The Affordable Care Act only accelerated this trend when it started penalizing hospitals for patients who are readmitted shortly after being sent home.

New payment programs established by the government and private insurers have also started offering better reimbursement to organizations that can deliver high-quality care at a lower cost. Being able to pull off that feat means now is not the time to walk away from a partner like Arch, even though that medical group estimates a $14 million operating loss this year and an $11 million loss for next year, said Della Shaw, Palomar’s executive vice president of strategy.

“The reality today is that it’s nearly impossible for a system to operate without an aligned physician group,” Shaw said.

Though it has not operated in the black and currently cannot say when — or if — it will be able to do so in the future, Shaw said Arch has been crucial in helping Palomar turn around a financial mess that had it operating at a $22.2 million deficit in 2013, one year after opening the $956 million Palomar Medical Center in Escondido.

Today, according to Palomar chief financial officer Diane Hansen, the health district is expected to post a $20 million profit on its operations and will have increased its savings for four years in a row.

Palomar’s willingness to sink cash into Arch year after year has not been without opposition.

Graybill Medical Group, one of the largest independent health operators in North County and an entity that has supported Palomar for decades, has regularly objected to the ever-growing subsidy for Arch. Its doctors have occasionally raised questions about Arch’s management decisions and financial strategies at public meetings of Palomar’s elected governing board. Graybill has even successfully backed slates of candidates for the board in the past two elections.

The group did not comment Thursday on Palomar’s impending decision to wipe out the debt that it has questioned for years. However, Alan Smith, a San Diego attorney who has served as Graybill’s public affairs adviser, said the group has generally questioned whether creating Arch, which was built from pre-existing specialty and primary care practices that already existed in inland North County, was truly necessary.

“The fear has been, ‘My gosh, if we don’t subsidize these specialists, they’re going to pick up and leave. We don’t think they were going any place, and we just thought there were better places for Palomar to spend its money,” Smith said.

This is not suggesting that Graybill lacks respect for Arch’s doctors, Smith added.

“We love these guys as physicians. The doctors themselves get along famously. They send patients back and forth all the time. It’s just the business model that Palomar created that’s the point of contention,” Smith said.

It does seem that Arch has been able to deliver quality care. Medicare rates the group 4.5 out of five stars from the Centers for Medicare and Medicaid Services, and Arch has twice won the Integrated Healthcare Association’s “Excellence in Healthcare” award.

As to the “why bother?” question that Graybill raises, Deanna Kyrimis, Arch’s chief executive, said in an email that bringing together previously separate groups of doctors under one organizing structure has allowed creation of services that are hard to do on an ad-hoc basis. Sharing electronic infrastructure, for example, is a very important activity that the federal government is increasingly requiring in its payment structures for Medicare.

Shaw, the Palomar strategy executive, added that while private doctor groups — Graybill chief among them — have been great allies, creating Arch has allowed the health care district to open offices in areas such as Ramona, Rancho Peñasquitos and Rancho Bernardo, where there is either fierce competition with larger health operators or where demographics are more financially challenging. Subsidizing Arch has allowed Palomar to request that certain services, such as mental health, be bolstered even though doing so would not make financial sense to an independent group, she added.

“There is no margin in that service. However, Arch Health Partners was able to fill that gap that needed filling in the safety net,” Shaw said. “That’s an example of where I would say the subsidy we have provided has been effective for the public.”

But it is also clear that Arch’s business model has required some refinement.

Kyrimis, who was hired in late 2014 during a major management shake-up, said the group previously provided an average subsidy of $415,000 per doctor in 2015. The number has been reduced to $261,000 this year and is expected to fall further to $192,000 in 2018.

The executive said she has been able to bring costs down by reducing employee benefits and salaries after a financial review in 2015 showed they were above industry averages.

“Fortunately, the staff overages were in administrative areas — furthest away from the patient, if you will,” Kyrimis said. “We have reduced our administrative management and administrative support staff to the appropriate level.”

The cost-cutting process has not been without protest. A well-known cardiologist spoke up at a recent board meeting about being forced out of the group for no good reason, and those remarks were immediately followed by a rebuttal statement from Arch’s lawyer.

It is hard to say exactly how the Arch experience compares to other, often much larger relationships between medical groups and hospitals. Most of those tie-ups — such as the ones for Sharp HealthCare, Scripps Health and Kaiser Permanente — involve privately run nonprofits and thus do not have to report their year-end results publicly.

Penny Stroud, founder of Cattaneo & Stroud, a health care consultancy that collects and publishes a California medical group inventory list for the California Healthcare Foundation, said it is very difficult to create a new medical group these days, especially in San Diego County.

“The investments are so high for everything from electronic medical records to recruiting and retaining physicians. Especially in primary care, it’s a high-overhead, low-margin business, and the San Diego marked is so consolidated among a small handful of very large players that it’s a very challenging environment for a smaller group,” Stroud said.

She added that it is not uncommon for hospital operators to regularly subsidize the medical groups they affiliate with, though that cash flow is generally not shared publicly.

Typically, she said, medical groups that operate in areas with high concentrations of Medicare and Medicaid patients generally tend to need more support than those in areas with lots of people who are privately insured. In addition, offering ancillary services — from X-ray suites to private labs — can make the difference between those that are profitable and those that aren’t.

Setting up multi-specialty groups, especially cobbling them together from existing practices as Arch has done, is always expensive. But an $82 million loss over seven years? Isn’t that a lot of cash?

“It would certainly cost as much for Palomar to develop its own foundation-model medical group from scratch anywhere where you have a highly competitive market like you have in San Diego,” Stroud said.