How Palomar Health Plans To Turn Its Finances Around

By Tigist Layne, the Voice of San Diego

July 15, 2025

The region’s largest public healthcare district is in financial trouble. Now, officials at Palomar Health have their sights set on a comeback.

As Palomar grapples with significant financial loss, the plan for the hospital system’s operations doesn’t include service cuts or layoffs. Instead, it leans heavily on cost-efficiency and growth through attracting more privately insured patients. Palomar Health, a public healthcare system 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.    

Palomar experienced a $165 million shortfall in its 2024 fiscal year, which ended in June 2024.

Final financial statements for the most recent fiscal year, which ended in June 2025, will likely be posted on Palomar’s website this week, but the full year’s financials may take longer, a spokesperson for Palomar told Voice via email. But according to a recent financial report from May of this year, the healthcare district saw a $108 million operating loss from July 2024 to May 2025. That number includes the consolidated financial statements of Palomar Health and its affiliate Palomar Health Medical Group.

Without the affiliate medical group, Palomar alone saw a $50 million operating loss from the start of the most recent fiscal year to May 31.

But Palomar Health officials have said they’re working on recovery. 

When it comes to hospital operations, CEO Diane Hansen said leadership is doing a lot of work internally to “right the ship” by reducing expenses and improving revenue.

“We’ve looked at every line item in our income statement for review, so everything from contract review to our real estate portfolio, labor efficiencies, how we schedule our [operating room] times, how we utilize overtime and callback,” Hansen said. “Everything that you can imagine that falls within operations of a hospital system, we have examined or are in the process of examining.  On top of that, we are undertaking some really strong reviews of our revenue cycle processes.”

Palomar Health in Escondido on Oct. 25, 2022. / Photo by Ariana Drehsler/Voice of San Diego

The district brought in an outside consultant to help, and so far, Hansen said, they’re making some progress.

“We targeted a $150 million turnaround plan … that really represents the improvement that we’re trying to drive within the organization,” she said. “If you looked at where we landed over the last couple of years, those losses are not sustainable, and so our goal through this turnaround effort was to figure out how we can improve our financial position by $150 million.”

To date, Palomar has implemented changes worth about $125 million in potential savings toward that goal, but only around $57 million in actual savings have been realized so far, according to the latest financial report. Additional savings could materialize over time as more initiatives fully impact the budget.

 “It’s really been an effort for the entirety of the organization, our entire leadership team from directors on up, of really looking at how we can create efficiency within the organization to provide savings or drive revenue,” Hansen said.

Palomar’s turnaround plan, though, does not include service cuts or reductions. In fact, the healthcare system is planning to expand some of its services with construction on its new 120-bed behavioral health facility already underway.

“Our commitment has always been to the community, and we are not reducing services – that would be kind of a last-ditch effort for us,” Hansen said. “We really believe that the services we provide in this region are crucial and critical to our communities.”

Palomar also isn’t planning to reduce staff, Hansen told Voice. The hospital system laid off less than 200 staff members last Fall, but Hansen said there aren’t any more layoffs planned. She hopes the changes underway will eventually allow the system to hire more staff.

Ultimately, Hansen said, the organization is maintaining a “growth mindset.” Currently, about 80 percent of Palomar’s patients are covered by Medicare, Medi-Cal, or they pay out-of-pocket, and those government programs don’t reimburse enough to cover the full cost of care. That means the hospital must rely on the remaining 20 percent of patients, typically those with commercial insurance, to make up the shortfall.

“The reason that’s important is because one of the things we recognized early on is that if we wanted to outpace inflation, it was going to be very important for us to grow,” she said.

“The marketing we’ve done, the recruitments we’ve made, the specialists we’ve brought in — we’re really trying to bring in top talent, whether that’s on the nursing side or among our clinicians and physicians,” Hansen said. “We want to make sure we’re attracting the patients we need in order to outpace inflation.”

Recently announced federal cuts to Medicaid will also put additional strain on hospitals like Palomar Health that already serve a large share of publicly insured patients. The newly adopted “Big Beautiful Bill” will result in reduced federal payments to hospitals serving Medicaid patients. The bill also places stricter eligibility requirements for Medicaid, which will likely lead to an increase in uninsured individuals and, therefore, a surge in uncompensated care at hospitals, further impacting their financial stability.

Another strategy Palomar officials hope to pursue is forming a strategic partnership with another healthcare system. A potential deal with Sharp HealthCare fell through in March after Sharp threatened to sue Palomar for allegedly breaching an exclusivity agreement the two systems made last year. The dispute came after Palomar accepted a $20 million loan from UC San Diego Health.

Jennifer Chatfield, a communications representative for Sharp, told Voice via email that the loan “remains outstanding,” and that she could not comment further “because of pending litigation.”

“We are trying to be very creative in how we look at strategic alignments. We were having conversations with Sharp, and for a variety of reasons that didn’t come to fruition. But I don’t think it was at the fault of anyone, I just think it wasn’t the right time, maybe, for both of us to come together,” Hansen said. “But I am super excited about some of the conversations we’re having and would be happy to share those when we have something that we can announce.”

When it comes to paying back investors, exact details of those discussions and strategies remain unclear.

The healthcare district’s financial decline means it failed to meet bond covenants tied to more than $700 million it has borrowed against future revenue. Investors could technically demand immediate repayment, but to avoid a financial crisis or possible bankruptcy, Palomar negotiated a forbearance agreement, which is a deal to delay or adjust payments. 

Palomar Board Trustee Laurie Edwards-Tate told Voice of San Diego that specific strategies Palomar has discussed with bond holders are largely in closed session meetings, so she and other officials cannot comment on them.

Other changes: A previous plan to transfer its executive leadership team to a private nonprofit corporation called Mesa Rock is on pause, Hansen told Voice.

The plan received mounting criticism amid fears that it would greatly reduce public access and transparency. That’s because the Mesa Rock board would not be required to hold public meetings like Palomar Health’s elected board is. And because Mesa Rock is not a public institution like Palomar Health, it wouldn’t have been subject to the California Public Records Act. 

 “It, unfortunately, just became a distraction. It was meant to be a tool for Palomar Health and the board to have strategic conversations and drive additional partnerships and growth. It was never intended for the district board not to be in control or for them to give up some of the authority that they have,” Hansen said. “It was just unfortunate how it was spun into something that had a bad connotation, and it really was not intended for that.”

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