1236736--12/14/2006--GENESIS_HEALTHCARE

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{regulation, change, law}

{debt, indebtedness, cash}

{tax, income, asset}

{cost, operation, labor}

{product, market, service}

{condition, economic, financial}

{cost, contract, operation}

{provision, law, control}

{interest, director, officer}

{loss, insurance, financial}

{system, service, information}

{competitive, industry, competition}

{acquisition, growth, future}

Healthcare-related legislation has significantly impacted our business, and future legislation and regulations may negatively affect our financial condition, results of operations and cash flows. Our revenues could be affected by changes to the Medicare program. Our revenues could be impacted by federal and state changes to Medicaid. We conduct business in a heavily regulated industry, and changes in regulations and violations of regulations may result in increased costs or sanctions, including loss of licensure and decertification. State laws and regulations could affect our ability to grow. Possible changes in the case mix of patients as well as payor mix and payment methodologies may significantly affect our profitability. We face intense competition in our business. Our inpatient services segment is capital intensive, requiring us to direct continually financial resources to the maintenance and enhancement of our physical plant and equipment. An increase in insurance costs may adversely affect us, and we may be liable for losses not covered by or in excess of our insurance. We could experience significant increases in our operating costs due to continued intense competition for qualified staff, minimum staffing laws in the healthcare industry and potential labor strikes. If we are unable to control operating costs and generate sufficient cash flow to meet operational and financial requirements, including servicing our indebtedness, our business operations may be adversely affected. The agreements that govern our financing agreements contain various covenants that limit our discretion in the operation of our business. A significant portion of our business is concentrated in certain markets and the respective economic conditions or changes in the laws affecting our business in those markets could have a material adverse effect on our operating results. Realization of the tax benefit relating to our net operating loss carryforward is subject to numerous risks. Recent legislation and the increasing costs of being publicly owned are likely to impact our future financial position and results of operations. New accounting pronouncements or new interpretations of existing standards could require us to make adjustments in our accounting policies that could affect our consolidated financial statements. Implementation of new information systems could negatively affect us. We may make acquisitions that could subject us to a number of operating risks. Provisions in Pennsylvania law and our corporate documents could delay or prevent a change in control. Our future profitability could be impacted by our ability to achieve certain performance improvement objectives in our rehabilitation therapy services segment. Portions of our historical financial information and our pro forma financial information may not be representative of our results as a separate company. We may be required to satisfy certain indemnification obligations to NCI, or may not be able to collect on indemnification rights from NCI.

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1236736--12/14/2006--GENESIS_HEALTHCARE_CORP