UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                                WASHINGTON, D.C.
                      ------------------------------------

                                    FORM 8-K
                                 CURRENT REPORT
    PURSUANT TO SECTIONS 13 AND 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934


                                 DATE OF REPORT
                 (DATE OF EARLIEST EVENT REPORTED): MAY 12, 1997

                          -----------------------------


                       HORIZON/CMS HEALTHCARE CORPORATION
             (Exact name of Registrant as specified in its charter)



DELAWARE                                   1-9369                   91-1346899
(State or other jurisdiction        (Commission File No.)     (I.R.S. Employer
of incorporation or org-                                     Identification No.)
anization)



                          6001 INDIAN SCHOOL ROAD, N.E.
                                    SUITE 530
                             ALBUQUERQUE, NEW MEXICO
                              (Address of principal
                               executive offices)

                                      87110
                                   (Zip Code)


<PAGE>


ITEM 5.  OTHER EVENTS

         Horizon/CMS Healthcare Corporation ("Horizon/CMS") announced on May 12,
1997,  that it had  agreed to  terminate  certain  agreements  (the  "Management
Agreements") between its wholly-owned subsidiary, Horizon Facilities Management,
Inc. ("HFM"),  and Texas Health Enterprises,  Inc. and certain of its affiliates
(collectively,   the  "HEA  Group")  and  to  restructure  and  forgive  certain
indebtedness of the HEA Group. The HEA Group operates 126 nursing  facilities in
Texas,  Oklahoma  and  Michigan.  Under  the  Management  Agreements  that  were
originally   effective  January  1,  1996,  HFM  has  provided   management  and
administrative  services for such  facilities  and has provided a line of credit
facility  (the  "Credit  Facility")  for  the  benefit  of such  facilities.  In
addition,  certain other  subsidiaries  of Horizon/CMS  have provided  ancillary
medical, institutional pharmacy and therapy services to the HEA Group facilities
(the "Ancillary Services").

         For the nine months ended February 28, 1997, management fees charged to
the HEA  Group  by HFM,  net of  direct  expenses,  totaled  approximately  $5.9
million,  before income taxes. During this same period,  revenues related to the
Ancillary Services provided to the HEA Group by Horizon/CMS and its subsidiaries
totaled approximately $24.5 million.

         In March 1997, Horizon/CMS and a third party negotiated, subject to the
consent of the HEA  Group,  a sale of the stock of HFM and all of the trade debt
owing by the HEA  Group  to  Horizon/CMS  and its  subsidiaries.  At that  time,
amounts owed by the HEA Group to  Horizon/CMS  for  management  fees,  Ancillary
Services,  and interest on advances  made  pursuant to the Credit  Facility were
significantly in arrears.  The HEA Group, when consulted in April 1997,  refused
to consent to such a sale and asserted monetary claims, allegedly of substantial
value,  against  Horizon/CMS for the manner in which the indebtedness  under the
Credit Facility was administered and the manner in which HFM provided management
and administrative  services to the HEA Group facilities.  Horizon/CMS disputed,
and continues to dispute,  the claims made by the HEA Group. By the end of April
1997,  amounts owed by the HEA Group to Horizon/CMS,  including  principal under
the Credit Facility of  approximately  $26.3 million,  aggregated  approximately
$61.3  million.  After  considering  (i) the  amounts  owed by the HEA  Group to
Horizon/CMS and its  subsidiaries,  (ii) the monetary and operational  resources
required to provide  continuing  management  services to HEA Group facilities in
light of the increasing uncertainties  surrounding the ongoing operations of the
HEA Group facilities, (iii) the ability of the HEA Group facilities to repay the
amounts  owing  to  Horizon/CMS  and  its  subsidiaries,  (iv)  the  ability  of
Horizon/CMS and its subsidiaries to pursue the legal remedies  available to them
under the Management  Agreements  and the Credit  Facility and to realize on the
same, (v) the merits of the claims asserted by the HEA Group, (vi) the effect of
the  foregoing  on the  patients  residing  in the HEA Group  facilities,  (vii)
Horizon/CMS's  strategic  objectives,  and (viii) the pending merger transaction
with 



                                       1
<PAGE>

HEALTHSOUTH  Corporation,  Horizon/CMS determined in May 1997 that it was in the
best business interest of Horizon/CMS to terminate the Management Agreements, to
restructure  certain trade  indebtedness of the HEA Group to Horizon/CMS and its
subsidiaries,  and to release the HEA Group from  liability  for  amounts  owing
under the Management Agreements and the Credit Facility. Although no claims have
been  formally  asserted  by the HEA  Group,  the  agreement  with the HEA Group
includes a release of any  potential  claims the HEA Group may have  relating to
services provided by HFM pursuant to the Management Agreements.

