Using a budget to improve a practice
Once the budget is created, it must be reviewed at least monthly to be useful, experts say.
Gundling says physicians should look for trends—compare the numbers to the prior month and to the same month from the year prior. If a particular category is much higher or lower than it was previously, start asking questions.
“Once you understand the variance, then you can start formulating what to do,” says Gundling. “The budget causes you to ask the ‘what’ and the ‘why’ questions. It gives you more impetus to dig deep.”
If, for example, supplies are costing more than in the past, maybe a contract or supplier review is in order. If nothing can be done about the increase, then maybe money needs to be taken elsewhere from the budget to make up the difference and protect cash flow, says Gundling. “Work with your staff to be very attuned to those variances to try to understand whether it’s a one-time thing or an ongoing problem,” he adds.
Fabrizio recommends looking at actual dollar amounts and not just percentage increases or decreases when reviewing. “Two percent in one category may be $100 while in others it might be $1,000,” he says. “If that extra $1,000 expense goes on for 10 months, you might have paid out $10,000 before you realize it.”
Burns says that the budget in her practice acts as a guide on where to focus cost-cutting efforts. It can also be used to forecast returns on larger investments.
For example, Nyberg worked with a practice that was sending patients out for MRIs. The physicians thought getting their own MRI machine would be a good investment so as to keep the money in house, but a budget analysis showed that with 53% of their payer mix in Medicare and with the correspondingly small reimbursements, the machine would never pay for itself.
When a budget is done correctly and regularly reviewed, it can offer many beneficial insights into the financial health—present and future—of a practice.
“It’s one of those necessary things, but I think physicians look at budgeting like they look at having a tooth pulled,” Gundling says. “But budgeting really does help in having an ongoing conversation about the practice and minimizes surprises and maximizes cash flow. A budget allows you to stay on top of your practice.”