Construction of a planned $550 million Palo Alto Medical Foundation hospital in San Carlos has been put on hold due to a funding freeze from the foundation's parent company, Sutter Health, according to Bill Gleeson, spokesman for Sutter Health.

"We absolutely hope the delay is temporary," Gleeson said. "It is impossible to predict with any certainty the impact that the worsening economy might have on the health-care industry, or how much capital will be available or what the costs will be."

The 97-bed hospital and medical center is planned for 18.1 acres at 301 Industrial Road, just off of U.S. Highway 101. The project is currently undergoing environmental remediation and architectural design development, according to Jill Antonides, director of public affairs for the Medical Foundation.

Those plans are proceeding but the future progress of the project will need to be evaluated after those stages are completed, she said.

"It's kind of a big unknown," she said. "It could start construction, or be delayed."

The current delay, Gleeson said, was prompted by Sutter's uncertainty about the future of the health care industry. This uncertainty, he said, has compelled Sutter to moderate its planned capital outlay for the immediate future.

Gleeson said the San Carlos hospital remains a high-priority item on Sutter's list of capital projects. Sutter Health officials are currently working on criteria to prioritize the company's various projects, Gleeson said.

The hospital plans were approved by the City of San Carlos in 2007 and construction was expected to be completed in 2013. The foundation negotiated a deal with the city to provide $91 million in revenue over 50 years, according to the organization.

The Palo Alto Medical Foundation is a nonprofit medical group encompassing the Palo Alto Medical Clinic, Camino Medical Group in Mountain View, and Santa Cruz Medical Clinic. It employs 850 physicians and serves more than 600,000 patients, according to the organization.

The San Carlos medical center would have offer a 24/7 emergency room, urgent care center, 120 primary and specialty physicians, on-site laboratory and other testing services. The project is expected to generate 1,000 new health care jobs and 1,000 construction jobs, according to the Medical Foundation.

Ben Drew, another Palo Alto Medical Foundation spokesman, said the organization remains very optimistic that the project will move forward. The goal, he said, is to break ground as soon as the funds are released.

"It remains an important project for both PAMF and for Sutter," Drew said. "We'll continue to work with Sutter to assess the economy."

Foundation plans call for the San Carlos facility to be funded by Sutter Health and private funds.

Fundraising, however, is still in the preliminary stages, Antonides said.

Sutter Health is a $7.6 billion nonprofit network of Northern California hospitals, surgery centers, medical foundations, independent practice associations, long-term care centers, research institutes, home health and hospice services, cancer centers and more.