A plan to privatize top management at Palomar Health in North County is on a one-year hiatus after directors voted this week to delay a controversial management agreement they approved in 2024.
When a majority of Palomar’s elected directors approved the deal with Mesa Rock Health Care Management, a nonprofit corporation, the idea was to have the newly created organization employ the public health care district’s top managers, including its chief executive officer, Diane Hansen.
Unlike Palomar, which operates hospitals in Escondido and Poway, Mesa Rock is not subject to public records laws, and directors said they could negotiate better deals outside the public view. It also would have been more difficult for directors to fire Palomar’s CEO, who would have been employed by Mesa Rock.
The resolution that four of seven Palomar directors approved in a special meeting Monday states that Mesa Rock never took over management of Palomar as originally anticipated and has not received 1% of health system revenue to pay for its operations.
Monday’s action was to “stay and put into abeyance” the management services agreement with Mesa Rock for “a period of 12 months,” though the company “will remain viable and legally compliant in the event the Board of Directors of Palomar Health and Mesa Rock agree to restart the (agreement) earlier than the contemplated date.”
Board Chair Jeff Griffith and members Michael Pacheco, Terry Corrales and Linda Greer approved the one-year hiatus. Board member Laurie Edwards-Tate voted no and directors John Clark and Abbi Jahaaski abstained.
The reasons given for this change of direction, listed in the board’s formal resolution, include “opportunities for Palomar Health to enter into provider affiliations directly and “declines in Palomar Health’s financial performance caused by broad market trends that disproportionally impact safety-net hospitals like those of Palomar Health.”
Such difficulties recently caused the organization to post a $165 million operating loss for its 2024 fiscal year that ended in June 2024 and further multimillion-dollar losses in the 2025 fiscal year. A dwindling number of days of cash on hand, and other financial factors caused Palomar to default on the covenants for about $700 million in revenue bonds, forcing the board to approve a forbearance agreement that gives Palomar two years to turn its finances around.
The agreement, obtained under the Public Records Act by The San Diego Union-Tribune, requires Palomar to hire several different consulting companies to help pull together a comprehensive turnaround plan within 60 days and also to put the whole process under the authority of a “turnaround officer,” which the agreement states is Guidehouse, a Virginia-based global management consultancy. Palomar confirmed in an email Wednesday that Guidehouse partner Michele Mayes is its turnaround officer.
This position, according to the forbearance agreement, reports directly to the Palomar board and its “duty of loyalty shall at all times be to the hospital.” The insurance company that brokered the agreement on behalf of investors “shall not be deemed to control such Turnaround Officer,” according to the agreement.
Mayes, though, now has what the agreement terms “transaction approval,” meaning that managers or the board would need her sign off on any purchase or agreement with a value “exceeding $2 million.” The forbearance agreement also obligates Palomar’s management to provide monthly financial updates to insurance company executives. The organization also recently posted its audited financial results which appear to comport with unaudited versions released in late November.
Mesa Rock’s creation also prompted an anonymous complaint to the state Fair Political Practices Commission. A search of the commission’s complaint database Wednesday shows that the matter is still “opened” though two attorneys originally named in the action have been dropped, leaving only Hansen as a remaining subject.
