Sharp’s Palomar Partnership Ended With UC San Diego in Control

Sharp HealthCare’s planned partnership with Palomar Health, announced in August 2024 as a way to expand care in North County, never became a working hospital network. Palomar took a $25 million Sharp loan, signed a year of exclusive talks, then borrowed from UC San Diego Health and placed its hospitals in a joint powers authority that began operating on July 1, 2026.

The public pitch was shared clinics, transplants, and Palomar’s public status. The contest underneath was which system would control Escondido and Poway after Palomar’s cash ran short.

The $25 Million the Announcement Left Out

On August 28, 2024, Sharp and Palomar said they had signed a fully executed Letter of Intent to build joint programs across inpatient, outpatient, and ambulatory lines. Both sides said the pact was not a purchase and would keep Palomar’s public status as California’s largest public health district.

Sharp, which calls itself San Diego’s largest health system, would push primary care and specialties into North County. Palomar patients would get Sharp services Palomar did not offer, including transplants and advanced cancer procedures. Diane Hansen, Palomar’s president and CEO, said the program should be “solidified and ready to go within 12 months.”

The release did not mention that Palomar had already borrowed $25 million from Sharp on March 29, 2024, or that Palomar’s board had approved a one-year exclusivity deal in May 2024. Chris Howard, Sharp’s president and CEO, used East County as the proof of concept.

District hospitals like Palomar Health are vitally important to the communities they serve, and as we have proven through our longstanding partnership with Sharp Grossmont Hospital, we will work together to ensure this partnership is positioned to meet the health care needs of North County.

Chris Howard, President and CEO, Sharp HealthCare statement

What Sharp’s Grossmont Lease Still Looks Like

Howard was pointing at a 1991 lease, not a new idea. The Grossmont Healthcare District still owns the La Mesa campus. Sharp runs the hospital. Voters later extended that lease through 2051.

HOW THE EAST COUNTY LEASE IS SPLIT

• The district: A public agency with a five-member elected board owns the campus for East County residents and acts as landlord of Sharp Grossmont Hospital.
• Sharp: A private nonprofit leases the hospital, runs daily operations, and treats the site as one hospital inside its county network.
• The term: The current lease runs to 2051, so the public title and private operator have been split for a generation.

That split is why Sharp could sell Palomar a Grossmont-style future without putting an acquisition on the table. Palomar would keep an elected board and a public label. Sharp would get a North County platform, including talks about leasing unfinished floors at Palomar Medical Center Escondido and running a hospital inside the hospital.

A New Kaiser Hospital in Palomar’s Backyard

Palomar’s problem was not a missing press release. Kaiser Permanente opened its San Marcos Medical Center on August 9, 2023, a seven-story, 433,000-square-foot hospital in Palomar’s core market. Kaiser said the campus would serve its San Diego membership of 636,000 people and stop sending North County deliveries to Palomar.

Kaiser’s San Diego medical director, Dr. Michael Lalich, said the group had been sending about 80 to 100 births a month to Palomar and would bring that work in-house. Palomar still holds the area’s trauma center. Births, routine inpatient stays, and Kaiser-directed volume were another matter.

By early 2024, Palomar’s lawyers later wrote, executives were telling Sharp that costs were up, beds were underused, and the payer mix had tilted toward Medi-Cal. Palomar said it needed an investment in the $100 million to $200 million range or it would breach its bond covenants. Sharp, they wrote, had a more commercial patient mix and wanted beds.

Palomar Posted a $136.5 Million Operating Loss

The district’s own books show how fast that warning turned into a hole. Palomar’s audited loss from operations was $29.5 million in the year ended June 30, 2023, then $165.1 million the next year, then $136.5 million in fiscal 2025. Net position fell $158.0 million in fiscal 2025. Interest expense that year was $89.2 million. Unrestricted property tax brought in $24.4 million, nowhere near the gap.

PALOMAR’S AUDITED OPERATING LOSSES

Long-term debt, net of the current slice, was $1.369 billion at June 30, 2025. Palomar has said about $700 million of that stack is revenue-bond debt. The audit also said the district violated debt and insurance covenants. A forbearance deal with bond insurer Assured Guaranty kept lenders from calling the debt while Palomar tried to climb out.

S&P Global Ratings later rated Palomar’s bonds CCC+. The firm counted 17.4 days of unrestricted cash at the end of fiscal 2025 and -3.7 days as of May 31, 2026, with unrestricted reserves at -$11.0 million. Coverage sat at 0.88 times against a 1.0 times covenant. Palomar still made a $17.2 million debt-service payment in May 2026 and is due about $26.9 million in November 2026.

Sharp’s First Term Sheet Arrived at Week 47

Palomar’s March 22, 2025, letter to Sharp is the clearest record of why the LOI died. The district said it granted Sharp a year of exclusive talks, running to March 28, 2025, for a possible clinical or service-line deal in Escondido, and took the $25 million loan on the promise that a larger affiliation would follow fast enough to protect the bonds.

Weekly, then twice-weekly, work-stream meetings followed. Palomar said Sharp still sent no formal affiliation plan for months, refused to guarantee volumes or margins, and let a hospital-within-a-hospital concept and a floor lease fade without numbers. On December 6, 2024, Sharp did give Palomar a written waiver to talk with UC San Diego Health about using the Poway hospital.