         Effective  upon  the  termination  of the  Management  Agreements,  the
relevant HEA Group  entities  assumed direct  responsibility  for all management
functions at the HEA Group facilities.  Existing  contracts for the provision by
Horizon/CMS subsidiaries of therapy services and institutional pharmacy services
to the HEA Group  facilities  will  remain in  effect  through  July 1, 1997 and
December 31, 1997, respectively.  Pursuant to the agreement between the parties,
approximately  $17.0 million in aggregate  indebtedness  for Ancillary  Services
owed  to  Horizon/CMS  and  its  subsidiaries  will be  converted  to a  secured
promissory note (the "Trade Note").  Monthly  payments on the Trade Note will be
based  upon a  30-year  amortization  schedule  with the  outstanding  principal
balance and all accrued and unpaid interest being due and payable in five years.
The Trade Note will bear interest at 8.0% per annum with repayment being secured
by leasehold  mortgages on 17 of the HEA Group  facilities and a mortgage on one
owned HEA Group facility.  In addition,  Horizon/CMS and its  subsidiaries  will
release  the HEA  Group  from  liability  for  approximately  $44.3  million  in
management   fees,   principal  and  interest  under  the  Credit  Facility  and
miscellaneous trade payables. A copy of the Compromise,  Settlement, Release and
Termination Agreement is attached hereto as Exhibit 99.1 and incorporated herein
by reference.

         Horizon/CMS  currently anticipates that it will recognize a non-routine
charge of $46.0  million,  pre-tax,  or $0.56 per  share,  net of taxes,  in its
fiscal quarter ending May 31, 1997 related to the release of liability described
above and the costs of severance and other restructuring  measures affecting the
operations  previously  dedicated  to providing  management  services to the HEA
Group  facilities.  Also, an additional charge may be required during the fourth
quarter of fiscal 1997 if  Horizon/CMS's  current  efforts to determine the fair
value of the  Trade  Note  indicate  that the fair  value is less  than the face
amount of the Trade  Note.  The fair value of the Trade Note will be  determined
based upon an evaluation of the HEA Group's  ability to make scheduled  payments
and the value of the underlying collateral.




                                       2
<PAGE>



ITEM 7.  FINANCIAL STATEMENTS, PRO FORMA FINANCIAL
                  INFORMATION AND EXHIBITS.

         (c)      Exhibits

                  99.1      Compromise,   Settlement,  Release  and  Termination
                            Agreement   dated   May  12,   1997  by  and   among
                            Horizon/CMS and its  subsidiaries  named therein and
                            the HEA Group.

                  99.2      Sixth  Amendment  dated  as of  May 9,  1997  to the
                            Amended and Restated  Credit  Agreement  dated as of
                            September  26, 1995 by and among the  Company,  CMS,
                            the Lenders named therein and NationsBank  of Texas,
                            N.A., as Agent and Issuing Bank.





                                       3
<PAGE>



                                   SIGNATURES

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

                              HORIZON/CMS HEALTHCARE CORPORATION


                              By: /s/ Scot Sauder
                                 -----------------------------------------------
                                  Scot Sauder
                                  Vice President of Legal Affairs, Secretary and
                                   General Counsel



