San Diego's Boundary Refs Could Be Headed Into A New Fight, This Time With A Public Healthcare District

By Tigist Layne, the Voice of San Diego

August 6, 2024

A power struggle could be brewing between San Diego’s boundary refs and a healthcare district in the middle of a major restructuring process, and it all started with a comment at a public meeting.

Nearly five months ago, Palomar Health, a public healthcare district that operates Palomar Medical Centers in Escondido and Poway, partnered with a newly formed private nonprofit company called Mesa Rock Healthcare Management, Inc. that now manages the healthcare district’s top executive staff. 

That management change raised eyebrows because it meant that a public agency was moving a significant portion of its operations into a private entity.

Among those concerned with what the change could mean for the public institution was the San Diego Local Agency Formation Commission, or LAFCO.

LAFCO is the agency that helps manage local government boundaries and services, it decides when new cities or special districts can be created or dissolved, and it controls where public services go. Healthcare districts like Palomar Health are considered special districts. LAFCO may step in, for example, when a city or special district wants to expand services outside of its boundaries.

When two North County water districts decided to leave the San Diego County Water Authority, during last year’s big water divorce it was LAFCO that OK’d it.

LAFCO typically gets involved in disputes that are brought to them, but as Voice of San Diego previously reported, the once-low-profile agency has recently been wielding its power over entities it has never challenged before.

The boundary refs say, even though Mesa Rock is a private entity, it still falls under LAFCO’s jurisdiction, which means it has to get approval from LAFCO when considering where to conduct services. But based on recent remarks from Palomar Health’s attorney, it’s unclear if Palomar Health would agree.

In 2022, LAFCO helped settle a dispute between Palomar Health, Tri-City Medical Center (another public healthcare district) and two outpatient health clinics, Vista Community Clinic and TrueCare.

The two clinics were originally referring patients to Tri-City Medical Center, but that agreement wasn’t working out for the clinics, which were both experiencing substantial financial losses each year. 

The clinics instead wanted to send patients to Palomar Health. But because the clinics were outside of Palomar Health’s district boundaries and within the boundaries of Tri-City’s district, LAFCO had to step in.  

It was LAFCO that made the final call allowing Palomar Health to contract with the clinics within the boundaries of the Tri-City district, citing a public health emergency. LAFCO Executive Officer Keene Simonds said at the time that the clinics needed more financial support and wouldn’t be able to keep operating without Palomar’s help. 

About a year later, on May 6, 2024, LAFCO’s Commission held a public meeting to clarify some rules on an existing policy on out-of-agency services. The policy, created in 2001, requires cities and special districts to get approval from LAFCO before providing new or extended services outside of their boundaries via contracts or agreements, also known as out-of-agency services.

LAFCO’s assistant executive officer, Priscilla Mumpower, used this example of Palomar, Tri-City and the two health clinics.

But something unexpected happened. An attorney for Palomar Health showed up at the meeting and made a public comment that left LAFCO’s commissioners at a loss for words.

John Kern, an attorney at Holland & Knight, the law firm that helped Palomar Health create and establish their new management structure just a few months earlier, told LAFCO commissioners that LAFCO didn’t actually have any authority to stop Palomar from contracting with the clinics.

He said the situation “went exactly as it should” because Palomar Health never conducted services outside of its boundaries, it was the clinics that are not under LAFCO’s jurisdiction that were conducting services outside of Palomar’s boundaries.

“There were no services taking place outside of Palomar Health’s healthcare district ever — that are under the jurisdiction of LAFCO to regulate,” Kern said. “So, there were third-party ambulatory care and OB organizations that are not under the jurisdiction of LAFCO that were going to conduct services.” 

He added that LAFCO did not have a right to overturn the contracts Palomar Health entered into with the third-party clinics, and Tri-City would not have successfully been able to challenge those contracts. 

“This rule change would have no impact on that happening again in the future or would not empower another healthcare district like Tri-City to challenge it validly,” Kern said. 

In other words, Kern believes that LAFCO never had the authority to stop that contract from going through because the health clinics aren’t under LAFCO’s jurisdiction, and neither are the services being conducted under that contract. And if Palomar wanted to do something similar in the future, they would have every right to.

LAFCO disagrees.

At the time, the commissioners did not respond to Kern’s comments, but they did cause concern among LAFCO’s officials. 

LAFCO Consultant Adam Wilson told Voice of San Diego that it came as a surprise to LAFCO commissioners and seemed to diminish everything the two parties had worked together on over the past two years.

Kern’s remarks also revealed a fundamental difference in how LAFCO and Palomar Health view LAFCO’s out-of-agency policy.

“Palomar contracted with these two clinics and, for LAFCO, that contract in itself is when the services start, but Palomar seems to think the services start when somebody comes into the hospital and receives care at the hospital,” Wilson said. “So, that’s a huge distinction that we vehemently disagree with.” 

Now, LAFCO officials are concerned Palomar Health may try to apply that same logic to this newly formed private nonprofit company that it partnered with. Does Palomar believe that Mesa Rock and any of Mesa Rock’s future contracts don’t fall under LAFCO’s jurisdiction and therefore don’t need approval from LAFCO to conduct services outside of Palomar’s boundaries? Right now, that’s unclear. But it’s something LAFCO officials are keeping an eye on.

Wilson told Voice via email that LAFCO’s out-of-agency policy does apply to Mesa Rock because regardless of whether a contract is signed by a separate private entity, that private entity is still an extension Palomar Health. 

“If they are presumably moving in a direction and proceeding to think that taking action under a private entity is to somehow undermine or move away from LAFCO’s authority, then yeah, it brings us concern,” Wilson said. 

He added that Palomar Health didn’t give LAFCO a heads up about the restructuring before it was approved; LAFCO found out about it in the news. It raises a lot of questions about what this management restructuring means and what it will look like moving forward, Wilson said. 

“I certainly understand the perspective of Palomar as we’ve stayed in communication with them that changes to the health care economy post-pandemic have created financial hardships … and to stay afloat financially, they have to be able to execute contracts and investments strategically without public disclosure,” Wilson said. “But the concern is still raised that you’re moving your executive team under a private entity and removing it from the public component, and the district itself is a public agency. So, what does that exactly mean? How does it exactly work?”

Palomar Health officials declined to provide a comment for this story. 

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