Palomar said Sharp’s first joint-powers term sheet arrived in February 2025, 47 weeks into the 52-week exclusivity, with no volume pledges and a request for more exclusive time. Palomar refused the extra six months. On March 7, 2025, its board approved a $20 million loan from UC San Diego Health, which Palomar called a no-strings cash line between two public systems. Sharp’s letter said it had been willing to fund as much as $75 million after a joint-powers deal and to share management of Palomar for an initial 10 years.

Sharp’s first actual proposal for a joint affiliation came 47 weeks into the 52-week exclusivity period, and even that self-styled “term sheet” contained no commitments on patient volumes, no operational detail, and no effort to project cost savings or revenue growth under the proposed affiliation.

Palomar Health counsel, March 22, 2025 letter to Sharp

HOW THE SHARP DEAL UNRAVELED

1. March 29, 2024: Palomar borrows $25 million from Sharp and later locks a one-year exclusivity window that runs to March 28, 2025.
2. August 28, 2024: The systems announce the Letter of Intent and a 12-month rollout that would have landed in August 2025.
3. December 6, 2024: Sharp waives exclusivity so Palomar can negotiate UC San Diego Health’s use of the Poway campus.
4. February 2025: Sharp delivers its first joint-powers term sheet, which Palomar calls late and thin, then asks for six more months of exclusivity.
5. March 7, 2025: Palomar’s board approves a $20 million UC San Diego Health loan. Chris Howard cancels remaining meetings.
6. March 17 to 27, 2025: Sharp accuses Palomar of breaking the confidentiality deal and demands $26 million, the principal plus interest, or a lawsuit.

A Sharp spokesman said the system would sue if it was not repaid. Palomar’s lawyers called the claim legally empty and said a public hospital could not be barred from emergency cash because Sharp had “dithered.” No public docket in the later closing papers shows a finished trial. Those papers still treated Sharp loan covenants as live conditions in June 2026, which means the $25 million relationship had not simply vanished.

The Hospitals Now Operate as Palomar UC San Diego Health

UC San Diego Health kept writing checks. Closing documents for the authority list $40 million in pre-authority advances: $20 million under an April 4, 2025, note, $10 million on July 24, 2025, and $10 million on October 31, 2025, the same day Palomar and The Regents of the University of California signed the joint-powers agreement. S&P said Palomar also fully drew a $50 million UC San Diego Health revolving line. Interest on the $40 million is being forgiven; principal forgiveness is tied to the second phase of the asset shift.

The new system began operating under a joint powers authority as of July 1, 2026, as Palomar UC San Diego Health, serving a region the partners put at nearly one million people. Hansen is CEO of the authority. Patty Maysent, CEO of UC San Diego Health, sits over strategy with Hansen and the authority board. UC San Diego materials describe a six-member board with equal seats.

WHAT THE AUTHORITY TOOK IN PHASE I

• Asset split: About 49 percent of Palomar’s assets, including Palomar Medical Center Poway, moved into the authority on the operational date.
• Escondido campus: Palomar transferred a 19.5 percent tenant-in-common interest in the Escondido land and hospital and leased operations to the authority; Palomar kept 80.5 percent on paper.
• The unfinished floors: Early work includes building out two shelled floors at the 740,000-square-foot Escondido hospital for cancer, heart, and other complex care.
• The buy clause: UC San Diego Health holds options that can lead to a fair-market purchase if the authority fails or, in the longer design, after a seven-year term.

Sharp’s August 2024 release had promised Palomar patients advanced oncology. That work is now a Moores Cancer Center project at Escondido, which is the public face of the new brand.

Palomar Health and UC San Diego Health have formed Palomar UC San Diego Health, a new Joint Powers Authority serving North San Diego County. Moores Cancer Center will collaborate with the Escondido campus to expand cancer care services, with details expected Summer 2026.

Read… pic.twitter.com/pyvQS2OnEF

— UC San Diego Health Moores Cancer Center (@UCSDCancer) July 2, 2026

Licenses and medical staffs stay separate from UC San Diego Health’s own hospitals. The practical change is who sets specialty growth, capital, and the North County map. Scripps Health CEO Chris Van Gorder said in March 2025 that both UC San Diego and Sharp wanted in because North County is where the money is. Scripps has its own San Marcos campus plan. Kaiser is already there. Sharp is not inside Palomar’s hospitals.

Remaining Assets Moved Without a District Vote

California’s health-district rules are why both suitors talked about public-to-public structures. A private firm taking more than 49 percent of a district’s assets is supposed to face a local vote. Palomar and UC San Diego Health stayed under that line in Phase I, then asked Sacramento to move the rest.

On August 31, 2026, the state Senate approved a health trailer bill that clears the remaining 51 percent, including Palomar Medical Center Escondido, for transfer into the Palomar UC San Diego Health Authority. Officials said no district referendum is required because both parties are public. The bill still requires two public hearings before that transfer happens. Maysent has tied the hurry to refinancing about $700 million in revenue bonds and a $28 million balloon payment due at the end of 2027, a check she said would wipe out a thin cash cushion.

District voters still elect a Palomar board. They did not get a Grossmont-style lease referendum on who runs the hospitals. Sharp got a year of exclusive talks, a $25 million note, and a press release that named Grossmont. UC San Diego Health got the campuses, the unfinished floors, and the name on the door. Palomar patients may yet see the cancer and heart programs both suitors described. The partner that opens those floors is not the one that announced the partnership in 2024.