Palomar Health received a $50 million state grant to help build a large mental health hospital on its main medical campus in Escondido. But records show that the funding may be spread more broadly across the region, including, perhaps, as far south as San Diego, leaving residents of inland North County with significantly less inpatient care than they were promised.
Emails and other documents obtained through a Public Records Act request show that UC San Diego Health, Palomar’s pending partner in a new joint powers authority, reached out to the California Department of Health Care Services in early April, forwarding a proposal that would abandon plans to build a single stand-alone facility in partnership with a private developer.
Instead, the university health system proposes adding a dozen mental health beds at Palomar Medical Center Poway, and 20 at UCSD’s East Campus Medical Center, the College Area facility formerly called Alvarado Medical Center.
Termed a “regional behavioral health solution,” the proposal would add a “partial hospitalization program” on the Palomar Medical Center Escondido campus, with 40 treatment slots for substance use disorder, trauma therapy and women’s programming. Services could possibly include transcranial magnetic stimulation and ketamine therapy, and a 16-bed crisis-stabilization unit, though that resource already exists at the Escondido hospital through a contract with the county.
It is a very different plan than the one that Palomar submitted to DHCS in the second round of the state’s grant program funded by Proposition 1, which authorized more than $6 billion in state bonds for behavioral health treatment, residential care and supportive housing.
Palomar’s proposal called for a 120-bed mental health hospital, developing a parking lot into a facility through a joint public-private partnership estimated to cost $104 million. That vision won a $50 million grant from the state in 2025 that was clawed back after Palomar’s charitable foundation was unable to meet a requirement for $5 million in matching funds. Palomar persevered and reapplied, winning a second award for the same amount in March.
But the state’s award letter significantly pares back the scope of the project, designating the funding for a 50-bed acute psychiatric hospital entirely to Medi-Cal patients, according to the UCSD proposal. Palomar’s original proposal would have allocated half of the available beds to patients with Medicare or commercial health insurance, with the remaining 50% set aside to serve Medi-Cal patients.
But the 50-bed proposal also has not earned broad enough support to move forward.
UC San Diego Health said in a statement this week that its proposal was submitted “in partnership” with Palomar after consultation with San Diego County Behavioral Health Services.
“The goal is for more patients to be able to access the appropriate level of psychiatric care, more quickly, and with less disruption to their lives and families,” the UCSD statement said.
But it was not clear how Palomar could go from thinking a 120-bed separate psychiatric hospital was necessary in Escondido to a proposal where no new inpatient beds are proposed anywhere farther north than Poway.
Palomar previously operated a 22-bed inpatient behavioral health unit at its main facility in downtown Escondido, but closed the resource in 2020 after it sold the mostly empty complex. A temporary unit and a 12-bed unit for seniors at Palomar Medical Center Poway also closed, with Palomar saying in 2024 that the closures were necessary so that it could focus on building the planned new 120-bed hospital. Meanwhile, the emergency departments at Palomar’s two hospitals have dropped designations that allow them to take “5150” transports, which occur when a person is detained if they are thought to be a danger to themselves or others or “gravely disabled.”
The two-page UCSD proposal does not make it clear whether Palomar, a public health care district created to serve the people of inland North County, intends to resume these services. Today, anyone who needs treatment in a locked psychiatric unit must travel outside Palomar’s district, which receives millions in property tax revenue annually, to receive such services.
Neither Palomar’s executive leadership nor the chair of its elected board of directors responded this week when asked for comment on its intentions regarding the significant change in mental health care plans.
DHCS has not said why it knocked the project down to 50 beds.
Part of the willingness to take a fresh look at the grant could have to do with cost. The county recently opened a 16-bed stand-alone mental health facility at Tri-City Medical Center in Oceanside. The project cost $27.6 million, or $1.7 million per bed. If the cost to build the 50-bed facility in Escondido was similar, the expected price tag would be closer to $85 million, suggesting that the state’s allocation is inadequate.
While the state did not directly address the project’s financial viability, it does appear that Palomar’s joining with UCSD triggered the state to bring all parties back to the table for a new look at the project.
“DHCS met with the JPA and San Diego County’s Behavioral Health Administrator to discuss revisions to the project scope to better meet the geographical needs,” the DHCS statement said. “DHCS is currently awaiting the JPA’s formal revised submission.”
Nadia Privara Brahms, director of behavioral health for San Diego County, said through a spokesperson Friday that she consulted with UCSD and Palomar to make sure that the proposal aligns with regional goals. Those goals have generally pushed for more outpatient treatment as a way of preventing hospital admissions. The director seemed to agree with the idea of building fewer inpatient beds.
“The services being proposed are more sustainable through Medi-Cal reimbursement and would likely ramp up more quickly for beneficiaries to access because they do not require new construction,” Privara Brahms said.
The comment about Medi-Cal reimbursement likely refers to restrictions on using federal matching funds for stand-alone mental health care facilities with more than 16 beds. Exceeding that limit means that only state Medi-Cal funds may be used, significantly reducing the funding available. This restriction, generally called the Institutions for Mental Disease exclusion, is a main reason why the new unit at Tri-City Medical Center in Oceanside has 16 beds.
University officials confirmed they do intend to submit a revised proposal, though a spokesperson for the health system said the application would be made by Palomar, not the JPA. Though the new entity recently seated its board of directors, the organization is not yet fully functional. Key documents remain unsigned six months after Palomar’s board approved the deal in October 2025.
Patricia Maysent, chief executive officer of UC San Diego Health, said that the process is expected to close in June or early July. Complex administrative requirements, such as transferring operating licenses to the JPA and approval from the state Office of Health Care Affordability, have taken time to complete.
“There is no question that it’s going to happen,” Maysent said. “It’s just a question of getting through these last processes.
“I’m very confident about it coming together.”