As healthcare organizations prepare for the new budget year, it is essential to evaluate their financial performance in 2025 and develop a budget that reflects both the evolving healthcare landscape and current operational realities, as well as strategic priorities.
Unlike traditional corporate budgets, budgeting in healthcare requires balancing reimbursement constraints, patient demand fluctuations and regulatory changes. For physician practices, building a medical practice budget that aligns financial goals with clinical operations can strengthen decision-making and long-term sustainability. Rather than simply carrying forward prior year figures, a thoughtful budgeting process can enhance financial oversight and support long-term growth.
To guide this process, consider the following key areas of focus.
Revenue Forecasting
- Legislation and Policy Changes: Assess the impact of any new legislation, particularly the One Big Beautiful Bill Act, on reimbursement rates. The Act may reduce reimbursement rates for patients on Medicaid.
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- Impact of External Cyber Disruptions: If your practice experienced revenue loss due to any external cybersecurity incidents, which could include the Change Healthcare hack or other breaches affecting claims processing, payers or EHR systems, consider how those shortfalls are reflected in your projections. Learn how healthcare organizations are addressing these challenges in our article, Protecting the Healthcare Industry From Cyber Threats.
- Capital Investments: Forecasts should account for any newly acquired medical equipment or diagnostic technology expected to generate revenue. Include estimates for utilization rates and reimbursement timelines to support your projections.
Expense Planning
- Cash Basis Accounting: For practices operating on a cash basis, budget for anticipated payments rather than relying solely on historical expenses. For example, if a Management Service Agreement (MSA) is in place, use the contractual percentage of revenue to estimate costs. Include any outstanding obligations to ensure they are tracked and addressed.
- Cost Containment: Review prior year expenses for potential reductions. Identify unused subscriptions, clinical software licenses or underutilized services and remove them from the budget. Assign responsibility for cancellation to avoid ongoing charges.
- Vendor and Contract Review: Reassess existing contracts for opportunities to renegotiate terms or switch providers to improve cost efficiency.
Staffing and Compensation
- Personnel Changes: Incorporate all hires made in 2025 and assess staffing needs for 2026. Include anticipated recruitment costs, if applicable.
- Regulatory Adjustments: Account for changes in minimum wage laws, payroll tax rates and any planned salary increases or incentive programs.
- Benefit Costs: Evaluate changes in healthcare premiums, retirement contributions, and other employee benefits.
Effective budgeting in healthcare doesn’t end with creating projections; it also depends on ongoing review and adjustment. The next step is to ensure that the financial performance is tracked and managed effectively throughout the year. Establish monthly or quarterly review cycles to identify and address discrepancies in a timely manner.The budget may need to be adjusted to reflect material changes in revenue or expense trends. Be sure to include department leaders to improve accuracy and promote accountability throughout the year.
Author: Tessa Liberi, CPA | [email protected]
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