UPDATE 2-Genesis Healthcare to buy Sun Healthcare for $217 million

* $8.50/shr offer 38 percent more than Sun's Wednesday close

* Merger looks to mitigate reimbursement fears

* Companies had a total of $4 billion in 2011 revenue

June 20 (Reuters) - Sun Healthcare Group Inc agreed to be bought by privately held rival Genesis HealthCare for about $217 million, as the providers of skilled nursing facilities seek to mitigate reimbursement concerns and better prepare themselves to face the uncertainty surrounding the U.S. healthcare industry.

Mounting federal debt has led the U.S. government to slash spending on healthcare by cutting payments to healthcare providers, including Sun Healthcare and Genesis.

Shares of Sun and other publicly listed companies like Kindred Healthcare and Skilled Healthcare crashed last July after regulators cut 2012 payment rates for skilled nursing facilities by 11.1 percent, or $3.87 billion.

"I think it will make them a better company just being private with Genesis than they would be as a public company and struggling quarter to quarter," said Jefferies analyst Arthur Henderson told Reuters.

The $8.50-per-share cash offer by Genesis represents a 38 percent premium to Sun's Wednesday close of $6.14.

"On a combined basis, the two companies generated roughly $4 billion in revenue in 2011 and will have more than 420 facilities and 75,000 employees," Sun Chief Executive William Mathies said in a statement.

Sun was advised by MTS Health Partners, while Barclays acted as Genesis' financial advisor.