Date: May 27, 1997.
[{"type": "8-K", "sequence": "1", "description": "FORM 8-K", "secsgml_size_bytes": 9172}]
{"company-data": {"conformed-name": "HORIZON CMS HEALTHCARE CORP", "cik": "0000806151", "assigned-sic": "8051", "irs-number": "911346899", "state-of-incorporation": "DE", "fiscal-year-end": "0531"}, "filing-values": {"form-type": "8-K", "act": "34", "file-number": "001-09369", "film-number": "97614514"}, "business-address": {"street1": "6001 INDIAN SCHOOL RD NE STE 530", "city": "ALBUQUERQUE", "state": "NM", "zip": "87110", "phone": "5058814961"}, "mail-address": {"street1": "6001 INDIAN SCHOOL RD NE", "street2": "STE 530", "city": "ALBUQUERQUE", "state": "NM", "zip": "87110"}, "former-company": [{"former-conformed-name": "HORIZON HEALTHCARE CORP", "date-changed": "19920703"}, {"former-conformed-name": "HORIZON HEALTH SYSTEMS LP", "date-changed": "19870316"}]}
UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                                WASHINGTON, D.C.
                      ------------------------------------

                                    FORM 8-K
                                 CURRENT REPORT
    PURSUANT TO SECTIONS 13 AND 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

                                 DATE OF REPORT
                 (DATE OF EARLIEST EVENT REPORTED): MAY 12, 1997

                          -----------------------------

                       HORIZON/CMS HEALTHCARE CORPORATION
             (Exact name of Registrant as specified in its charter)

DELAWARE                                   1-9369                   91-1346899
(State or other jurisdiction        (Commission File No.)     (I.R.S. Employer
of incorporation or org-                                     Identification No.)
anization)

                          6001 INDIAN SCHOOL ROAD, N.E.
                                    SUITE 530
                             ALBUQUERQUE, NEW MEXICO
                              (Address of principal
                               executive offices)

                                      87110
                                   (Zip Code)
ITEM 5.  OTHER EVENTS

         Horizon/CMS Healthcare Corporation ("Horizon/CMS") announced on May 12,
1997,  that it had  agreed to  terminate  certain  agreements  (the  "Management
Agreements") between its wholly-owned subsidiary, Horizon Facilities Management,
Inc. ("HFM"),  and Texas Health Enterprises,  Inc. and certain of its affiliates
(collectively,   the  "HEA  Group")  and  to  restructure  and  forgive  certain
indebtedness of the HEA Group. The HEA Group operates 126 nursing  facilities in
Texas,  Oklahoma  and  Michigan.  Under  the  Management  Agreements  that  were
originally   effective  January  1,  1996,  HFM  has  provided   management  and
administrative  services for such  facilities  and has provided a line of credit
facility  (the  "Credit  Facility")  for  the  benefit  of such  facilities.  In
addition,  certain other  subsidiaries  of Horizon/CMS  have provided  ancillary
medical, institutional pharmacy and therapy services to the HEA Group facilities
(the "Ancillary Services").

         For the nine months ended February 28, 1997, management fees charged to
the HEA  Group  by HFM,  net of  direct  expenses,  totaled  approximately  $5.9
million,  before income taxes. During this same period,  revenues related to the
Ancillary Services provided to the HEA Group by Horizon/CMS and its subsidiaries
totaled approximately $24.5 million.

         In March 1997, Horizon/CMS and a third party negotiated, subject to the
consent of the HEA  Group,  a sale of the stock of HFM and all of the trade debt
owing by the HEA  Group  to  Horizon/CMS  and its  subsidiaries.  At that  time,
amounts owed by the HEA Group to  Horizon/CMS  for  management  fees,  Ancillary
Services,  and interest on advances  made  pursuant to the Credit  Facility were
significantly in arrears.  The HEA Group, when consulted in April 1997,  refused
to consent to such a sale and asserted monetary claims, allegedly of substantial
value,  against  Horizon/CMS for the manner in which the indebtedness  under the
Credit Facility was administered and the manner in which HFM provided management
and administrative  services to the HEA Group facilities.  Horizon/CMS disputed,
and continues to dispute,  the claims made by the HEA Group. By the end of April
1997,  amounts owed by the HEA Group to Horizon/CMS,  including  principal under
the Credit Facility of  approximately  $26.3 million,  aggregated  approximately
$61.3  million.  After  considering  (i) the  amounts  owed by the HEA  Group to
Horizon/CMS and its  subsidiaries,  (ii) the monetary and operational  resources
required to provide  continuing  management  services to HEA Group facilities in
light of the increasing uncertainties  surrounding the ongoing operations of the
HEA Group facilities, (iii) the ability of the HEA Group facilities to repay the
amounts  owing  to  Horizon/CMS  and  its  subsidiaries,  (iv)  the  ability  of
Horizon/CMS and its subsidiaries to pursue the legal remedies  available to them
under the Management  Agreements  and the Credit  Facility and to realize on the
same, (v) the merits of the claims asserted by the HEA Group, (vi) the effect of
the  foregoing  on the  patients  residing  in the HEA Group  facilities,  (vii)
Horizon/CMS's  strategic  objectives,  and (viii) the pending merger transaction
with 

