Amid ongoing financial decline, Palomar Health has borrowed cash from two other hospital systems since 2024. But one of those loans has ruffled some feathers.
Sharp Healthcare has threatened to file a lawsuit against Palomar Health for allegedly breaching an exclusivity arrangement the two hospital systems established last year. The threat of litigation comes after Palomar recently accepted a loan from UC San Diego Health.
Palomar Health, a public healthcare system that operates Palomar Medical Centers in Escondido and Poway, recently borrowed $20 million from UC San Diego Health. Palomar’s board of directors approved the loan at a March 7 board meeting.
Previously, in May 2024, Palomar Health borrowed money from, and approved an “exclusivity arrangement” with, another local hospital system – Sharp HealthCare. The exclusivity arrangement provided one year for Sharp and Palomar to work toward a “joint affiliation,” and the loan was in the amount of $25 million.
A few months later, in August 2024, Palomar and Sharp announced a partnership where they planned “to jointly establish programs across clinical service lines,” according to a press release from Sharp.
The two healthcare systems formalized the collaboration “through a fully executed Letter of Intent that will maintain Palomar Health’s public designation,” the announcement said.
“Sharp will expand its network into North County, including primary care and medical specialties as appropriate for the communities,” the press release said. “Palomar’s patients will also have access to Sharp’s specialized and higher-acuity services not currently available at Palomar Health, including transplants, advanced oncology procedures and more.”
“We anticipate having the program solidified and ready to go within 12 months,” said Palomar’s CEO Diane Hansen in the press release.
But then Palomar approved the loan from UC San Diego Health. Sharp officials sent a letter to Palomar’s CEO concerning the loan agreement and exclusivity arrangement Sharp and Palomar entered into last year.
Palomar Health refused to share a copy of the letter from Sharp. Representatives of Palomar health told us that was because of confidentiality reasons. But then a spokesperson provided Voice with Palomar’s response letter to Sharp sent via Palomar’s attorneys. The full response from Palomar Health can be found here.
The response references Sharp’s letter and the threat of litigation.
“We write to address the allegations Sharp Healthcare … raised in its correspondence to Palomar dated March 17, 2025, regarding Sharp’s threatened lawsuit against Palomar for Palomar’s alleged breach of the Amended and Restated Confidentiality, Non-Disclosure and Exclusivity Agreement … with Sharp,” Palomar’s response says.
It also says that Sharp’s letter was triggered by Palomar Health’s acceptance of a “no strings attached” loan from UC San Diego Health, whose “only objective was ensure Palomar survives and remains in operation to service the underserved population of North County.”
According to the letter, Palomar Health officials deny Sharp’s allegations of a breach of agreement and instead claim that Sharp didn’t attempt to follow through on a “joint affiliation” until the one-year exclusivity arrangement was almost up. The arrangement expires on March 28, the letter says.
“Sharp’s allegations come at the tail end of a one-year period of exclusivity, wherein Sharp alone had the right to negotiate a long-term affiliation deal with Palomar,” Palomar’s response says. “During that year, while Palomar dedicated human resources, time, and money to develop a long-term plan of affiliation with Sharp, Sharp dithered and sat idly by while Palomar’s financial condition worsened.”
After finally discussing a proposal from Sharp, the letter says, “Sharp’s CEO contacted Palomar’s CEO and unilaterally terminated negotiations between the parties.”
The letter also notes that the exclusivity agreement did not prevent Palomar from obtaining other loans.
Nonetheless, the letter says Palomar is still committed to continuing negotiations with Sharp moving forward.
Palomar Health Board Member Laurie Edwards-Tate received a copy of the letter from Sharp.
“In view of a recent U-T story regarding a loan from UC San Diego Health, it causes me to feel that there is concern from Sharp over repayment of the loan and what a future partnership might look like between Sharp and Palomar,” Edwards-Tate told Voice.
Edwards-Tate was not present for the March 7 board meeting to vote on the loan from UC San Diego Health.
A representative from Sharp declined to provide a copy of the letter or a comment.
UC San Diego Health emailed a statement to Voice that says the hospital system “serves as an essential healthcare safety net for the region.”
“If we allow any health system to fail, patient access will suffer, and our staff and facilities will feel the strain,” the statement said. “Palomar Health is a long-time community partner of UC San Diego Health, and this loan reinforces our continued collaboration as we work together to meet the expanding need for high-quality health care services in the region.”
Palomar Health’s Financial Woes
Palomar Health has been seeing 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. It’s part of a larger trend of hospitals across the nation seeing less patient volume and less overall revenue.
