Bill Klaproth (host): This is a special podcast produced on site at SHSMD Connections 2025 in Dallas as we talk with speakers and session leaders direct from the show floor. I'm Bill Klaproth. And today, we are exploring how to create a robust ambulatory surgery center or ASC strategy that strengthens physician alignment, improves patient access, and increases system margin.

Joining me are Jeff Kilpatrick, partner at the Innova Group, and A.J. Reall, Vice President of Strategy at El Camino Health. Jeff and A.J., welcome.

Jeff Kilpatrick: Morning, Bill. Thanks for having us.

Host: You bet.

A.J. Reall: Hey, Bill. Thanks for having us. Appreciate it.

Host: Yeah. Looking forward to talking with you both. Jeff, let me start with you. So, what is driving the increased focus on ASC strategy right now? And why is it such a critical piece in the broader health system plan?

Jeff Kilpatrick: Yeah. So, we're seeing five things going on right now that are making our clients come to us and ask these questions. So, the first is the increase in the number of procedures that are moving off the inpatient-only list. And it just makes a bigger opportunity for the ASC environment. So, you may remember in the first Trump administration, almost 300 procedures were removed from the inpatient-only list. And this included a number of cardiac procedures, so PTCA with stent replacement. Now, Biden reversed the moves, and CMS is now looking back at eliminating the inpatient-only list entirely by 2029. So, they're starting with the removal of 285 new procedures in 2026, and that includes 16 cardiovascular procedures. So, a lot of opportunity just in the number of procedures that can be done, and the types of procedures.

So in addition to that, with the increasing pressure and discussions about site-neutral payments, systems realize they have to have a platform that they can move cases to a lower cost setting. So, you probably remember that Medicare pays about 60% of what they do in the hospital environment for ambulatory surgery cases. And this means cases that stay in the hospital will be break even at best and probably a loss leader.

So, the third thing is the need to decant care from high-cost inpatient facilities. As we see systems struggle with outdated and constrained ORs, one of the easier ways to create capacity is to move it from the inpatient facilities into ASC settings, instead of spending as much as they would need to to renovate their facilities or completely build new inpatient ORs.

The fourth opportunity is a chance to align with physicians in one of the best and stickiest ways, by making sure there's a financial investment and then, finally, an opportunity to increase operating performance by investing some capital in a very high margin setting.

Host: So even in this environment, there are opportunities, as you say.

Jeff Kilpatrick: Yeah, huge opportunities and huge opportunities for new types of physicians who historically haven't participated in ASCs. So, cardiologists, et cetera.

Host: Well, that is good to know and I love how you're looking at it to find those opportunities. So, I think that's really good. And A.J., El Camino Health has been working with the Innova Group on developing an ASC strategy. Can you walk us through how you approach this and what insight from claims data and financial modeling help shape the plan?

A.J. Reall: So, we went through a lot of different processes to get to this point. Jeff outlined the five reasons why health systems are doing it. And in reality, every health system has their own highest priority among those five that drives it.

El Camino is a kind of a hidden gem among a sea of giants. We have Stanford right up the road, Sutter surrounding us and HCA right down the road as well. We have a lot of competition in our markets. So, we really needed to define really the why behind why we wanted to do ASC strategy.

So for us, it was really number four and number five of Jeff's list, physician alignment and financial performance. We did a lot of assessments on the theoretical framework of things, what types of volumes could we capture, what processes do we need to implement in order to make that successful.

So, we assessed all the volumes on the inpatient side related to the first priority that Jeff brought up. What types of volumes would potentially be leaving us with that inpatient-only list? What type of financial impact that would have on us? We went to the level of pulling in that claims data to identify what types of volumes are currently being done in the market in the ASCs, down to the physician to understand what types of work we could do with the physician level to bring them into our own ASCs. And that led us into the practical phase, which is developing actual facility concepts within each geography, segmenting the physicians within that geography to figure out who we could align with and bring them into those ASCs.

