Sun Healthcare

      Irvine, Calif. (Oct. 31, 2005) - Sun Healthcare Group, Inc. (NASDAQ: SUNH) today announced results for the third quarter ended Sept. 30, 2005.

Earnings
      For the quarter ended Sept. 30, 2005, Sun reported total net revenues of $216.3 million and net income of $7.3 million (net income of $0.48 per fully-diluted share), which included income of $8.3 million on discontinued operations. For the comparable quarter ended Sept. 30, 2004, total net revenues were $200.9 million with a net loss of $11.1 million (a net loss of $0.72 per fully-diluted share), which included a $7.8 million loss on discontinued operations. Net revenues for the quarter ended Sept. 30, 2005, increased $15.4 million, or 7.7 percent, as compared to net revenues for the quarter ended Sept. 30, 2004.
      For the quarter ended Sept. 30, 2005, Sun reported a loss from continuing operations of $0.9 million (a loss of $0.06 per fully-diluted share), as compared to a loss from continuing operations of $3.2 million (a loss of $0.21 per fully-diluted share), for the same period in 2004. The 2005 third quarter EBITDAR from continuing operations was $14.4 million as compared to $13.5 million from continuing operations for the same period in 2004, an improvement of $0.9 million, or 6.7 percent. EBITDA from continuing operations for the third quarter of 2005 was $4.5 million as compared to $3.9 million for the same period in 2004, an improvement of $0.6 million, or 15.4 percent.
      "The current growth reflects well on the execution of the Company’s initiatives while at the same time preparing for the close of the acquisition of Peak Medical Corporation, the Company’s first meaningful acquisition since its reorganization," said Richard K. Matros, Sun’s chairman and chief executive officer. "The Company has established a strong platform for continued growth," Matros continued.
      For the nine months ended Sept. 30, 2005, Sun reported total net revenues of $636.2 million and net income of $13.1 million (net income of $0.85 per fully-diluted share), which included income of $13.8 million on discontinued operations, compared with total net revenues of $608.7 million and a net loss of $14.2 million (a net loss of $1.00 per fully-diluted share), for the nine months ended Sept. 30, 2004, which included a loss of $18.6 million on discontinued operations. Net revenues for the nine months ended Sept. 30, 2005, increased $27.5 million or 4.5 percent as compared to the nine months ended Sept. 30, 2004.
      For the nine months ended Sept. 30, 2005, Sun reported a loss from continuing operations of $0.7 million (a loss of $0.05 per fully-diluted share),  as compared to income from continuing operations of $4.4 million (income of $0.31 per fully-diluted share), for the same period in 2004. EBITDAR from continuing operations for the nine months ended Sept. 30, 2005, decreased $3.5 million, or 7.2 percent, to $44.8 million from to $48.3 million for the same period in 2004, and EBITDA from continuing operations for the nine months ended Sept. 30, 2005, decreased $3.4 million, or 18.2 percent, to $15.3 million from $18.7 million for the same period in 2004. The 2004 net income, EBITDAR and EBITDA from continuing operations included the forgiveness of $3.7 million of debt related to the refinancing of six inpatient facility mortgages, $0.5 million of restructuring-related vendor discounts, and other items discussed in previous quarters such as general and professional, workers’ compensation and health insurances.

Inpatient Business
      Net revenues from inpatient services operations, which comprised 71.0 percent of Sun’s third quarter total net revenue, increased 5.4 percent to $153.5 million for the third quarter of 2005 from $145.7 million for the same period in 2004. The revenue gain was primarily attributable to: (i) an 80 basis point improvement, or $3.4 million improvement, in Medicare patient mix, to 13.3 percent from 12.5 percent of total occupancy; (ii) a $3.6 million increase in Medicaid revenues due to higher rates, including $1.2 million for increased California Medicaid rates; and (iii) an increase of $1.0 million in commercial and private insurance rates. Net segment income increased $4.3 million, or 107.5 percent, to $8.3 million for the quarter from $4.0 million for the comparable quarter in the prior year. Net segment EBITDAR increased $3.7 million, or 21.8 percent, to $20.7 million for the quarter ended Sept. 30, 2005, from $17.0 million for the same period in 2004, and net segment EBITDA increased $3.4 million, or 41.5 percent, to $11.6 million for the quarter ended Sept. 30, 2005, from $8.2 million for the same period in 2004.

Ancillary Business
      Net revenues from Sun’s ancillary business operations, which included SunDance Rehabilitation Corporation, CareerStaff Unlimited, Inc., and SunPlus Home Health Services, Inc., net of affiliated revenues, increased $7.6 million, or 13.8 percent, to $62.8 million for the quarter ended Sept. 30, 2005, from $55.2 million for the same period in 2004. Net segment income decreased $0.4 million, or 10.8 percent, to $3.3 million for the quarter from $3.7 million for the comparable quarter in the prior year. Net segment EBITDAR for the ancillary operations for the quarter ended Sept. 30, 2005, decreased $0.2 million, or 4.2 percent, over the same period in 2004, to $4.6 million from $4.8 million, and net segment EBITDA decreased $0.2 million, or 5.0 percent, to $3.8 million for the quarter ended Sept. 30, 2005, from $4.0 million for the same period in 2004.
      "Our staffing segment, CareerStaff, continues to excel with 38.8 percent revenue growth and 101.1 percent EBITDA growth. Revenues of SunDance, our rehabilitation therapy services operations, continue to improve, growing almost 10 percent year over year," Mr. Matros reported. "SunPlus, our home care and home health services operations, replaced senior management during the quarter and, as a result, we expect to see organic growth as we move into 2006."

Acquisition of Peak Medical Corporation
      Sun announced that its stockholders approved the acquisition of Peak Medical Corporation at the special meeting of stockholders held on October 31, 2005. "The closing of the transaction will occur after we have received all necessary state regulatory approvals and other closing conditions have been met," said Matros.

Conference Call
      Sun’s senior management will hold a conference call to discuss the Company’s third-quarter operating results on Tuesday, Nov. 1, 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 Nov. 1 until midnight EST on Nov. 8 by calling (800) 642-1687 and using access code 1186053.

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.

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      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 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 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.
      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 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.

Third Quarter 2005 Earnings Tables