Sun Healthcare

Irvine, Calif. (Oct. 29, 2008) - Sun Healthcare Group, Inc. (NASDAQ GS: SUNH) today announced results for the third quarter ended Sept. 30, 2008.

Consolidated Results
Total net revenue for the quarter ended Sept. 30, 2008, was $456.7 million, up 5.6 percent compared to $432.6 million for the same period one year ago. On a normalized basis, income from continuing operations for the quarter ended Sept. 30, 2008, was $9.4 million, up 45.3 percent compared to $6.5 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 Sept. 30, 2008, was $0.21 compared to $0.15 for the same period one year ago.

     There were no normalizing adjustments for the quarter ended Sept. 30, 2008. Normalized results for the quarter ended Sept. 30, 2007, include a pre-tax adjustment for $2.5 million of integration costs associated with the acquisition of Harborside Healthcare Corporation ("Harborside").
     On a normalized basis, comparing the quarter ended Sept. 30, 2008, to the same period in 2007:
revenue increased $24.1 million, or 5.6 percent;
EBITDAR increased $4.2 million, or 7.8 percent;
EBITDAR margin improved 30 basis points to 12.6 percent;
EBITDA increased $4.2 million, or 12.0 percent;
EBITDA margin improved 50 basis points to 8.5 percent; and
income from continuing operations increased $2.9 million, or 45.3 percent.
    Commenting on the results, Richard K. Matros, chairman and chief executive officer of Sun, stated, "Although margins were not where we would like them to be as a result of the impact of current economic conditions on revenues, we were pleased with our skilled mix growth, which was stronger than any quarter prior to 2008. Even in a difficult environment, we have seen an affirmation of our strategy." In addition, Matros said, "The company is reaffirming its recent upwardly revised 2008 guidance."
     Sun realized $0.8 million in synergies in the third quarter from the integration of Harborside’s operations. To date, these synergies have aggregated $14.8 million, in line with the high end of management’s original estimate of $15.0 million.

Inpatient Business
     For the company’s core inpatient business, on a normalized basis comparing the quarter ended Sept. 30, 2008, to the same period in 2007:
Quarter ended Sept. 30, 2008:
revenue increased $19.9 million, or 5.2 percent, to $404.7 million from $384.8 million;
net segment EBITDAR increased $3.3 million, or 5.2 percent, to $66.5 million from $63.2 million;
net segment EBITDAR margin was 16.4 percent, consistent with the same period in 2007;
net segment EBITDA increased $3.4 million, or 7.6 percent, to $48.4 million from $45.0 million;
net segment EBITDA margin increased 30 basis points to 12.0 percent from 11.7 percent;
net segment income increased $2.8 million, or 8.6 percent, to $35.8 million from $33.0 million;
rehabilitation RUGS utilization increased 230 basis points to 85.7 percent as a percent of total Medicare days; and
Rehabilitation Extensive Service (REX) days as a percent of total Medicare days was 38.5 percent, representing a slight decrease of 10 basis points from the same period in 2007.
    The revenue gain of $19.9 million in the quarter was primarily attributed to a:
$19.5 million growth in skilled mix that included a $14.2 million increase in Medicare revenue resulting from Medicare part A rate growth of 7.9 percent, customer base growth, and part B volume growth coupled with a $5.3 million increase in managed care/commercial insurance revenue due principally to an increased customer base;
$0.2 million increase in Medicaid revenue resulting from a rate improvement of $4.8 million or 2.7 percent partially offset by a $4.6 million impact from a decrease in customer base; and
$0.2 million increase in private and other revenue resulting from $2.3 million or 2.6 percent improvement in our private rates and other revenue partially offset by a $2.1 million impact from a decrease in customer base.
     Matros further stated, "Sun’s primary growth drivers continue to be our ability to grow skilled mix coupled with the expansion of our Rehab Recovery Suites^TM. We have successfully managed our acuity shifts as evidenced by our skilled mix, which was up 120 basis points over the same quarter prior year to 19.3 percent at quarter end. In addition, Medicaid revenues dropped 240 basis points to 45.6 percent yielding a corresponding increase in quality mix. That said, our RUGS utilization in the top nine RUGS categories was not as high as anticipated due to what appears to be a decrease in elective surgeries, presumably a result of the economic downturn. Our Medicaid rates, while close to where we anticipated at 2.7 percent growth, are nevertheless lower than the 4.5 percent growth we enjoyed at this time last year. Those two factors, compounded by lighter-than-expected occupancy, were the primary contributors to lower-than-expected margin growth."

Ancillary Businesses
     For the company’s rehabilitation and staffing services businesses, comparing the quarter ended Sept. 30, 2008, to the same period in 2007:
revenue increased $8.2 million, or 13.6 percent, to $68.4 million from $60.2 million;
EBITDA increased $0.3 million, or 7.0 percent, to $4.6 million from $4.3 million; and
EBITDA margin decreased 40 basis points to 6.7 percent from 7.1 percent.

Conference Call
      Sun’s senior management will hold a conference call to discuss the Company’s 2008 third-quarter operating results on Thursday, Oct. 30, 2008, at 10 a.m. Pacific / 1 p.m. Eastern. To listen to the conference call, dial (877) 723-9518 and refer to Sun Healthcare Group. A recording of the call will be available from 4 p.m. Eastern on Oct. 30, 2008, until midnight Eastern on Nov. 6, 2008, by calling (888) 203-1112 and using access code 8354569.

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.

     Statements made in this release that are not historical facts 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; our ability to maintain the occupancy rates and payor mix at our long-term care centers; potential liability for losses not covered by, or in excess of, our insurance; the effects of government regulations and investigations; the significant amount of our indebtedness, covenants in our debt agreements that may restrict our activities and our ability to incur more indebtedness; increasing labor costs and the shortage of qualified healthcare personnel; the impact of current economic conditions on our liquidity and results of operations; 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 Forms 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 Sun 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.
     EBITDA and EBITDAR as used in this press release, and EBITDAM and EBITDARM as used in the accompanying tables, which are non-GAAP financial measures, are each reconciled to net income (loss) in the accompanying tables. In addition, the normalizing adjustments to EBITDA, EBITDAR, pre-tax income and income from continuing operations discussed in this press release and shown in the accompanying tables are non-GAAP adjustments.
     Any documents filed by Sun with the SEC may be obtained free of charge at the SEC’s web site. 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 N.E., Albuquerque, N.M. 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.