Press Releases

GENESIS HEALTHCARE CORPORATION REPORTS FIRST QUARTER FISCAL 2005 RESULTS

Kennett Square, PA -- 02/01/2005 --

• $0.52 Earnings Per Diluted Share from Continuing Operations
• $24.5 Million of Operating Cash Flow Generated
• PA Provider Assessment Approved, But Not Yet Reflected in Results

Genesis HealthCare Corporation ("GHC") (NASDAQ:GHCI) today announced income from continuing operations of $10.7 million, or $0.52 per diluted share, and net income of $10.8 million, or $0.53 per diluted share, for the quarter ended December 31, 2004, up from pro forma income from continuing operations of $6.4 million, or $0.32 per diluted share, and pro forma net income of $4.8 million, or $0.24 per diluted share, in the comparable period in the prior year. Pro forma results in the prior year quarter assume the December 1, 2003 spin-off of GHC from NeighborCare, Inc. occurred on October 1, 2003. (See attached pro forma financial information on page 9).

Revenue for the quarter ended December 31, 2004 grew 8.9% to $402.4 million from $369.4 million in the comparable period in the prior year.

EBITDA for the quarter ended December 31, 2004 grew 17.4% to $34.5 million, up from $29.4 million of EBITDA for the comparable period in the prior year. (See attached reconciliation on page 5). EBITDA in the quarter ended December 31, 2004 was reduced by $0.5 million, or $0.02 per diluted share, for charges related to the early extinguishment of debt. EBITDA in the quarter ended December 31, 2003 was reduced by $0.2 million, or $0.01 per diluted share, also for charges related to the early extinguishment of debt.

The Pennsylvania provider tax assessment was not approved until January 2005 and is still subject to a public comment period, and accordingly, the benefit associated with the assessment was not included in the results for the quarter ended December 31, 2004 . The net benefit will be recorded when final implementation instructions are received from the Commonwealth, which is expected to occur in the quarter ended March 31, 2005 . The provider tax assessment and the associated rate increase are retroactive to July 1, 2003 .

“We have been working closely with Pennsylvania state officials for more than a year to ensure that seniors in the Commonwealth have access to quality care and that providers are adequately reimbursed for their services,” stated George V. Hager, Jr., Chairman and CEO. “We are encouraged by the passage of the assessment, which signifies the Commonwealth’s and Federal government’s continued commitment to seniors.”

“We posted another fundamentally strong quarter, particularly in our inpatient services business, as earnings growth benefited from higher than expected Medicaid rates, continued reduction in nurse agency costs, and improved collections of older accounts receivable, resulting in lower bad debt expense,” continued Hager. “Furthermore, our rehabilitation services segment demonstrated improved operating results compared to our most recent quarter, but operating margins continued to be pressured by the high demand for therapists.”

Inpatient Services

Inpatient services net revenue of $357.5 million in the quarter ended December 31, 2004 grew 8.1%, or $26.7 million, from $330.9 million in the comparable period in the prior year. Scheduled rate increases and higher patient acuity, offset by slightly lower occupancy and lower non-Medicaid patient mix, contributed $20.3 million to the revenue growth. The remaining $6.4 million ofrevenue growth in the quarter ended December 31, 2004 was attributed to the consolidation of two inpatient centers previously managed by GHC, which were consolidated in the second quarter of fiscal 2004, and are therefore not included in the revenue results for the quarter ended December 31, 2003 .

Inpatient services EBITDA of $50.1 million in the quarter ended December 31, 2004 grew 20.8%, or $8.6 million, from $41.5 million in the comparable period in the prior year. The consolidation of the two previously described inpatient centers contributed $1.3 million of EBITDA growth, while improved collections of older accounts receivable resulted in $1.4 million in reduced bad debt expense.

In addition, the Company’s operational improvement plan continues to benefit the inpatient services segment. Agency labor costs decreased this quarter by 35.2% on a per patient day basis versus the comparable period in the prior year, primarily due to a reduction in professional (RN/LPN) agency utilization. This improvement was achieved while continuing a commitment to high quality care and without a significant change in overall nursing hours per patient day.

Rehabilitation Services

Rehabilitation services revenues grew to $52.0 million in the quarter ended December 31, 2004 versus $45.6 million in the comparable period in the prior year. EBITDA declined slightly to $2.5 million in the quarter ended December 31, 2004 versus $2.6 million in the comparable period in the prior year due to continued pressure on labor costs associated with a shortage of therapists.

