North County Report: Palomar Health’s New Partnership with UCSD Health

Palomar Health and UCSD Health are officially partnering up. 

Last night, Palomar Health’s board of directors agreed to work with UCSD health to “stabilize and expand health care services” in North County by creating a new health care entity.  

They’ve agreed to a laundry list of shared responsibilities and put Palomar’s CEO in charge. The partnership is meant to help stabilize both hospital systems financially while giving UCSD Health a larger footprint in North County.  

This is all being done through a very wonky process known as a joint powers authority. 

A joint powers authority is a public entity created when two or more public agencies agree to jointly share a common power, implement programs, build new facilities or deliver services. Did you ever partner with a classmate on an assignment? This is sort of like that but for public agencies.  

“Initial plans for the [joint powers authority] include the creation of a comprehensive cancer center on the Escondido campus, development of the two shelled floors in the Escondido hospital for destination health care services, and other sub-specialty development,” according to a recent press release from UCSD Health. 

Palomar Health, a public healthcare district that operates Palomar Medical Centers in Escondido and Poway, has faced financial declines across its operations for the past couple of years.    

In 2023, Voice of San Diego was the first to report that Palomar Health’s financial position was rapidly worsening, and it’s not the only one. Hospitals across the country are facing decreasing patient volume and less overall revenue.      

UCSD Health has also felt growing financial pressure, announcing in June that the organization was laying off 200 employees.  

Though most board members agreed that Palomar Health needs the financial help, not every board member was sold on the terms of the agreement, some of the details of which are still unclear. 

What the Agreement Says 

They’re calling it the Palomar/UCSD Health Authority. 

The agreement transfers less than 50 percent of Palomar’s assets to the joint powers agency and establishes a $50 million revolving line of credit for Palomar. It also includes a deed of trust using Palomar Health’s Poway campus as collateral for the line of credit. 

The new agency’s governing board will consist of six members: three appointed by Palomar Health and three by UCSD Health, Palomar Board Director Laurie Edwards-Tate told Voice of San Diego. 

Palomar’s CEO Diane Hansen will become the new agency’s CEO. 

And finally, though this wasn’t laid out in last night’s resolution, UCSD Health confirmed it will not assume Palomar Health’s debt. 

I’ve previously reported that Palomar failed to meet bond covenants tied to more than $700 million it has borrowed against future revenue. Palomar negotiated an agreement with its lenders earlier this year to adjust or delay the payments it owes. 

One board member isn’t happy: Board Director John Clark was the only board member who didn’t support the resolution, choosing to abstain from the vote instead. 

He first took issue with the decision to name Hansen as the agency’s CEO. 

“Since assuming leadership at Palomar Health, the organization has lost approximately $400 million and entered a state of financial bankruptcy, while [Hansen’s] annual compensation exceeds $2 million,” Clark said in a statement via email. “This decision does not seem logical or in the best interest of the district.” 

He also disagreed with the joint power authority’s board structure, saying that it “effectively removes direct representation of the district’s voters in the new governance structure, which is deeply troubling.” 

Because Palomar Health is a public institution, each of its board members is elected by voters in the Palomar district. 

Finally, Clark warned that the agreement seems driven by urgency and desperation and “contains numerous provisions that do not appear beneficial to the district,” saying in the statement that the terms as written, “could set the stage for future conflicts and litigation between the two entities.” 

Clark did not expand on which provisions he thinks are not beneficial to the district. 

Edwards-Tate said during the meeting that she shared some of Clark’s concerns, but agreed with the other board members that it’s the district’s best option. 

I Have Some Questions 

First: Last night’s resolution mentioned several key documents tied to the new joint powers authority, including agreements on asset purchases, credit, loans, employee leasing and forbearance. But those records haven’t been released to the public. Will the public get to see the full scope of this new agreement? 

I asked a spokesperson for Palomar if they could send me those other documents, but I haven’t yet heard back. 

Second: Because the joint powers authority will have a completely separate board of directors, how will that change the current Palomar board’s power and authority over Palomar’s operations (especially given that Palomar’s board members were elected by the public)? 

Edwards-Tate told Voice that the Palomar board’s power could diminish slightly, but she’s not sure exactly what that will look like or how it could impact the board’s bylaws. 

Third: How did the decision to name Hansen as the new agency’s CEO come about? And will she remain the CEO long term? 

What’s next: The JPA still requires final approval from the California Office of Health Care Affordability, which could take up to 90 days. Once approved, the joint powers authority will begin operations. 

In Other News 

• Palomar Health’s board also voted last night to reapply for state funding for a behavioral health facility near its Escondido campus. This is the district’s second attempt after the state rescinded a previously awarded $50 million grant. The grant requires matching funds, which Palomar had not documented to the state Department of Health Care Services in its first application.  
• ICYMI: The Palomar College board of directors last week voted to remove an anti-racism board policy it adopted in 2021. Board members said the policy exposed the college to legal risk and cited a recent national shift from similar policies. (Voice of San Diego) 
• The Encinitas City Council recently terminated its agreement with its city attorney. Mayor Bruce Ehlers said it was without cause, and that the council is going in a new direction particularly with regard to housing issues. (Union-Tribune) 

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