And then, we took a separate approach that we feel is pretty novel: using our physician liaisons team to actually outreach to those physicians, understand how they fit within the current market, but really understand what they were looking for long term. So, El Camino's approach has really been to be the health system provider of choice, not just for patients, but for physicians as well. So, having those conversations with physicians helped us understand how they wanted to align with health systems, whether that was through an employment model, through full acquisition or other alignment models through the IPA or joint venture and an ASC.

So, all of those came together to a great financial and implementation plan, working very closely with Jeff's team to help us get there. So, it was a great approach, and the claims data was instrumental in getting us there.

Host: So, it sounds like any thoughtful strategy starts with the data and then feedback and conversation.

A.J. Reall: Yeah. We always frame it in the why, what, how, methodology. Starting with that why, and I emphasize that. If you don't have the why the health system is doing it, you'll end up trying to approach all five of Jeff's priorities, and it doesn't work.

Jeff Kilpatrick: And that makes decision-making almost impossible, right? Because you're playing whack-a-mole, and what are we trying to accomplish and which one matters the most?

Host: So, you really focus in on the right strategy then, and then just put all your efforts into that so you're not playing whack-a-mole as you say.

Jeff Kilpatrick: Right. And we'll look into the other parts, right? You can't not look into those, but that's not how you make your decisions.

Host: Right. Okay, Jeff. So, can you talk about combining claims data, physician outreach and financial analysis? How do these elements work together to build a clear picture? You're just talking about having a clear picture of opportunity and risk when developing an ambulatory strategy.

Jeff Kilpatrick: Yeah. So, anyone who ever worked with claims data knows that it's imperfect. You're never going to have a full view of your market. And claims data can be really tricky if you don't know which payers are in, which payers are not in, what kind of capture you have. You can create a pretty distorted view of your market.

But knowing that, there are a couple things you can get. So, it's a good picture of relative volume among physicians, creates a great picture of what is the payer mix and what kind of cases are each of the physicians doing. And so, it can help you understand what do their practices look like, what cases are they doing, how can you align with them in that way? But it's a very preliminary view. And so, that's where A.J.'s team was instrumental in helping us understand, you know, we have a sense from the data of who these physicians are, but we don't know if they would be interested. We know where they are in their practice life, we know where they're in their practice volume. We know who they serve, but we don't know would they want a partner. Are they friendly to El Camino? Are they not friendly? Are they aligned with some other system? So, that level of information can never be found in data.

And so, A.J.'s team did an amazing job of going out and talking to all the physicians, and it served two purposes. One, it created a lot of data for us, right? We understood who would want to work with El Camino, who would be willing to be aligned in which different type of approach. But also, it was a great conversation to make the physicians feel valued by El Camino that they're setting out on a journey and they appreciate the fact that the physicians are their partners. And if there's an opportunity to work together, they'd love to do it.

So, the physician outreach gave us a clearer picture of what was possible. And then, the financial analysis also is imperfect, right? So, we weren't able to get, obviously, the financial performance of each of the physicians we were going to talk to. What we did understand is who they were serving and what procedures. And broadly, we could create a picture of what would it cost to align with them.

So, we knew if we were even interested, if they were interested in aligning with El Camino, would El Camino be interested in that and kind of under what circumstances? So, all that together lets us understand with limited capital capacity, with limited opportunity and time to go out and work with them, who was the best bang for the buck and who was even realistic.

Host: So, I love the physician alignment portion of this. A.J., I want to ask you about that. It seems like it's one of the core goals in this process. So A.J., what did you learn about engaging physicians as partners? Jeff was just talking about that. Do they even want to be involved in this? So, what are some practical steps that you use that help build trust and buy-in along the way?

A.J. Reall: I think segmentation is key. We tend to segment our patients a lot, better understanding that their demographics, their psychographics. I think the same thing applies to physicians. Within our market, we have many different psychographics. We have the academics that love their Stanford partner. We have the general clinicians that really want to practice in the community. And then, we also have the entrepreneurs, and especially in the heart of Silicon Valley, there's a lot of those. And so, understanding that segmentation helped to drive how we aligned with them and what model worked best for each of them within our market.

