ESCONDIDO — The state last month rescinded a $50 million grant previously awarded to Palomar Health for its planned 120-bed psychiatric hospital.
The money had been part of a $3.3 billion funding package under the Behavioral Health Continuum Infrastructure Program, funded through Proposition 1. Voters approved the $6.8 billion general obligation bond last year to support behavioral health and substance use treatment beds and housing.
The $50 million award in May was “the largest grant ever received” by the health care district, according to Palomar Health Foundation President and CEO Kristin Gaspar.
On Aug. 1, the state Department of Health Care Services notified Palomar Health that it approved a second extension until Aug. 15 to submit documentation substantiating the foundation’s required $5 million cash match for the Round 1: Launch Ready grant.
A letter dated Aug. 18 to Sheila Brown, who oversees executive strategic priorities for the foundation, served as the department’s “official notice” rescinding the award.
“After DHCS review, (Palomar Health Foundation) failed to submit the required supporting documentation to validate the cash match requirement by the deadline, which is a provision of the Bond BHCIP Round 1 conditional award,” the letter states.
The letter encouraged Palomar Health to apply for “Round 2: Unmet Needs” grant funding.
The $84,700-square-foot Palomar Health Behavioral Health Institute is expected to open in 2027, though the loss of funding could cause delays.
The hospital held a groundbreaking ceremony nearly a year ago for the facility, located just south of Palomar Health Medical Center along Citracado Parkway. Construction has not yet begun.
Palomar Health has faced financial struggles over the past year, including a $165 million operating loss in fiscal year 2024.
In January, the district entered a one-year forbearance agreement with lenders, waiving annual financial covenants tied to more than $700 million in revenue bonds. Palomar Health has two years to stabilize its finances.
Earlier this year, Moody’s downgraded the district’s rating to “Caa1” from “B2,” citing “further thinning of liquidity resulting in 15 to 20 days cash on hand and limited ability to meaningfully improve given ongoing significant cash flow losses.”
The district also delayed incentive payments promised to nurses in 2023 of up to $100,000 for those who committed to staying through 2026.
Palomar Health has declined to comment on the funding rescission.