                                       1
HEALTHSOUTH  Corporation,  Horizon/CMS determined in May 1997 that it was in the
best business interest of Horizon/CMS to terminate the Management Agreements, to
restructure  certain trade  indebtedness of the HEA Group to Horizon/CMS and its
subsidiaries,  and to release the HEA Group from  liability  for  amounts  owing
under the Management Agreements and the Credit Facility. Although no claims have
been  formally  asserted  by the HEA  Group,  the  agreement  with the HEA Group
includes a release of any  potential  claims the HEA Group may have  relating to
services provided by HFM pursuant to the Management Agreements.

         Effective  upon  the  termination  of the  Management  Agreements,  the
relevant HEA Group  entities  assumed direct  responsibility  for all management
functions at the HEA Group facilities.  Existing  contracts for the provision by
Horizon/CMS subsidiaries of therapy services and institutional pharmacy services
to the HEA Group  facilities  will  remain in  effect  through  July 1, 1997 and
December 31, 1997, respectively.  Pursuant to the agreement between the parties,
approximately  $17.0 million in aggregate  indebtedness  for Ancillary  Services
owed  to  Horizon/CMS  and  its  subsidiaries  will be  converted  to a  secured
promissory note (the "Trade Note").  Monthly  payments on the Trade Note will be
based  upon a  30-year  amortization  schedule  with the  outstanding  principal
balance and all accrued and unpaid interest being due and payable in five years.
The Trade Note will bear interest at 8.0% per annum with repayment being secured
by leasehold  mortgages on 17 of the HEA Group  facilities and a mortgage on one
owned HEA Group facility.  In addition,  Horizon/CMS and its  subsidiaries  will
release  the HEA  Group  from  liability  for  approximately  $44.3  million  in
management   fees,   principal  and  interest  under  the  Credit  Facility  and
miscellaneous trade payables. A copy of the Compromise,  Settlement, Release and
Termination Agreement is attached hereto as Exhibit 99.1 and incorporated herein
by reference.

         Horizon/CMS  currently anticipates that it will recognize a non-routine
charge of $46.0  million,  pre-tax,  or $0.56 per  share,  net of taxes,  in its
fiscal quarter ending May 31, 1997 related to the release of liability described
above and the costs of severance and other restructuring  measures affecting the
operations  previously  dedicated  to providing  management  services to the HEA
Group  facilities.  Also, an additional charge may be required during the fourth
quarter of fiscal 1997 if  Horizon/CMS's  current  efforts to determine the fair
value of the  Trade  Note  indicate  that the fair  value is less  than the face
amount of the Trade  Note.  The fair value of the Trade Note will be  determined
based upon an evaluation of the HEA Group's  ability to make scheduled  payments
and the value of the underlying collateral.

                                       2
ITEM 7.  FINANCIAL STATEMENTS, PRO FORMA FINANCIAL
                  INFORMATION AND EXHIBITS.

         (c)      Exhibits

                  99.1      Compromise,   Settlement,  Release  and  Termination
                            Agreement   dated   May  12,   1997  by  and   among
                            Horizon/CMS and its  subsidiaries  named therein and
                            the HEA Group.

                  99.2      Sixth  Amendment  dated  as of  May 9,  1997  to the
                            Amended and Restated  Credit  Agreement  dated as of
                            September  26, 1995 by and among the  Company,  CMS,
                            the Lenders named therein and NationsBank  of Texas,
                            N.A., as Agent and Issuing Bank.

                                       3
SIGNATURES

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

                              HORIZON/CMS HEALTHCARE CORPORATION

                              By: /s/ Scot Sauder
                                 -----------------------------------------------
                                  Scot Sauder
                                  Vice President of Legal Affairs, Secretary and
                                   General Counsel

Date: May 27, 1997.