SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, D.C.  20549



                                      FORM 8-K 


                                    CURRENT REPORT


          Pursuant to  Section 13 or  15(d) of the Securities  and Exchange
          Act of 1934


                            Date of Report:  May 26, 1994 



                          CONTINENTAL MEDICAL SYSTEMS, INC.
                (Exact name of registrant as specified in its charter)



                   Delaware                51-0287965           0-15088

           (State of Incorporation)       (IRS Employer       (Commission
                                       Identification No.)   File Number)


                                   600 Wilson Lane
                                     P.O. Box 715
                               Mechanicsburg, PA  17055
                           Telephone Number (717) 790-8300 


          Item 5.  Other Events

               On May 24, 1994, the Registrant issued the following press
          release:

               Continental Medical Systems, Inc. (NYSE: CNM) announced
          today plans to establish up to a $75 million pre-tax charge in
          its fourth quarter, which will end June 30, 1994, for a
          restructuring and reorganization program.  The Company's Board of
          Directors has approved several measures to streamline operations
          and improve productivity by restructuring the Company into three
          major operating divisions, flattening the management
          organizational structure, writing down certain assets and, where
          appropriate, divesting underproductive assets.  The special
          charge will comprise several items, including the write down  of
          selected assets in the Company's hospital division, the costs
          associated with the consolidation of its contract therapy
          companies, the write down of receivables related to the
          termination of certain business relationships in the contract
          therapy business and certain other costs of the program.  

               Approximately $53 million of the charge is associated with
          the Company's plan to write down the assets to current values at
          up to nine rehabilitation hospitals, write down the assets
          related to an outpatient acquisition, an abandoned managed unit
          and other miscellaneous charges.  The majority of the charges are
          for assets located in California.  The recently announced
          divestiture of the Company's interests in the Rocky Mountain
          facility in Denver, Colorado and its agreement to sell its North
          Valley facility in Chico, California will have a minimal effect
          on the cost of this program.   

               Approximately $19 million of the charge is related to the
          Company's plan to consolidate its five contract therapy companies
          into its Premier Rehabilitation subsidiary, exit certain markets
          and write down receivables related to the termination of certain
          business relationships.  This consolidation process will involve
          the closure of offices, relocation and severance of personnel and
          elimination of duplicative processes.

               The remainder of the charge, up to $3 million, has been
          provided to reduce and realign the work force at the Company's
          corporate office and certain other locations and provide for
          transaction costs to execute the plan.  

               The net cash effect of the program, including the proceeds
          from the divestitures discussed above, is expected to be minimal. 

               The Company is implementing the consolidations and layoffs
          as part of its plan to restructure its organization into three
          major operating divisions - Hospital, Contract Therapy and
          Physician Services/Locum Tenens.  The Company has also realigned
          reporting lines and operating responsibilities of its corporate
          management, and reduced the number of corporate staff personnel, 
          consistent with its new organization structure to enhance
          decision-making processes and reduce costs.  Effective July 1, a
          number of the support staff presently residing in the corporate
          office will be reassigned to the operating subsidiary locations. 
          Clinical operations and selective support functions will continue
          to be centralized.   

               The Company plans to commence reporting of its operating
          results by its three operating Divisions in the fourth quarter. 
          It continues to be the Company's objective to maintain a
          leadership role in each of the operating divisions.   The
          strategic outlook for each of these divisions and other
          initiatives underway at the Company are as follows:

          Hospital Division

               The Company plans to pursue selected new development
          opportunities and may add up to two hospitals per year as a
          result of this strategy.  There are presently several new
          hospital development projects under consideration.  The Company
          will periodically evaluate its hospital portfolio and when it
          believes that certain facilities will not provide adequate
          returns on investment, the Company may seek to divest those
          facilities.  The Company also plans to continue to cultivate
          alliances within existing markets and continue its expansion of
          outpatient services surrounding its hospital operations as part
          of its growth strategy.  The Company has recently introduced to
          insurance companies and managed care organizations its Total
          Outcome and Prediction Program (TOPP) to respond to managed care
          needs.  TOPP establishes a new standard of excellence for outcome
          management, cost control and resource allocation.  The TOPP
          program, combined with the Company's cost accounting application,
          now enables the Company to predict  costs of services and share
          risks with payors. 

          Contract Therapy Division

               The Contract Therapy Division continues to experience
          revenue growth as demand for services continues to increase.  It
          is expected that therapist retention will improve to historical
          levels as the effects of the reorganization subside.  With the
          consolidation of the businesses described above, the Company
          expects that there will be substantial synergies in pursuing
          existing and new product lines within the contract therapy group
          including development of outcome based programs to meet the
          demand for sub-acute rehabilitative  and managed care services in
          the long term care setting.   Additionally, the cost savings that
          the Company expects to achieve through the consolidation will
          enable it to become more cost effective in the delivery of its
          services.   

