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There are several areas of a medical practice that comprise the budget, show in this MGMA budget spreadsheet.
This screenshot is from MGMA's free Year to Date Percent of Budget Worksheet, which you can use to compare and calculate your practice's monthly performance to the annual budget.

'Tis the season for the budgeting process for many medical practices, an essential piece of an effective cost management strategy. While a medical practice's staff may be getting ready for the holidays, practice administrators are hard at work crunching numbers and setting goals for the fiscal year ahead.

Fred Simmons, CEO of Clearwater Cardiovascular and Interventional Consultants, and Lee Ann Webster, practice administrator for Pathology Associates of Alabama, are no strangers to the budgeting process. In fact, they help other practice administrators improve their budgets during the seminar "Improving Practice Profitability through Cost Management and Financial Analysis."  

Here are their expert tips for a smooth budgeting process.

"Budget" isn't singular

There are several areas of a medical practice that comprise the budget. Often, the process begins with the staff budget, because about 50-60 percent of many medical practices' expenses relate to staff, Simmons says.

The revenue budget is generally done separately and can be built several ways, he says. You can build it based on charges from last year, or if you'd like to get more specific, current procedural technology (CPT) codes or relative value units (RVUs). Your revenue budget and your staff budget flow into your operating budget.

An expense budget is used for non-personnel costs. And very often you may do a separate physician budget that projects their expenses. Finally, there's the capital budget, which can help with long-term financial planning, and determine what your practice's depreciation expense will be for the coming year.

The budget as an internal control

"The budget can actually be an internal control tool, if you are projecting certain expenses to change," Simmons says. An internal control is used to protect your practice and ensure that it is reaching its operational profitability goals.

For example, assume you're closing one of your business locations, but as you compare your actual numbers with the budget, you notice your expenses aren't going down. Did you forget to stop paying the rent or maintenance bills? In this situation, you've made an error. But you can also use the budget to spot activity such as fraud and embezzlement. If your staff costs suddenly climb from what you've budgeted, take a look at possible "ghost" employees or overtime manipulations.

3 budgeting process essentials

  • Be disciplined and thoughtful.
    Think about how changes in reimbursement, new services and perhaps even new locations will affect your budget. Set a date when the budget will be complete and stick to it.
  • Be realistic."Sometimes we have a tendency to pad our budgets to make ourselves look good," Webster says. "In some organizations, there's a tendency on the part of the owners to come up with a budget that's unrealistic, in that it tries to squeeze every nickel out." Budgets are very important tools for planning, and it's difficult to plan when the budget doesn't tell you your current reality or reflect your expectations for the future, she says.
  • Involve department managers and physician leaders.
    Having everyone contribute to the budget will help keep them accountable, realistic and aligned with the practice's financial steps toward profitability. Plus, physicians will understand the rationale behind the amount of staff needed to get the work done, which may avoid knee-jerk, short-term layoffs that turn into long-term disasters.

Already knew these tips? Check out MGMA's in-depth financial management courses.

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