs associated with the sale of its pharmaceutical operations in July 2003, as compared with total net revenues of $785.6 million and a net income of $0.4 million for the year ended Dec. 31, 2003, which included a gain on discontinued operations of $30.4 million resulting primarily from the sale of its pharmaceutical services operations in July 2003. The 2004 EBITDAR from continuing operations was $69.5 million as compared to $47.0 million from continuing operations for the same period in 2003.  
      For the quarter ended Dec. 31, 2004, Sun reported income from continuing operations of $4.7 million as compared to a loss from continuing operations of $6.6 million for the same period in 2003. The 2004 fourth-quarter results from continuing operations were positively impacted by a $14.8 million net reduction in self-insurance reserves for general and professional liability and workers’ compensation related to prior years, offset by (i) $2.2 million of severance and compensation expenses and (ii) $1.0 million loss on asset impairment. The 2003 fourth-quarter results from continuing operations included (i) $2.8 million loss on asset impairment and (ii) $1.7 million of retention payments related to the 2003 restructuring initiative, offset by $2.8 million of property tax recoveries. For the quarter ended Dec. 31, 2004, Sun reported total net revenues of $206.3 million and a net loss of $4.4 million, which included a $9.2 million loss on discontinued operations, compared with total net revenues of $200.2 million and a net loss of $13.9 million for the three-month period ended Dec. 31, 2003, which included a $7.4 million loss on discontinued operations. The 2004 fourth-quarter EBITDAR from continuing operations was $21.5 million as compared to $14.0 million from continuing operations for the same period in 2003.

Insurance
      The net $14.8 million reduction in general and professional liability and workers’ compensation insurance reserves for continuing operations mentioned above included $15.4 million of general and professional liability release of reserves, of which $1.5 million related to the current year and $13.9 million to prior years, offset by $0.6 million of additional reserves for workers’ compensation insurance, all of which related to prior years.
      "We are very pleased with the improved performance in our continuing operations in 2004 versus 2003, which is indicative of the success of our restructuring efforts that we commenced in 2002," said Richard K. Matros, Sun’s chairman and chief executive officer. "We made tremendous progress in 2004," Matros continued, "including improvement in operating metrics and in our balance sheet relative to the general and professional liability legacy reserves, a substantial portion of which relates to discontinued operations. We believe we are now in position to focus on our continuing operations and growing the company."

Inpatient Business
      Net revenues from the inpatient services operations, which comprised 71.9 percent of Sun’s 2004 total net revenue from continuing operations, increased 7.0 percent to $589.9 million from $551.1 million for the same period in 2003. The revenue gain was primarily attributable to: (i) a 70 basis point improvement in overall facility occupancy to 90.8 percent from 90.1 percent, (ii) a 70 basis point improvement in Medicare patient mix to 12.9 percent from 12.2 percent of total occupancy, and (iii) higher per diem rates in all payor categories. The segment EBITDAR increased 44.5 percent to $92.5 million for the year ended Dec. 31, 2004, from $64.0 million for the year ended Dec. 31, 2003.

Ancillary Business
      Net revenues from Sun’s ancillary business operations, comprised primarily of SunDance Rehabilitation Corporation, CareerStaff Unlimited, Inc., SunPlus Home Health Services, Inc., and SunAlliance Healthcare Services, Inc., net of intersegment eliminations, decreased $4.3 million, or 1.8 percent, to $230.1 million for the year ended Dec. 31, 2004, from $234.4 million for the same period in 2003. The majority of this reduction in revenue was attributable to the SunDance rehabilitation therapy operations due to: (i) the restructuring in 2003 of our inpatient services operations’ portfolio and the reduction in affiliated revenue as a result of the divestiture of 127 skilled nursing facilities which were previously serviced by SunDance, and (ii) customer and employee erosion resulting from the disruption of the proposed sale of SunDance announced in late 2003 and terminated in early 2004. Segment EBITDAR for the ancillary operations for the year ended Dec. 31, 2004, decreased $5.6 million, or 20.8 percent, over the same period in 2003 to $21.3 million from $26.9 million. This decrease was primarily due to the aforementioned reduction in rehabilitation therapy service revenues.

2005 Guidance
      For 2005, Sun expects that its total revenues will be approximately $870.0 million to $880.0 million. Net income is expected to be approximately $11.0 million to $12.0 million. EBITDAR is expected to be approximately $55.0 million to $57.0 million. EBITDA is expected to be approximately $16.5 million to $17.5 million. This guidance assumes, among other things, no acquisitions, the receipt of up to $15.0 million in holdback from the sale of our pharmacy operations in 2003, a stable Medicaid reimbursement environment, no net changes in the Medicare reimbursement environment and the divestiture of the remaining three long-term care facilities by year-end.
      "Our four-point agenda is to continue focusing on (i) improvements in same store operations, (ii) identifying the potential for further infrastructure realignment, (iii) the continued progress in resolving our general and professional liability legacy claims, and (iv) growing the Company via acquisition," said Matros.

Conference Call
      Sun’s senior management will hold a conference call to discuss the Company’s fourth quarter and year-end operating results on Thursday, March 3, 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 March 3 until midnight EST on March 9 by calling (800) 642-1687 and using access code 3722915.

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., home care through SunPlus Home Health Services, Inc., and medical laboratory and mobile radiology services through SunAlliance Healthcare Services, Inc.