This Week in Surgery Centers: Annual Budget Planning: 4-Step Process

Ep. 93: Matt Lau – Annual Budget Planning: 4-Step Process

Here’s what to expect on this week’s episode. 🎙️

Budgeting for your ASC doesn’t have to be a dreaded months-long ordeal. In our latest episode, Matt Lau, MedHQ, shared his proven 4-step process to streamline budgeting and turn it into a tool for success. Here’s the breakdown: 

👉 Step 1: Craft a Narrative – Start with a mini business plan for the year. Forget the spreadsheets, focus on your ASC’s vision using tools like SWOT analysis. 

👉 Step 2: Dive into Case Volume Analysis – Case volume drives your ASC’s financials. Align with your physicians to forecast case numbers accurately, factoring in recruitment and operational changes. 

👉 Step 3: Perform a Payor Mix & Reimbursement Analysis – Don’t assume past reimbursement rates will hold steady. Analyze your payor mix and adjust for changes in contracts or shifts toward Medicare or other lower-paying payors.  

👉 Step 4: Build the Budget Spreadsheet – Segment variable and fixed expenses. Use historical data to project costs, and ensure your numbers match your story. This sets you up for a smooth board presentation. 

Ready to simplify your budget process? Tune in to learn how to present a clear, compelling budget to your board. 

#ASC #SurgeryCenters #TWISC #Budgeting 

Episode Transcript

[00:00:00] Welcome to this week in Surgery Centers. If you are in the ASC industry, then you are in the right place every week. We’ll start the episode off by sharing an interesting conversation we had with our featured guest, and then we’ll close the episode by recapping the latest news impacting surgery centers.

We’re excited to share with you what we have, so let’s get started and see what the industry’s been up to.

Erica: Hi, everyone. Here’s what you can expect on today’s episode. Matt Lau is the Senior Vice President of Client Accounting and Financial Services at MedHQ, and he has been helping ASCs manage their financials for over 20 years. With more than 400 budgets under his belt, Matt has developed a simple, no nonsense, four step process for creating budgets for ASCs.

Erica: that actually work. So in today’s episode, we’ll break down those four steps and hear some great stories and insights from Matt along the way. [00:01:00] And whether you’re new to budgeting or just looking to streamline your approach or just hear how others do it, this conversation is packed with some really great advice.

Erica: Now, typically after my conversation with our guests, I’d switch to our data or news segment. But since my time with Matt was so thorough, we’re actually going to skip an additional segment and I will pick up again with the news next week. Hope everyone enjoys the episode and here’s what’s going on this week in Surgery Centers.

Erica: Hi, Matt, welcome to the podcast. Hi, Erica.

Matt: Thank you very much. Appreciate it.

Erica: Can you please share a little bit about yourself and your ASC experience with our listeners?

Matt: Sure. So I’ve been in the ASC world for almost 20 years now. Most of the time I spent at Regent Surgical Health. I spent 16 years there.

Matt: Worked my way up from financial analyst to senior financial analyst, to director, to controller. And to [00:02:00] ultimately to CFO and throughout all those years we oversaw, created a template and a process around budgeting for all of the ASCs that we owned and managed and that, that experience has carried over to my current job as a senior VP.

Matt: Of client financial and accounting services at Med HQ. So, I’ve been in the ASC world on a financial side and doing a lot of budgets every year. For again, nearly 20 years and they’ve gotten pretty good at it and have a pretty good sense of process and what ASCs can work with and when it gets a little bit too complicated.

Matt: So I think I’ve finally found a good landing zone for a good process every year for our ASC.

Erica: Very cool. If you had to guess, how many budgets do you think you’ve done?

Matt: So if you do, just do quick [00:03:00] math, say 20 a year. For almost 20 years, so that’s 400 right there.

Erica: Wow. Very cool. So we are very lucky to have you on our series then. So last week we did an episode about the importance of knowing your audience before you sit down and start putting that budget together.

Erica: So today we’re going to take it a step further. As you mentioned, you have This four part process that you’ve seen success with. So I’d love to share that with our listeners. But first, what are the benefits of having that repeatable annual process?

Matt: Well, yeah it’s like anything else. If you do something for the first time, it’s probably not going to go super smooth.

Matt: There’s going to be bumps. And pauses and hurdles in the way but if you have a process that You stick by it the same beginning the same middle part the same end the next year It’s going to be a lot [00:04:00] easier and in the year after that it’s going to be even easier than that It’s almost like a recipe you make it for the first time.

Matt: Maybe it’s okay But then you start you get familiar with it, you know What to do and when to add and when to preheat And stuff like that and after a while you get so good at it you start Oh, I can make a little tweak here and I can even get even better at it The more you do it the more you rely on that sort of home area Sweet spot of the budget process the better you’ll get at it And the more you’ll be able to get out of it year after year and instead of taking Months and months of budget process where you just dread it Maybe you could get that process down to, to, only a few weeks and it produces something that you really look forward to and it’s meaningful going into the new year.

