NASA’s future space exploration systems will include a highly complex Integrated Systems Health Management (ISHM) capability, which can detect, predict, isolate and respond to system and component failures in order to improve safety and maintainability. An ISHM system, as a whole, consists of several subsystems that monitor different components of a space mission. Due to the complex and multidisciplinary nature of designing ISHM, there seems to be a lack of formal methodologies to design an optimal (or near-optimal) ISHM for a given system of systems. In this research, we propose a new methodology to design and optimize ISHM as a distributed system with multiple interacting disciplines as well as multiple conflicting design objectives (i.e. Figures Of Merit or FOMs). This specialized multidisciplinary design approach can be used to optimize the effectiveness of ISHM systems for future NASA missions. We assume a hierarchical design protocol, where each subsystem communicates with other subsystems only in a top-down tree structure. At the top level, the overall performance of the mission consists of system-level variables, parameters, objectives, and constraints that are shared throughout the system and by all subsystems. Each subsystem will then comprise of these shared values in addition to those values that are specific to subsystems. As a specific case study, we take the example of designing an ISHM capability for X-34 reusable launch vehicle in two levels. The proposed approach, referred to as ISHM Multidisciplinary and Multiobjective System Analysis & Optimization (or ISHM MMSA&O), has a hierarchical structure to pass up or down shared values between the two levels with system-level and subsystem-level optimization routines.