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     Irvine, Calif. (Oct. 31, 2007) - Sun Healthcare Group, Inc. (NASDAQ GM: SUNH) today announced results for the third quarter ended Sept. 30, 2007.

Consolidated and Consolidated Pro Forma Results
     Total net revenue for the quarter ended Sept. 30, 2007, was $439.6 million, up 74 percent compared to $252.8 million for the comparable period one year ago. Net income for the quarter ended Sept. 30, 2007, was $5.2 million, compared to a net loss of $1.2 million for the comparable 2006 period. Diluted earnings per share for the quarter ended Sept. 30, 2007, was $0.12, up significantly from the diluted loss per share of $0.04 for the comparable period one year ago. The pro forma information in the table below was prepared as if the acquisition of Harborside Healthcare Corporation, which closed in April 2007, had occurred on July 1, 2006. The information in the table also contains the normalizing adjustments described below.

     Normalized actual results for the quarter ended Sept. 30, 2007, include a pre-tax adjustment for $2.5 million of integration costs associated with the Harborside acquisition. Normalized actual results for the quarter ended Sept. 30, 2006, include pre-tax adjustments consisting of a $0.8 million credit to workers compensation expense as a result of the finalization of insurance reserves related to a prior period acquisition, $0.2 million of retroactive wage costs related to prior period rate increases in California, a $1.0 million charge related to the termination of a hospice management contract and a $1.0 million depreciation charge as a result of finalization of property valuations associated with a prior period acquisition. Normalized pro forma results for the quarter ended Sept. 30, 2006 include the four 2006 adjustments referred to above and also include adjustments for $2.4 million of Harborside merger costs and $0.1 million of costs related to Harborside investor fees.
     On a normalized pro forma basis, comparing the quarter ended Sept. 30, 2007, to the same period in 2006:
revenue increased $22.8 million, or 5.5 percent;
EBITDAR increased $8.4 million, or 18.3 percent;
EBITDAR margin improved 130 basis points to 12.3 percent;
EBITDA increased $9.6 million, or 37.2 percent;
EBITDA margin improved 180 basis points to 8.0 percent;
income from continuing operations increased $0.2 million, or 3.1 percent; and
net income increased $0.9 million, or 16.0 percent, increasing diluted earnings per share by $0.02.

     Commenting on the results, Richard K. Matros, chairman and chief executive officer of Sun, stated, "We continue to be pleased with the company’s performance. The integration of the Harborside acquisition proceeds as expected with $2.3 million in synergies for the quarter and $2.5 million in integration costs. Our margin expansion on a pro forma normalized basis is material at 130 basis points improvement in EBITDAR margin and 180 basis point improvement in EBITDA margin. The execution of the strategy of our inpatient segment to admit higher acuity patients continues to show the expected results as evidenced by our rate growth as well as in other metrics. It is important to note that the quality of care provided to patients of our operating subsidiaries continues to strengthen as supported by both internal and external measures."
     Total net revenue for the nine-month period ended Sept. 30, 2007, was $1,136.8 million, up 52 percent compared to $746.5 million for the comparable 2006 period. Net income for the nine-month period ended Sept. 30, 200,7 was $22.2 million compared to net income of $7.3 million for the comparable 2006 period, resulting in a 122-percent increase in diluted earnings per share to $0.51 from $0.23 one year ago. The pro forma information in the table below was prepared as if the Harborside acquisition had occurred on Jan. 1, 2006. The information in the table also contains the normalizing adjustments described below.

     Normalized actual results for the first nine months of 2007 include pre-tax adjustments for $3.5 million of integration costs associated with the Harborside acquisition, $9.0 million of income from adjustments of prior period self-insurance reserves ($3.0 million of which were related to discontinued operations) and a $0.6 million charge related to the write-off of deferred financing costs associated with a credit facility which was refinanced in April 2007. Normalized actual results for the first nine months of 2006 include pre-tax adjustments consisting of $8.0 million of income from adjustments of prior period self-insurance reserves ($2.6 million of which were related to discontinued operations), a $0.8 million credit to workers’ compensation expense as a result of the finalization of insurance reserves related to a prior period acquisition, $0.2 million of retroactive wage costs related to prior period rate increases in California, a $1.0 million charge related to the termination of a hospice management contract and a $1.0 million charge related to additional depreciation associated with a prior period acquisition.  
     Normalized pro forma results for the first nine months of 2007 include the three 2007 adjustments referred to above and also include a $5.9 million charge for losses on prior period Harborside accounts receivable and $0.5 million of costs related to Harborside investor fees and merger costs. Normalized pro forma results for the first nine months of 2006 include the four 2006 adjustments referred to above and also include adjustments of $2.4 million for Harborside merger costs and $0.4 million for costs related to Harborside investor fees.
     On a normalized pro forma basis, comparing the nine-month period ended Sept. 30, 2007, to the same period in 2006:
revenue increased $72.9 million, or 5.9 percent;
EBITDAR increased $26.5 million, or 20.7 percent;
EBITDAR margin improved 140 basis points to 11.9 percent;
EBITDA increased $27.5 million, or 41.1 percent;
EBITDA margin improved 180 basis points to 7.3 percent;
income from continuing operations increased $7.7 million or 57.7 percent, increasing diluted earnings per share from continuing operations by $0.18; and
net income increased $7.9 million, or 58.8 percent, increasing diluted earnings per share by $0.18.

