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     Irvine, Calif. (Aug. 6, 2008) - Sun Healthcare Group, Inc. (NASDAQ GS: SUNH) today announced results for the second quarter ended June 30, 2008.

Consolidated Results
     Total net revenue for the quarter ended June 30, 2008, was $454.2 million, up 5.6 percent compared to $430.0 million for the same period one year ago. On a normalized basis, income from continuing operations for the quarter ended June 30, 2008, was $11.1 million, up 44.2 percent compared to $7.7 million of normalized income from continuing operations for the same period one year ago. Normalized diluted earnings per share from continuing operations for the quarter ended June 30, 2008, was $0.25 compared to $0.18 for the same period one year ago.



     Normalized results for the quarter ended June 30, 2008, include pre-tax adjustments for $3.0 million of income from adjustments of prior period self-insurance reserves ($0.4 million of which were related to discontinued operations). Normalized results for the quarter ended June 30, 2007, include pre-tax adjustments for $9.0 million of income from adjustments of prior period self-insurance reserves ($3.0 million of which were related to discontinued operations), a $0.9 million charge related to integration costs associated with the acquisition of Harborside Healthcare Corporation ("Harborside") and a $0.6 million charge associated with the refinancing of debt agreements.
     On a normalized basis, comparing the quarter ended June 30, 2008, to the same period in 2007:
revenue increased $24.2 million, or 5.6 percent;
EBITDAR increased $7.0 million, or 13.0 percent;
EBITDAR margin improved 90 basis points to 13.4 percent;
EBITDA increased $9.1 million, or 27.6 percent;
EBITDA margin improved 160 basis points to 9.3 percent; and
income from continuing operations increased $3.4 million, or 44.2 percent.
    Commenting on the results, Richard K. Matros, chairman and chief executive officer of Sun, stated, "We continue to generate strong operating results and are achieving our goals regarding improving same store margins. Our second quarter produced our highest margins to date, and our margin growth continues to be one of the strongest in the industry. Our positive operating results were somewhat tempered by the severe flood damage to our center in Terre Haute, Indiana. I am very proud of how our employees quickly responded to this natural disaster to ensure a safe evacuation of all residents and employees from the center in a responsible and caring manner."
     As a result of the flood damage, operating results for the Terre Haute center have been reclassified to discontinued operations for all periods presented, and a related $1.8 million pre-tax impairment charge was recorded in the quarter. In addition, during the quarter a lease of a Tennessee nursing center was not renewed. Operating results for this center have also been reclassified to discontinued operations for all periods presented. The combined quarterly impact of the reclassification of both the Terre Haute center and the Tennessee center on the previously reported 2007 second quarter was a $4.6 million decrease in revenue, a $0.8 million decrease in EBITDAR and a $0.7 million decrease in EBITDA.  
     On July 1, 2008, Sun received $9.5 million in cash proceeds from the sale of two stand-alone hospitals. The sale was recorded in the second quarter and resulted in a pre-tax loss of $2.7 million to discontinued operations.
        Sun realized $3.2 million in synergies in the second quarter from the integration of Harborside’s operations. To date, these synergies have aggregated $14.1 million. Management expects to complete the 2008 year by achieving synergies closer to its high-end estimate of $15.0 million.

Inpatient Business
     For its core inpatient business, on a normalized basis comparing the quarter ended June 30, 2008, to the same period in 2007:

Quarter ended June 30, 2008:
revenue increased $21.8 million, or 5.7 percent, to $402.9 million from $381.1 million;
net segment EBITDAR increased $5.9 million, or 9.1 percent, to $71.3 million from $65.4 million;
net segment EBITDAR margin for 2008 was 17.7 percent compared to 17.2 percent in 2007;
net segment EBITDA increased $8.1 million, or 18.1 percent, to $52.9 million from $44.8 million;
net segment EBITDA margin for 2008 was 13.1 percent compared to 11.8 percent in 2007;
net segment income increased $7.2 million, or 21.2 percent, to $40.9 million from $33.7 million;
rehabilitation RUGS utilization increased 180 basis points to 84.2 percent as a percent of total Medicare days; and
Rehabilitation Extensive Service (REX) days as a percent of total Medicare days increased 190 basis points to 39.3 percent.
    The revenue gain of $21.8 million in the quarter was primarily attributed to an:
$11.2 million increase in Medicare revenue due principally to Medicare part A rate growth of 8.2 percent, customer base growth, and part B volume growth;
$8.4 million increase in managed care/commercial insurance revenue due principally to an increased customer base;
$1.3 million increase in Medicaid revenue resulting from rate improvement of $7.5 million or 4.3 percent partially offset by a $6.2 million impact from a decrease in customer base; and
$0.9 million increase in private revenue due principally to improved rates.
     Matros also stated, "I am pleased with the shift in acuity we continue to experience in our skilled nursing beds.  Our skilled mix at quarter end was 20.5 percent, our highest to date. Skilled mix growth and Rehab Recovery Suites^TM continue to be our primary growth drivers. Compared with the same quarter prior year, our overall dependency on Medicaid declined by 220 basis points to 44.8 percent, our lowest percentage of Medicaid revenues reported to date."

Ancillary Businesses
     For its rehabilitation and staffing services ancillary businesses, comparing the quarter ended June 30, 2008, to the same period in 2007:
revenue increased $6.2 million, or 10.2 percent, to $66.5 million from $60.3 million;
EBITDA increased $0.7 million, or 14.5 percent, to $5.3 million from $4.6 million; and
EBITDA margin for 2008 was 8.0 percent, up 30 basis points compared to a margin of 7.7 percent in 2007.

Conference Call
      Sun’s senior management will hold a conference call to discuss the Company’s 2008 second-quarter operating results on Thursday, Aug. 7, 2008, at 10 a.m. Pacific / 1 p.m. Eastern. To listen to the conference call, dial (888) 656-7420 and refer to Sun Healthcare Group. A recording of the call will be available from 4 p.m. Eastern on Aug. 7, 2008, until midnight Eastern on Aug. 14, 2008, by calling (888) 203-1112 and using access code 6346558.

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 centers 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.