Balance Sheet and Cash Flow

GHC generated operating cash flow of $24.5 million in the quarter. During the quarter, the Company repaid $26.4 million of debt, including an $11.0 million, 11.0% fixed rate mortgage and approximately $14.0 million on the Term Loan B component of the senior credit facility. GHC ended the quarter with $118.3 million in cash and $378.3 million of total debt.

Capital spending in the quarter was $11.1 million, up from GHC’s previous run-rate. “We are improving our systems infrastructure and plan to invest more actively in our physical plant,” said James V. McKeon, Chief Financial Officer. “As the year progresses, we expect to increase incrementally our quarterly levels of capital spending, as we modernize our facilities. In addition, we continue to groom our portfolio, focusing on centers with strong market share in core markets. Accordingly, we sold our two remaining properties in the State of Wisconsin, and since quarter end, we terminated a lease in New Jersey, purchased a previously leased skilled nursing facility for $15.8 million, including the assumption of $9.5 million of debt, and acquired our joint venture partner’s interest in a skilled nursing facility for $0.5 million and the assumption of $6.0 million of debt, all of which was repaid at the closing of the transaction.”

“Our continued ability to generate strong cash flow has allowed us to post another strong quarter from an earnings, balance sheet, leverage, and capital investment perspective,” concluded McKeon. “We remain focused on our operational improvement plan and margin expansion initiatives, but we will also look to develop a best-in-class finance, information, and administrative services organization in our continuing effort to enhance quality in all areas.”

Basis of Presentation

The accompanying financial information through November 30, 2003 was prepared on a basis which reflects the historical financial information of GHC assuming the operations of NCI contributed in the spin-off were organized as a separate legal entity, owning certain net assets of NCI. Beginning December 1, 2003 , the accompanying financial information has been prepared on a basis which reflects the net operations of GHC as a stand alone entity. The allocation methodologies followed in preparing the accompanying financial information prior to the December 1, 2003 spin-off may not necessarily reflect the results of operations, cash flows, or financial position of GHC in the future, or what the results of operations, cash flows or financial position would have been had GHC been a separate stand-alone entity for all periods presented.

Discontinued Operations

GHC accounts for discontinued operations, including assets held for sale, under the provisions of Statement of Financial Accounting Standards, No. 144 “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of” (“SFAS 144”). Under SFAS 144, discontinued businesses including assets held for sale are removed from the results of continuing operations and presented as a separate line on the statement of operations.

Conference Call

Genesis HealthCare Corporation will hold a conference call at 10:00 a.m. EST on Wednesday, February 2, 2005 to discuss the results. Investors can access the conference call by phone at (888) 798-1823 or live via webcast through the GHC web site at http://www.genesishcc.com, where a replay of the call will also be posted for one year.

A bout Genesis HealthCare Corporation

Genesis HealthCare Corporation (NASDAQ: GHCI) is one of the nation's largest long term care providers with over 200 skilled nursing centers and assisted living residences in 12 eastern states. Genesis also supplies contract rehabilitation therapy to over 650 healthcare providers in 21 states and the District of Columbia .

Visit our website at www.genesishcc.com.

Genesis HealthCare Corporation Financial Statements

About Genesis HealthCare Corporation

Genesis HealthCare Corporation (NASDAQ: GHCI) is one of the nation's largest long term care providers with over 200 skilled nursing centers and assisted living residences in 12 eastern states. Genesis also supplies contract rehabilitation therapy to over 650 healthcare providers in 21 states and the District of Columbia .

Visit our website at www.genesishcc.com.

Statements made in this release, our website and in our other public filings and releases, which are not historical facts contain "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," "intend," "may," “target,” “appears” and similar expressions. Such forward looking statements include, without limitation, the effect of the spin-off on our operations, expected reimbursement rates, including RUGs changes, agency labor utilization, voluntary debt repayments, share repurchases, provider tax assessments and increases in state Medicaid rates. Factors that could cause actual results to differ materially include, but are not limited to, the following: costs, changes in the reimbursement rates or methods of payment from Medicare or Medicaid, or the implementation of other measures to reduce reimbursement for our services; the nature, timing and amount of provider tax assessments; the expiration of enactments providing for additional government funding; efforts of third party payors to control costs; the impact of federal and state regulations; changes in payor mix and payment methodologies; further consolidation of managed care organizations and other third party payors; competition in our business; an increase in insurance costs and potential liability for losses not covered by, or in excess of, our insurance; competition for and availability of qualified staff in the healthcare industry; our ability to control operating costs, and generate sufficient cash flow to meet operational and financial requirements; changes in interest expense; and an economic downturn or changes in the laws affecting our business in those markets in which we operate.

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.