Sun Healthcare

      Irvine, Calif. (May 10, 2004) - (NASDAQ NM: SUNH) Sun Healthcare Group, Inc. today announced total net revenues of $211.5 million and a net loss of $10.4 million for the quarter ended March 31, 2004, compared with total net revenues of $198.3 million and a net loss of $13.3 million for the comparable quarter in 2003. Sun reported EBITDAR of $5.1 million for the first quarter of 2004, compared to EBITDAR of $10.4 million for the comparable quarter in 2003. The $5.3 million decrease is primarily the result of a $1.5 million benefit realized in 2003 in our rehabilitation therapy services segment related to the recovery of prior years’ bad debts, a $3.4 million increase in general professional liability and workers’ compensation insurance costs in the first quarter of 2004, and two charges booked in the first quarter of 2004. The first is a $3.3 million charge arising from a single laboratory operation’s billing system implementation problem in 2003. The second is an accrual of $1.9 million of expenses and reserves related to Sun’s ongoing defense of its employees against the previously disclosed charges brought against those employees by the California Attorney General with respect to alleged care omissions in a subsidiary’s Escondido, California nursing facility.
      "The operating results for the first quarter demonstrate an improvement in our operations excluding the impact of the items discussed above," said Richard K. Matros, Sun’s chairman and chief executive officer. "Even after taking into account the charges affecting first quarter results, we increased revenues by more than six percent and reduced the quarter’s net loss by more than 20 percent, as compared to the first quarter of 2003. Our improved operations compensated for the increased insurance costs and laboratory billing issue. While our insurance reserves continue to reflect the impact of our legacy claims experience, we are optimistic that we will see a moderation of these costs in the near term."

Operating Results
      Net revenues from the inpatient services operations, which comprised 70.7 percent of Sun’s total revenue from continuing operations for the quarter ended March 31, 2004, increased 7.6 percent from $139.0 million for the quarter ended March 31, 2003, to $149.6 million for the same period in 2004. The revenue gain primarily results from higher per diem rates in all payor categories and an increase in Medicare patients. EBITDAR for the inpatient services operations increased from $15.2 million for the quarter ended March 31, 2003, to $15.4 million for the same period in 2004. Labor, as a percent of revenue, decreased from 51.5 percent to 51.0 percent in spite of a 3.8 percent weighted average rate growth. These operating improvements were offset by a $3.3 million increase in general and professional liability and workers’ compensation costs and the additional $1.9 million of legal expense associated with the Escondido facility.
      Sun’s net revenues from its continuing ancillary business operations, comprised primarily of SunDance Rehabilitation Corporation, CareerStaff Unlimited and SunPlus Home Health Services, Inc., net of intersegment eliminations, increased from $59.2 million for the quarter ended March 31, 2003, to $61.9 million for the same period in 2004. EBITDAR for those operations decreased over the same period from $8.9 million to $1.2 million. The decrease was the result of multiple factors. The aforementioned $3.3 million charge to the laboratory operations combined with a reduction in that segment’s first quarter revenues of $1.7 million contributed to a $5.4 million decrease in EBITDAR quarter over quarter. In addition to the $1.5 million benefit realized in 2003 in the rehabilitation therapy services segment related to the recovery of prior years’ bad debts, the disruptions and costs associated with the contemplated sale of the major component of that segment also contributed to the quarter over quarter decrease in its results.

2004 Highlights
     Since January 1, 2004, Sun (i) completed a private placement of $56.2 million of its securities, raising net proceeds of approximately $52.3 million, (ii) listed its common stock on the NASDAQ National Market, (iii) divested four of its under-performing long-term care facilities, (iv) converted approximately $7.8 million of its long-term indebtedness into 760,000 shares of its common stock, (v) restructured $21.2 million of mortgage debt related to six facilities that became due in May 2004 as follows:  $14.5 million was refinanced, $3.0 million was paid off, and $3.7 million was forgiven, and (vi) entered into option agreements to purchase nine entities that own nine facilities that it currently leases and operates in New Hampshire.  As of May 4, 2004, Sun intends to divest five more facilities during 2004. Matros said, "With the successful completion of these milestone events, the management team is clearly focused on running the business in a normalized fashion for the first time, focusing on enhancing same store results as well as exploring opportunities to grow the company."

Earnings Guide for 2004
      For the year ended December 31, 2004, Sun expects that its total revenues will be approximately $840.0 million to $850.0 million, its EBITDAR will be approximately $50.0 million to $55.0 million, and its EBITDA will be approximately $8.0 million to $10.0 million. Sun also expects its net earnings will be approximately ($5.0) million to ($3.0) million. This guidance assumes, among other things, no acquisitions, a stable reimbursement environment and completion of the entire divestiture process by year-end. Weighted shares outstanding for the year are expected to be 14.5 million.

Conference Call
     Sun’s senior management will hold a conference call to discuss its first quarter operating results on Tuesday, May 11, at 1 p.m. EDT / 10 a.m. PDT. 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 3 p.m. EDT on May 11 until midnight EST on May 18 by calling (800) 642-1687 and using access code 7141209.

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 high-quality therapy through SunDance Rehabilitation Corporation, medical staffing through CareerStaff Unlimited, home care through SunPlus Home Health Services, Inc., and other ancillary services for the healthcare industry.