Public health systems across California have been struggling to achieve long-term stability, especially in the wake of the pandemic, as they face financial and service challenges.
Tri-City Medical Center and Palomar Health, located in North County San Diego, are at a critical stage of recovery and transformation.
Tri-City Medical Center recently reached an agreement with Sharp HealthCare to take over the hospital’s operations and financial affairs.
The partnership will bring an investment of more than $100 million to stabilize Tri-City’s finances and promote its service expansion.
“This is not just about short-term recovery, but about the future,” said Dr. Gene Ma, CEO of Tri-City. “We want to ensure that the North County community continues to have access to high-quality health care, rather than losing health resources.”
Tri-City Hospital has long served Carlsbad, Vista and Oceanside, and as a regional hospital, its mission is to ensure access to health care for those who need it most.
To achieve this goal, Tri-City has been seeking strategic partnerships for many years. In 2023, several institutions, including UCSD Health and Sharp, submitted cooperation proposals.
At that time, UCSD’s proposal was considered attractive because it did not rely on general liability bonds. However, as the negotiations progressed, its terms changed significantly and the cooperation eventually fell through.
This year, Tri-City restarted the project solicitation process and chose between UCSD Health and Sharp again. This time, Sharp’s proposal stood out and was eventually adopted, and it did not require reliance on general liability bonds.
Tri-City hopes to use this cooperation to rebuild the previously cut workforce and distribution services and promote the expansion of service scope.
“Sharp has extensive experience in supporting the growth of community hospitals. They have helped many local hospitals thrive.” Ma said.
The first step of the cooperation agreement is to sign a non-binding letter of intent, after which the two parties will draft a formal agreement and submit it to the board of directors for review, and the final vote is expected to be held in June next year.
Christopher Howard, president and CEO of Sharp Healthcare, emphasized: “We are committed to providing the right medical services at the right time and place, always with community health at the core.”
Sharp will invest more than $100 million in Tri-City over the next five years, including expanding outpatient clinics, women’s health services, medical office construction, and installing the Epic electronic health record system. In addition, the hospital’s 175 beds will be upgraded to meet seismic requirements.
This cooperation also represents an important step for Sharp to expand its business in North County. Currently, Sharp does not own, operate or lease any hospitals north of Kearney Mesa.
Howard hopes that through this cooperation, Sharp will become the main medical service provider in North County and promote Sharp Health Plan to become the preferred health insurance plan for local residents.
Tri-City’s financial performance has improved significantly. Its EROE (operating income over expenses) is -$31 million in 2023 and -$25 million in 2024, while it is expected to achieve a positive growth of $10 million this year. EBITDA is also expected to reach $30 million, a record high in the past two decades.
“We have been here for 64 years, and this partnership will give us the opportunity to continue this tradition for another 64 years,” said Dr. Ma.
According to the 2023 Kaufman Hall report, one in five hospitals in California are at risk of closure, 52% of hospitals are losing money, and 71% are unsustainable, highlighting the fragility of the current state’s health care system. Ma pointed out: “After the epidemic, California’s health care system is really difficult.”
During the epidemic, Tri-City had to close its maternity and delivery services. Sharp’s joining also means that these services will be restored and will be based on the professional standards of its Mary Birch Hospital.
“Now, North County women no longer have to travel far for high-risk pregnancies. You can get world-class obstetric care services locally,” said Ma.
In addition, this partnership is also committed to improving long-restricted specialty medical services and providing North County residents with a higher level of medical resources.
In contrast, Palomar Health, while facing fewer challenges in its post-pandemic recovery, is also under pressure from rising medical costs.
CEO Diane Hansen noted that challenges from drug, wage and staff shortages persist. Many medical staff choose to leave or retire due to burnout, forcing hospitals to increase salaries to attract and retain employees.
Despite this, Palomar is firmly moving forward with its $150 million improvement plan, with $120 million already in use. “We are committed to increasing revenue, reducing costs, and re-evaluating resource allocation. The current financial situation is good,” Hansen said.
These measures include re-examining real estate use, reducing overtime, optimizing contract negotiations, and improving inpatient service efficiency.
Although the federal government’s reform of MediCal reimbursement remains unclear, Hansen emphasized: “We will not reduce services, we will persist because our mission here is to serve the community.”
For the two medical institution leaders, Sharp’s deep involvement in North County heralds an inflection point in the development of the entire regional medical industry. Dr. Ma concluded: “The strength of a community depends on the kind of medical services it can provide.”