So again, wanting to be the health system of choice for those providers, treating them as potential partners and understanding how they wanted to align with El Camino was the approach that was most successful. And it helped to develop the foundation for sustainable relationships down the road.

Host: Yeah, for sure. So Jeff, as hospitals face growing pressure around site-neutral payments and profitability, what are some of the financial benchmarks or modeling techniques that can help systems plan sustainable ASC growth?

Jeff Kilpatrick: Yeah. So, this is an interesting conversation. I feel like my whole career, we've been waiting for this shoe to drop. I remember a conversation when I was at Northwestern with the COO at the time, and what I was saying is, "Look, we need to move some patients around and some billing types around." He said, "Well, you know, 340B probably won't be here in a couple years. Well, boy, it's 20 years later, and we're still having exactly that same conversation. So, I think there's some natural skepticism on site-neutral payments. But sometime it's probably going to happen, and we know we're drifting towards that.

So, there are a couple strategies that we would suggest systems use. And the first they can do by themselves, looking at the difference in their rates in HOPD settings versus in freestanding settings. You can model what if 5% of that volume moves, what if 10%? You know what the inpatient-only list is, and you can pretty well deduce which cases are most likely to move off that list. So, that's something you can do, just starting from a system.

In addition, we've collected a number of proprietary benchmarks and created estimates of what would an efficient ambulatory environment look like, and what are the capital requirements to move to that. And that's something that most systems could probably take a pretty good guess at. If you wanted to create six ORs-ASCs, what would that look like? How much would that cost? And we've used several claims vendors to understand not only what does the operating margin look like in a system like that or in a site like that. So for this one, we used VMG benchmarks. But it helps us understand what would the profitability be of various alignments and various kind of case mixes in an ASC environment. We developed a number of models for that. So, understanding not only the ASC, but the imaging, and potentially looking at an oncology freestanding, so understanding that.

And then, finally, we've worked with different systems on a couple of different approaches to do some detailed financial analysis, so sensitivity analysis, Monte Carlo simulation, a couple other tools, and that helps them not only understand what is the likely case, but what is the distribution around that, because, you know, this is a really uncertain environment. Timing is uncertain. Impact is uncertain. And we want to understand kind of the full breadth of that.

Host: So, as I'm hearing both of you talk, this is really a thoughtful, thorough strategy. As you said, you can't play whack-a-mole. You really have to have a defined plan in place if this is going to work. Would that be right?

Jeff Kilpatrick: It is. And, you know, credit to A.J.'s team, because he pushed us a lot to make sure that we weren't just thinking about what is the make solution, right? What if we build it all? What if we hire our own doctors? But what if we align with the community who would align with El Camino? And what does that buy solution look like? Not only to serve the market, but there may be opportunities outside of the market that are just good business decisions. So, understanding the make solution, the buy solution, and the timing of when you'd want to pull the trigger, always really important in this case.

Host: Absolutely. Yeah.

A.J. Reall: Yeah. I definitely call it deliberate, but flexible. We have to be deliberate about how we approach it, but there has to be flexibility for how it aligns with the different variables that come in.

Host: Yeah. Deliberate but flexible. I like it. All right. A.J., so let me ask you this then. Looking back on this process, what advice would you give to other health systems that are just beginning to develop or refine their ASC strategy?

A.J. Reall: Begin with the end in mind. Going back to the basics. I mean, you have to know the why you're going about this. Make sure that you have that well-defined or else you'll end up trying to play whack-a-mole with all five of those priorities. If you know why, the what and the how will fall into line with that why a lot better.

Again, be deliberate, but have that flexibility. Deliberate does not mean slow. This process was about five to six months, if I'm remembering correctly, Jeff.

Jeff Kilpatrick: Yeah.

A.J. Reall: It definitely lays the foundation for long-term structures that can be sustainable. And then, the last element is use data, but make sure you have structures in how you approach it, especially the claims data as Jeff outlined. It can be daunting. It isn't complete. So, you can have lots of paralysis by analysis if you're not careful. So, make sure that you have the structures in place to help you guide that data analysis process.