Palomar experienced a $165 million operating loss in its previous fiscal year, which ended in June 2024. And according to a recent financial report from February of this year, the healthcare district is still operating at a loss this fiscal year.
Palomar has seen an operating income loss of almost $41 million from July 2024 through February 2025, records show.
Last month, Palomar also received a downgrade in its credit rating from Moody’s, one of the world’s big-three credit rating agencies.
Palomar’s rating went from Ba2 to Caa3; in other words, it went from having a substantial credit risk to having a very high credit risk and being of poor standing, according to a report by Becker’s Hospital Review.
The lower rating reflects Palomar’s thinning liquidity, which refers to how much cash is readily available, or how quickly something can be converted to cash. It also reflects an increased risk of “bankruptcy filing or liquidation,” the Moody’s report says.
But Palomar Health officials have said they’re working on recovery.
In January of this year, Palomar reached an agreement with its lenders to turn its finances around in the next two years.
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.
PH needs new leadership. Their CEO has run the system into the ground financially.
She outsourced our department to India. Just what America needs. 🤦♀️
Diane Hansen needs to resign or be terminated immediately. The PH board is negligent in their duties by allowing the executive team to continue to run the district into the ground.
Since Diane Hansen has taken the top leadership position at Palomar Health, she has:
– Created a 165 million dollar budget deficit
– Reduced liquidity to 15 days of cash on hand. (A similarly sized healthcare organization should have over 150 days)
– Defaulted on the district’s bond covenants
– Orchestrated Kaiser Permanente’s departure from patient care at Palomar Health resulting in a decline in district revenue
– Received a no-confidence vote from the entire medical staff at Palomar Health
– Received a no-confidence vote from the entire nursing staff at Palomar Health
– Caused multiple nursing-lead strikes due to poor working conditions and substandard pay.
– Attempted to privatize management of the district and subvert public scrutiny and control
– Received calls to resign from her own board
– Received criticism from local and regional political organizations for her poor management
– Broken business agreements with Sharp leading to threatened litigation
The slew of poor press news articles is akin to watching a crash in slow motion. It is painful and sad to see the state of the district reduced to rubble by the actions of one administrative team. The community deserves better.
Diane, you caused this disaster.
Diane, by your actions, you have proven that you are unfit for your position.
Please resign for sake of the community and the health of its constituents.
The board is negligent in their governance duties and should have addressed the failing CEO years ago. There are only 2 board members fit to govern that healthcare system and the rest are simply puppets to Diane. An investigative journalist using the Brown Act should demand all financial records and physician agreements at PH medical group. They would find illegal activity including payments and cash subsidies to physicians that are over fair market value. An easy investigation would be CEO and board collusion. How in the world is it possible that only two board members vote with a track record of in favor and against and all of the rest are 100% voting in favor for every vote that hits the board. That is not a coincidence. Someone needs to do something to shake this hospital up and get it back on track. Maybe Diane Hansen should not have colluded with the board in 2017 to get rid of Bob Hemker. But then again, their collusion had a starting point and that was when it all began.
The comment above should be taken down. Unfortunately, a mentally ill family member made this uncivilized post.
As a hospital board chair one should balance board. Each seat should bring expertise. I have a regulatory seat, community care seat, a pre hospital seat and a public policy seat. In that way you avoid bobble head board members. Many hospitals are in the red. Without transfusion of money they will need to close down. Doesn’t our health system have endothermic problems?
Thank you for the insightful article regarding the borrowing situation at Palomar Health and its implications for Sharp Healthcare. I found the discussion on the intricacies of financing in the healthcare sector particularly useful, especially given the challenges that many healthcare systems are currently facing. One aspect worth exploring further is the impact of such borrowing on patient care and operational efficiency within the organization. For instance, while Palomar Health is bolstering its capital through loans, it raises the crucial question of how these funds will be allocated. If the borrowed funds are directed primarily toward infrastructure improvements or technological advancements, it could potentially enhance patient outcomes and streamline services. However, if the resources are not managed effectively, it could lead to increased debt burdens that may detract from the quality of care provided. In light of these considerations, how do you think the concept of a “writ of mandamus” https://writofmandamus.com/ could play a role in ensuring that healthcare organizations are held accountable for the proper allocation and use of borrowed funds? This legal tool might offer a way to demand transparency and accountability in how healthcare systems manage their financial obligations, ultimately benefiting patients and communities. Looking forward to hearing your thoughts!