The Practice Math Behind Your 2027 Budget

Most 2027 budgets start with a familiar move: take this year's revenue, add a few percent, and hope the schedule can carry it. That works when the ground under you is mostly stable. It is a shakier way to plan a year when Medicare payment, payer mix, provider capacity, and staffing costs can all move at once.

CMS's CY 2027 proposed physician fee schedule sets two conversion factors: $33.1693 for qualifying APM participants and $32.8409 for everyone else. That is down 1.19% and 1.68% from 2026, and the AMA's summary carries the same figures. For dermatology, that is just the front door. The bigger issue is how same-day E/M and procedure cuts, practice expense changes, and payer behavior flow into high-volume derm work.

We unpacked the stacked math in Why Derm's 9% Cut Won't Shrink to 3% This Year. For budgeting, the lesson is simpler: do not wait until November to find out what your 2027 plan depends on.

In Clarity's survey of independent dermatology owners, 46% said they don't regularly review their own financials. That is not a character flaw. Most owners are busy seeing patients, managing staff, and keeping the day moving. But a year with real reimbursement pressure is easier to handle when the first budget is built in September.

Forecasting gets too complicated quickly. More inputs do not automatically make a better budget. A model with 15 assumptions can look precise while becoming too fragile to trust.

Start with three numbers. Each one turns a policy or market change into something closer to the practice owner's daily world: hours, payer mix, and capacity.

Revenue per clinical hour. You already schedule in hours, but most budgets still plan in visits. That hides the difference between a follow-up-heavy session, a biopsy-heavy session, a Mohs day, and a cosmetic block. Take net collections by provider, divide by clinical hours actually worked, and watch the trend monthly. Do not turn it into a crude ranking of providers or appointment types. Use it to see whether the hours you already have are producing the way you think they are. The mechanics are in Your Most Valuable Hour Isn't in the Exam Room.

Payer-mix trend. A payer-mix snapshot is trivia. A trend is a budget input. Pull 24 months of allowed charges by payer category and watch the direction. Medicaid pays roughly 75% of Medicare for physician services, per KFF's state-by-state fee index. Commercial is trickier. JAMA Dermatology found that dermatology charges were a median of 2.05 times Medicare allowed in 2013 to 2019 claims data, but charges are not collections. Your own contracts answer the commercial side. If you cannot find them, that is a budget problem, not a filing problem, and payers are fine with that.

Mix also moves without your permission. More than half of eligible Medicare beneficiaries are now in Medicare Advantage, and Humana has signaled 2027 market exits covering roughly 600,000 members. If a plan leaves your county, your 2027 payer mix changes even if your team did everything right.

Provider-capacity runway. Booked slots divided by template slots, monthly, by provider. The denominator is the schedule you actually publish. If a provider is already running above 90% utilization, the growth line in the budget may be more wish than plan. That is not a hustle problem. It is a capacity problem. Add three assumption rows most practices leave out: new provider start month, slots per month, and ramp schedule. Put credentialing timing in the same tab, because a provider who starts in March but bills in June changes the whole year, and 90 days of lag runs into six figures.

You do not need a CFO-grade model to make this useful. You need a sheet simple enough that someone will update it every month.

Build five tabs:

Assumptions, where every input lives and nowhere else

Provider Capacity and Volume

Payer Mix and Net Collections

Operating Expenses

Monthly Summary, with a variance column against 2026

One rule keeps it alive: no number hardcoded outside Assumptions.

The revenue spine is three multiplications: provider sessions per month, times encounters per session, times net revenue per encounter. If one provider works 18 sessions a month, sees 14.5 encounters per session, and nets $145 per encounter, that is $37,845 a month. Those are placeholder numbers. Yours should come from the last two quarters.

Then add one more assumption: a cut-scenario factor that scales the Medicare line. The point is not to predict the final rule perfectly. The point is to make the final rule easy to absorb. When the rule publishes in November, you change one cell instead of rebuilding the budget.

Your lender, landlord, and CPA may still want a traditional historical budget. Fine. Give them one. The driver model tells you which number belongs inside it.

Start small. Pick one provider and one payer category this month. Build the first version, name the owner, and set a recheck date. If the sheet becomes useful, expand it. If it becomes a chore, simplify it. Drastic changes rarely stick. Small reps do.

1. Track the unit you actually schedule. Visits are useful, but revenue per clinical hour tells you whether the calendar is producing the way the budget assumes.

2. Watch payer mix as a trend, not a snapshot. A shift toward Medicare Advantage, Medicaid, exchange plans, or weaker commercial contracts can change 2027 before volume changes at all.

3. Build the Assumptions tab first. One clean place for volume, payer mix, capacity, and reimbursement scenarios beats three separate spreadsheets nobody trusts.

Clarity RCM manages revenue cycle for 200+ dermatology practices across 44 states. It's all we do. See how we work.