Palomar Health Is In A Bad Financial Position – And It May Get Worse

By Tigist Layne, the Voice of San Diego

July 6, 2023

Palomar Health’s finances aren’t doing so good – and the prognosis isn’t much better.

The North County public healthcare provider – which operates Palomar Medical Centers in Escondido and Poway – has $585 million in debt, according to a report from Palomar’s finance committee. And a June budget report showed operations income plunged from roughly $42 million in 2022 to $9 million in 2023.

On top of that, Palomar Health is expected to take another big financial hit. Palomar currently receives significant income from Kaiser Permanente as part of a partnership that’s set to dissolve in the coming months as Kaiser gets ready to open its own hospital in San Marcos.

The partnership allows Kaiser to include Palomar Health in its in-network offerings, providing Kaiser members access to Palomar Medical Center in Escondido, Kaiser spokeswoman Jennifer Dailard said in an email.

Kaiser also licenses 168 beds at Palomar’s Escondido campus that are available to Kaiser patients based on need.

Financial details of the agreement between Palomar and Kaiser, such as how much Kaiser is paying Palomar and how the bed guarantee works, have never been fully disclosed.

Both healthcare providers have maintained that state law allows those details to remain confidential because of the extremely competitive healthcare market, and in 2009, a county grand jury agreed.

The contract will end Dec. 31, 2024, Dailard said. But the new $400 million, 206-bed San Marcos hospital is slated to open in August.

It’s unclear just how significantly the new Kaiser hospital will impact Palomar’s revenue once it opens and the contract ends, but Palomar will lose income from the partnership, as well as Kaiser’s patients.

Dailard didn’t comment on how much money or how many patients Kaiser would be taking with them to the new hospital.

“While some services and inpatient care may migrate to our newly opened San Marcos Medical Center, those decisions will be based on what’s needed at the time and coordinated directly with our partners at Palomar Health,” Dailard said in an email.

In 2012, Palomar borrowed a lot of money to build the nearly $1 billion Palomar Medical Center in Escondido, and its partnership with Kaiser has been a significant source of steady revenue for operations costs and to service its debt, which stood at nearly $600 million last year.

Paying off that debt is getting harder as operation income declines.

At the close of this fiscal year on June 30, income from operations will have generated about $9.1 million, a decrease of roughly $33 million from the year prior. Increasing interest rate costs on Palomar’s outstanding revenue bonds are making its financial position worse. After paying for the increased interest, Palomar will end the year $1.3 million in the red, according to the report.

Palomar is projecting a more than $45 million increase in its operations income in 2024.

The district’s total cash on hand also dropped by about $140 million in just nine months from June 2022 to March 2023.

Palomar Health Medical Group, an outpatient health network run by Palomar, is operating at an even bigger loss – it will end the 2023 fiscal year at $38 million in the red, and that’s excluding any interest expenses.

Hospitals nationwide and locally are seeing declines in patient volume and overall revenue, but with the upcoming loss of revenue from Kaiser, Palomar’s financial struggles seem far from over.

Still, the hospital district has plans to spend a total of $184 million in the next three years on new equipment, renovations of both of its campuses and other projects. More than $77 million of that chunk will go toward building the 10th and 11th floors of the Escondido hospital, which still aren’t completed.

In light of Palomar’s financial uncertainty, board trustee John Clark requested that the finance committee provide financial reports to the Board of Directors and the public monthly, rather than on a quarterly basis. The board denied his request on a 4-2 vote with board trustee Michael Pacheco abstaining.

“It’s bizarre that they would do that,” Clark said. “We’re in financial difficulty and everybody needs to be monitoring the finances of the hospital on a monthly basis.”

Officials at Palomar Health did not respond to multiple requests for comment.

Clarification: This post has been updated to clarify how Palomar Health’s board voted on an agenda item.

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