          Physician Service/Locum Tenens Division

               The Company recently recruited a new Chief Executive Officer
          to its locum tenens business, CompHealth/Kron.  Primary care and
          allied professional days continue to grow while demand for
          specialty physician services remains soft.  The Company expects
          to continue to pursue more relationships with primary care
          providers and clients while adding additional services in the
          marketplace.  As part of the restructuring program, the locum
          tenens business has closed one of its office locations to create
          greater efficiency and additional cost savings in the pursuit of
          its primary care services initiatives.

          Corporate

               With the flattening of the organization and streamlining the
          operating divisions, the Corporate office has been reduced by
          approximately 10% of its personnel.  The Company continues to
          make investments in its Vision information technology project
          which will give the Company a competitive advantage in its
          various initiatives.  

          New Initiatives

               Recently, the Company has embarked upon new initiatives
          which it believes afford substantial opportunity for the future.

               The Company recently created an initiative called Innovative
          Health Alliances (IHA) whereby the Company plans to facilitate
          development and provide certain management services to networks
          of independent outpatient rehabilitation clinics within
          geographic regions.  The IHA program has been initiated in Kansas
          City and has a number of other development opportunities
          throughout the country.  The Company believes that the IHA
          networks will provide the necessary leverage for independent
          clinics to enable them to contract with managed care programs. 
          In certain instances the Company will own the clinics in the
          network and in all instances IHA will provide certain management
          and contracting services for the network.  

               The Company plans to continue to broaden its range of
          services and programs to physicians as evidenced by its recent
          acquisition of Medical Management Associates, Inc. (MMA).   MMA
          is engaged in the development and management of independent
          physician practice associations (IPAs) and currently has 15 IPAs
          under management.  The IPAs currently managed by MMA have managed
          care contracts covering 110,000 enrolled members and have 4,000
          physicians under contract.  The Company believes that MMA
          provides opportunities for substantial growth  going forward.  

               The Company plans to continue to invest in the development
          and management of rehabilitation units in acute hospital settings
          through the Select Rehab subsidiary.  The Company currently 
          manages 12 such units with a number of development projects
          underway.

               Commenting on the announcement, CMS Chairman and Chief
          Executive Officer R.A. Ortenzio stated, "We have made
          organization changes to enable senior executives of each Division
          and the Corporation to be more responsive to marketplace changes
          while reducing our overhead costs.  It has been a very difficult
          decision for us to write down selected hospital division assets. 
          Although there is a need for the rehabilitation services we
          provide in these markets, we have found that certain of our
          hospitals are not adequately aligned and are having difficulty
          developing a market capable of supporting our investment in that
          location."  Regarding the consolidation of the contract therapy
          companies, he stated, "In February we internally announced the
          combination of the long-term care services of Communi-Care/Pro-
          Rehab and RehabWorks into Premier.  We have now expanded that
          program to encompass the other contract therapy companies to
          consolidate these entities along product lines.  We expect the
          synergies and cost savings that will result from this
          consolidation will enhance the Company's capability to deliver
          higher quality and cost effective care.  We believe our locum
          tenens business is progressing well and expect to see growth in
          the Division during fiscal 1995.  Our continuing investment in
          the Vision project and the new initiatives, which we expect to be
          profitable by fiscal 1996, are all part of our plan to enhance
          shareholder value."

               Commenting on the restructuring program President and Chief
          Operating Officer Robert A. Ortenzio stated, "We believe that the
          synergies and cost savings obtained through flattening the
          organization and re-aligning our businesses into three separate
          major divisions will position the Company to grow its businesses
          efficiently.  It is our expectation that the various initiatives
          under way, together with the improvement generally in our
          business fundamentals, will enable the Company to accomplish
          continued growth in our operating earnings for the foreseeable
          future."  

               Dennis Lehman, Senior Vice President - Finance and Chief
          Financial Officer stated, "Although our operating earnings for
          fiscal 1994 have been a disappointment, we have enjoyed
          substantial cash flow which has been used in part to make
          investments in opportunities which we believe will provide
          favorable returns to our shareholders.  We have also utilized our
          cash flow to reduce our indebtedness as evidenced by the
          repayment of $37 million this past quarter." 

               CMS is one of the nation's largest providers of
          comprehensive medical rehabilitation services with annualized net
          operating revenues of approximately $1 billion.  CMS operates 38
          freestanding rehabilitation hospitals, provides outpatient
          rehabilitation services at more than 140 locations and manages 12
          inpatient rehabilitation units for general acute care hospitals.  
          These services are provided in 22 states.  CMS' Contract Therapy
          Group provides physical, occupational, respiratory and speech
          therapy.  The physician locum tenens businesses provide services
          in all 50 states. 

          Pursuant to the requirements of the Securities and Exchange Act
          of 1934, the registrant has duly caused this report to be signed
          on its behalf by the undersigned thereunto duly authorized.



                                   CONTINENTAL MEDICAL SYSTEMS, INC.


          Date:  May 26, 1994      By:   /s/  David G. Nation
                                   David G. Nation, Senior Vice-President,
                                   General Counsel and Secretary