Inpatient Business
     For its core inpatient business, on a normalized pro-forma basis (assuming the Harborside acquisition occurred at the beginning of the respective periods) comparing the quarter and nine months ended Sept. 30, 2007 to the same periods in 2006:

Quarter ended Sept. 30, 2007 (pro forma):
revenue increased $19.6 million, or 5.3 percent, to $391.8 million from $372.2 million;
net segment EBITDAR increased $4.5 million, or 7.5 percent, to $64.0 million from $59.6 million;
net segment EBITDAR margin for 2007 was 16.3 percent compared to 16.0 percent in 2006;
net segment EBITDA increased $5.7 million, or 14.3 percent, to $45.5 million from $39.8 million;
net segment EBITDA margin for 2007 was 11.6 percent compared to 10.7 percent in 2006;
net segment income increased $7.0 million, or 26.7 percent, to $33.4 million from $26.4 million;
rehabilitation RUGS utilization increased 200 basis points to 83.0 percent as a percent of total Medicare days; and
Rehabilitation Extensive Service Days as a percent of total Medicare days increased 300 basis points to 38.0 percent.

     The revenue gain of $19.6 million in the quarter was primarily attributable to:
a $5.9 million increase in Medicare revenue, $4.2 million of which was contributed by our skilled nursing centers from rate increases which were partially offset by customer base declines, $1.1 million of increased revenue from our hospice operations due to a higher customer base and $0.6 million of increased part B revenue;
a $4.6 million increase in managed care/commercial insurance revenue due principally to a higher customer base;
a $3.4 million increase in Medicaid revenue resulting from a $7.2 million rate improvement partially offset by a $3.8 million impact from a decrease in customer base; and
a $5.7 million increase in private revenue due principally to improved rates.

Nine months ended Sept. 30, 2007 (pro forma):
revenue increased $62.7 million, or 5.7 percent, to $1,156.3 million from $1,093.6 million;
net segment EBITDAR increased $17.7 million, or 10.3 percent, to $189.8 million from $172.2 million;
net segment EBITDAR margin for 2007 was 16.4 percent compared to 15.7 percent in 2006;
net segment EBITDA increased $18.6 million, or 16.7 percent, to $130.4 million from $111.8 million;
net segment EBITDA margin for 2007 was 11.3 percent compared to 10.2 percent in 2006; and
net segment income increased $21.1 million, or 29.7 percent, to $92.2 million from $71.1 million.

     Matros further stated, "The Company’s inpatient segment had numerous highlights this quarter. Medicare part A rates increased 7.3 percent. Skilled mix as a percent of revenue increased 110 basis points. Our Rehab Recovery Suites^SM continue to reflect a well executed strategy with increases in Medicare occupancy, RUGS extensive service and rehab days, as well as managed care/insurance days. Labor management was very strong with labor as a percent of revenue running 50 basis points lower than the third quarter of 2006. While we ran lighter than we would have liked on overall Medicare occupancy on a consolidated basis, we have rebounded nicely in October, with a 30 basis points increase in overall occupancy and a 40 basis points increase in Medicare occupancy over the third-quarter averages."

Ancillary Businesses
     For its ancillary businesses, on a pro-forma basis (assuming the Harborside acquisition occurred at the beginning of the respective periods) comparing the quarter and nine months ended Sept. 30, 2007, to the same periods in 2006:
for the quarter, revenue increased $5.9 million, or 10.8 percent, to $60.2 million from $54.3 million;
for the quarter, EBITDA increased $0.8 million, or 22.9 percent, to $4.3 million from $3.5 million;
for the nine month period, revenue increased $16.2 million, or 10.0 percent, to $178.0 million from $161.8 million; and
for the nine month period, EBITDA increased $5.1 million, or 72.5 percent, to $12.1 million from $7.0 million.

Guidance Update
     As a result of the strength of our operating results, we have raised our 2007 guidance as shown below, after taking into account the reclassification of three of our centers now held for sale as discontinued operations. The table below also shows the impact of the adjustment resulting from this reclassification to discontinued operations on our 2007 guidance announced in May. Our updated guidance assumes no changes in current reimbursement rates through the end of 2007.

Conference Call
      Sun’s senior management will hold a conference call to discuss the Company’s 2007 third-quarter operating results on Thursday, Nov. 1, 2007, at 1 p.m. eastern / 10 a.m. pacific. 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. eastern on Nov. 1, 2007, until midnight eastern on Nov. 8, 2007, by calling (800) 642-1687 and using access code 19457722.

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.