Sun Healthcare

      Irvine, Calif. (Aug. 2, 2005) - Sun Healthcare Group, Inc. (NASDAQ: SUNH) today announced results for the second quarter ended June 30, 2005.

Earnings
     For the quarter ended June 30, 2005, Sun reported total net revenues of $214.5 million and net income of $6.9 million (net income of $0.45 per share on a fully-diluted basis), which included net income of $5.7 million on discontinued operations, compared with total net revenues of $204.8 million and net income of $7.3 million for the quarter ended June 30, 2004, which included a $4.0 million net loss on discontinued operations.
     The 2005 second quarter net income included a reduction of $12.0 million of excess reserves for general and professional liability insurance, offset by a $5.1 million increase in reserves for workers’ compensation insurance related to incidents in prior periods. The 2004 second quarter net income included a reduction of $3.0 million of excess reserves for general and professional liability and workers’ compensation insurance related to incidents in prior periods. The 2004 second quarter net income also included the forgiveness of $3.7 million of debt, a retroactive Medicaid rate increase of $1.0 million and $0.5 million of restructuring-related vendor discounts.
     "During our year-end 2004 earnings call, I announced our four-point agenda 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 via acquisition. We are seeing good progress in all of the initiatives for 2005. Since December 2003, our balance sheet liabilities related to general and professional liability exposures have improved by $30.8 million, which has positively impacted our equity," said Richard K. Matros, Sun’s chairman and chief executive officer. Matros continued, "Substantially all of our operating units have shown sequential quarter over quarter improvement that has resulted in consolidated improvement in revenues, EBITDAR, EBITDA, net segment income and G&A in 2005. Additionally, on a year over year basis, we are seeing top- and bottom-line improvement in our inpatient, staffing and home health operations and have stabilized and improved revenues in our rehabilitation operations."
     For the quarter ended June 30, 2005, Sun reported income from continuing operations of $1.3 million (net income of $0.08 per share on a fully-diluted basis), as compared to income from continuing operations of $11.3 million for the same period in 2004. The 2005 second quarter EBITDAR from continuing operations was $17.1 million in comparison with $24.6 million from continuing operations for the same period in 2004.
     For the six months ended June 30, 2005, Sun reported total net revenues of $421.7 million and net income of $5.8 million (net income of $0.37 per share on a fully-diluted basis), which included net income of $6.0 million on discontinued operations, compared with total net revenues of $409.4 million and a net loss of $3.1 million for the six months ended June 30, 2004, which included a net loss of $10.8 million on discontinued operations. For the six months ended June 30, 2005, Sun reported a net loss on continuing operations of $0.3 million as compared to net income on continuing operations of $7.7 million for the same period in 2004. EBITDAR from continuing operations for the six months ended June 30, 2005, was $30.0 million as compared to $34.9 million for the same period in 2004.

Inpatient Business
     Net revenues from inpatient services operations, which comprised 71 percent of Sun’s second quarter total net revenue, increased 4.1 percent to $152.2 million from $146.2 million for the same period in 2004. The revenue gain was primarily attributable to: (i) a 110 basis point improvement in Medicare patient mix to 14.2 percent from 13.1 percent of total occupancy, and (ii) higher per diem rates in all payor categories, partially offset by a decline in overall occupancy of 30 basis points to 89.9 percent from 90.2 percent. The segment EBITDAR decreased 18.3 percent to $22.8 million for the quarter ended June 30, 2005, from $27.9 million for the same period in 2004. Significant factors contributing to this decrease were the previously mentioned $3.7 million gain on extinguishment of debt, a revenue increase attributable to 2003 of $1.0 million resulting from implementation of North Carolina’s provider tax that was included in revenues for the second quarter of 2004 and a $1.1 million increase in employee health insurance expenses that occurred in 2005.
     "This marks the sixth consecutive quarter of year over year Medicare growth as a percent of revenues for SunBridge," said William Mathies, president of SunBridge Healthcare Corporation. "Our nursing facility teams have continued to make strides in developing their clinical competencies and converting those improved skills into new business."

Ancillary Business
     Net revenues from Sun’s ancillary business operations, comprised of SunDance Rehabilitation Corporation, CareerStaff Unlimited, Inc., SunPlus Home Health Services, Inc., and SunAlliance Healthcare Services, Inc., net of affiliated revenue, increased $3.9 million, or 6.7 percent, to $62.3 million for the quarter ended June 30, 2005, from $58.4 million for the same period in 2004. Segment EBITDAR for the ancillary operations for the quarter ended June 30, 2005, decreased $1.9 million, or 26.8 percent, over the same period in 2004, to $5.2 million from $7.1 million.
     "The majority of the increase in revenue is attributable to our three primary ancillary services operations of rehabilitation, medical staffing and home health services, and was due primarily to increased volume in existing contracts and new sales." Mr. Matros reported, "The EBITDAR decrease was primarily due to increases in wages and health insurance costs in our rehabilitation therapy services operations and strategic issues in our laboratory and radiology services operations."

Acquisition of Peak Medical Corporation
     Mr. Matros also mentioned that the previously announced acquisition of Peak Medical Corporation is on track for closing in the fourth quarter.
     "We are looking forward to completing this significant acquisition, as it is a critical component of the four-point agenda outlined to our shareholders earlier this year," said Matros. "We expect to mail our proxy statement to stockholders for this transaction in September, after our Board has determined a meeting date and we have finalized the pro forma financial information for the second quarter. The closing of the transaction will occur after our stockholders have approved it, we have received all necessary state regulatory approvals and other closing conditions have been met."

2005 Guidance
     Mr. Matros affirmed the previously provided 2005 guidance, stating, "We continue to be pleased with the improved performance in our operations and note that these results are consistent with the 2005 guidance that we provided in our March 2, 2005 earnings release."

Conference Call
     Sun’s senior management will hold a conference call to discuss the Company’s second quarter operating results on Wednesday, Aug. 3, 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 4 p.m. EDT on Aug. 3 until midnight EDT on Aug. 10 by calling (800) 642-1687 and using access code 7618815.

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.

         Statements made in this release that are not historical facts, including our estimates regarding financial performance in 2005, 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 integrate the operations of Peak Medical Corporation when that acquisition is completed; 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 at 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 us 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.
     THIS MATERIAL IS NOT A SUBSTITUTE FOR THE DEFINITIVE PROXY STATEMENT THAT SUN INTENDS TO FILE WITH THE SEC AND MAIL TO STOCKHOLDERS IN CONNECTION WITH THE PROPOSED ACQUISITION OF PEAK MEDICAL CORPORATION. BEFORE MAKING ANY VOTING DECISION WITH RESPECT TO THE PROPOSED TRANSACTION, INVESTORS AND STOCKHOLDERS OF SUN ARE URGED TO READ THE PROXY STATEMENT AND OTHER RELEVANT MATERIALS BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION, INCLUDING RISK FACTORS, ABOUT THE PROPOSED TRANSACTION.
     The proxy statement and other relevant materials, and any other 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 NW, Albuquerque, NM 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.
     Sun, certain of its directors and certain of its executive officers may be deemed to be participants in the solicitation of proxies from Sun stockholders in favor of the proposed transaction. Information concerning Sun’s directors and executive officers may be found in the documents filed by Sun with the SEC.