Palomar Health is grappling with financial difficulties and an uncertain future, carrying a substantial debt of $585 million, according to a report from Palomar's finance committee. The June budget report reveals a sharp decline in operational income, plummeting from approximately $42 million in 2022 to $9 million in 2023.

The organization currently receives significant income from its partnership with Kaiser Permanente, which is slated to end in the near future as Kaiser prepares to open its own hospital in San Marcos. The collaboration allows Kaiser to include Palomar Health in its in-network offerings, granting Kaiser members access to Palomar Medical Center in Escondido. Additionally, Kaiser licenses 168 beds at Palomar's Escondido campus to cater to Kaiser patients based on their needs.

The precise financial terms of the agreement between Palomar and Kaiser have never been fully disclosed. Both healthcare providers argue that state law permits them to keep these details confidential due to the fiercely competitive healthcare market, a position supported by a county grand jury in 2009. Kaiser spokeswoman Jennifer Dailard confirmed that the contract will conclude on December 31, 2024, coinciding with the opening of Kaiser's new $400 million, 206-bed hospital in San Marcos in August.

“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. 

Palomar Health faces mounting challenges as it attempts to pay off its significant debt amidst declining operational income. By the end of this fiscal year, it is estimated that operational income will generate approximately $9.1 million, a staggering decline of approximately $33 million compared to the previous year. Increasing interest rate costs on Palomar's outstanding revenue bonds further worsen the organization's financial position. After accounting for the increased interest, Palomar is projected to end the year with a deficit of $1.3 million, as outlined in the report.

Palomar Health Medical Group, an outpatient health network under Palomar's management, is also experiencing significant losses, expecting to conclude the 2023 fiscal year with a deficit of $38 million, excluding interest expenses.

While hospitals nationwide are facing declines in patient volume and revenue, Palomar's financial struggles are exacerbated by the impending loss of revenue from the partnership with Kaiser. Despite these challenges, Palomar Health intends to invest a total of $184 million over the next three years in new equipment, renovations of its campuses, and other projects. Notably, over $77 million will be allocated to completing the 10th and 11th floors of the Escondido hospital, which remain unfinished.

Given the uncertain financial situation, board trustee John Clark requested that the finance committee provide monthly financial reports to the Board of Directors and the public, instead of on a quarterly basis. However, the board rejected this request with a 4-2 vote, with board trustee Michael Pacheco abstaining. Clark expressed his concerns, stating, "We're in financial difficulty, and everybody needs to be monitoring the finances of the hospital on a monthly basis."