Jeff Kilpatrick: As I reflect on the process that we did together, one of the things that I thought was great guidance from A.J. and his team, which we needed to engage these physicians early, right? But not too early. Because if we came in day one and said, "Hey, what do you want to do?" We would've talked with the wrong physicians, we would've talked to them about the wrong structures, about the wrong case types. We would've talked to them about markets we actually did the analysis on and said, "There's no opportunity here." So, bring them in kind of in the middle once we knew what the realm of the possible was, but not exactly how we would do it was the right time. And it was well received, because they knew we were coming in with thoughtful discussion instead of really pie in the sky.

Host: So, do your homework first, kind of.

Jeff Kilpatrick: Yeah, absolutely.

A.J. Reall: Yeah, yeah.

Host: Yeah. Really good point, Jeff and A.J. So, as you were saying, steps for somebody else thinking about this: begin with the end in mind, know your why, deliberate but flexible and use data, but have structure. So, that's really good. This has really been great, guys. I've enjoyed talking with you about this.

Before we wrap up, I'd love to get final thoughts from each of you. So, Jeff, how about you? Any final thoughts you want to add on this project?

Jeff Kilpatrick: Yeah. You know, I said that this has been kind of a process we've been waiting for. We've been waiting for the shift to site-neutral payments. But I would say now's the time. We've seen investments by private equity and ASCs and other freestanding businesses. And as they look at their cycle, their investment cycle, we think they're going to be opportunities that are popping up. If you know when those are popping up, it'd be great, but you won't, right? And so, you got to be ready. You got to know what your strategy is, and that helps you move much more quickly once those opportunities avail themselves.

I also think whether that's a reality in your market or not, just knowing that this is going to be a shift that's happening, and it's an incredibly powerful tool-- I'd say it's one of the most powerful tools in aligning with your physicians. So, it can be profitable, it's powerful, it aligns with physicians and it's timely. Like, this is a great time to be thinking about this.

Host: I love the optimism. I feel like Mr. Optimist, Jeff. Thank you.

Jeff Kilpatrick: Right, right, right. No one else in healthcare is right now, to be clear.

Host: That's right. This is the first interview I've done where somebody said there's a lot of opportunity. This is great. I love it. But as you said, so the shift is happening. Know your strategy and now is the time. Good stuff. Love it. A.J., how about you? Final thoughts?

A.J. Reall: I mostly want to reinforce what Jeff said. So, El Camino has typically been in a pocket that has been separate from the trends in general. Silicon Valley has been an exceptional place for us to practice medicine, but the shift is happening even in our little bubble and it's accelerating. So, not being the doom and gloom person of this podcast, but there is opportunity, and health systems really need to go about looking at it. Even if they have been sheltered from this in the past, it's the time to look for it.

Host: I love it. Great thoughts. And the good news is a recording of Jeff and A.J.'s presentation will be available to members during the SHSMD Connections Virtual Conference. So, we just had a chance just to kind of touch on the tip of the iceberg here. But I know Jeff and A.J. in the session go really into detail on this. So, make sure you check out that recording again. It will be available to members during the SHSMD Connections Virtual Conference. Jeff and A.J., thank you so much. This was a lot of fun.

Jeff Kilpatrick: Great, Bill. Thanks for having us.

A.J. Reall: Thanks, Bill. It's been a pleasure.

Host: You bet. And once again, that's Jeff Kilpatrick and A.J. Reall. And we hope you enjoyed SHSMD Connections '25. Again, a recording of Jeff and A.J.'s presentation will be available to members during the SHSMD Connections Virtual Conference. And if you found this podcast helpful, please share it on your social channels and please subscribe so you get every episode chockfull of great healthcare strategists, marketers topics, and solutions. To access our full podcast library, visit shsmd.org/podcasts. This has been a production of Doctor Podcasting. I'm Bill Klaproth. Thanks for listening. See ya!