Erica: Yep. That makes a ton of sense. Okay. So let’s get into the process itself. Where do we start? What is [00:05:00] step one?

Matt: Well, step one, I’m taking a step back because you had mentioned know your audience. Yeah. Yeah. Yeah. My, my experience with all those 400 plus budgets that I’ve done over the years is that most of the time, my audience, the person who I’m working with closest is the ASC administrator.

Matt: And the ASC administrator, super smart person knows their business inside and out. Most of the time, my experience has shown me that person has a clinical background, not necessarily a numbers or accounting or business background. And so it’s not that they don’t know and understand the business side of it.

Matt: It’s just that their sweet spot, their comfort zone is the clinical side. So what I want to do is I want to take. Take the numbers, all the numbers of budget equals numbers and all the line items of thousands [00:06:00] of numbers on a page. I want to be able to simplify that. And so the best way from a process standpoint that I like to simplify that is to take a step back.

Matt: Don’t go jumping into the numbers right away. Take a step back. And think, okay, what do I really want to do for the next year and really creating a mini business plan for what your vision is for your A. S. C. In the upcoming year is really the first stop in the budgeting process. Don’t even worry about the numbers, but just story narrative.

Matt: Tell me what you want to do. And sometimes that could be difficult. So, so, there are some tips and structures around trying to getting you to think about what you can do in the next year can, they can help you get started. And one of those that I like to think about. Is a SWOT analysis, and that’s start that’s stands for strengths, [00:07:00] weaknesses, opportunities, threats, and you just look internally and go, okay, what are our businesses, strengths and weaknesses inside the walls of your facility?

Matt: And then, and also you look external and you think, what are the opportunities in the market and where are the threats in the market? And you put a list together of all of those things, strengths, weaknesses, opportunities, threats, and you think, okay, well, what do we do? How do we maximize our strengths?

Matt: How do we take advantage and really go after our opportunities? How do we minimize our weaknesses and how do we mitigate the threats? And that process, that sort of technique, Can really yield a good sense of what you want to do for the upcoming year, your one year plan.

Matt: Maybe you’re doing a three year plan that qualitative that story that you want to tell of what our expected expectations are. What we want to do in the next [00:08:00] year is really the first step in my mind in the budget process. And it doesn’t have anything to do with the number.

Erica: Yeah. I think that’s great because I personally am not super analytical.

Erica: So the idea of starting with a spreadsheet is very intimidating to me. I will procrastinate for as long as I possibly can. But if someone gives me a blank piece of paper and I could sit down and do a brain dump of all these ideas and problems we’ve seen and how can we solve them? That to me, Is much more enticing to start with then than the spreadsheet,

Matt: right?

Matt: Yeah. And really, you’re gonna get a better, you’re gonna get a better sense of what you want to do, rather than by just starting at the top level. Then if you starting start building up. Oh, what do I think my office supplies expense is going to be next year? Well, wait a minute. Don’t you have to do five more, five more things before that, before you figure out what you’re going to be spending on paper and toner and stuff like that.

Matt: So rather than getting into the weeds right [00:09:00] away, it’s starting at that top level and really getting a better, good sense of what you want to do in the upcoming year, the next, and then once you have that story, Once you have that narrative, once you have that good idea of what you want to do in the upcoming year the second step is I want to focus you.

Matt: I would suggest focusing the administrator on what’s the driver of the business itself. And every ASC, this is true. Your case volumes, types of cases you’re doing that is the driver of your business. And so again, you’re starting to think of numbers here, but it’s really the first thing that any administrator is going to look at a month to month basis, maybe even a day to day basis in terms of scheduling as what’s our case volumes today, what’s our case volumes this week, what’s our, what was our case volumes last month that is driving almost the entire financial performance of your [00:10:00] entire company.

Matt: It’s going to drive, case volumes are going to drive revenue. They’re going to drive supply costs. They’re going to drive labor costs. Those are the biggest line items on your financial statement every month, every quarter, every year. And they’re all driven by the same thing, case volumes. So, I always ask the administrators that I work with.

Matt: Is talk to your docs show them, okay, Dr. Smith, you did 120 cases over the last 12 months. Do you think you’re going to do more next year? And you do that with every single one of your docs. So that you have a really great sense of, okay.

Matt: Here’s what we think is gonna happen in terms of volumes and volume change compared to the previous year. And then you augment that with the story that you created in first step. It’s oh yeah. Part of the story. Part of the plan for the [00:11:00] next year. It’s also to recruit three new doctors.

Matt: And we’re going to recruit the first one in January, he or she will start in January, we’ll have another one in by May, and then the last one won’t come until September, but the volumes really drive the overall business, and so if you get a good sense, buy Doc. And have those discussions by doc, you’re going to have a really great sense of what’s going to drive your overall business and really an idea of timing of when cases will come in, maybe when cases will leave vacation, when is Dr.

Matt: Smith going to go to the Bahamas, is it going to be June or is it going to be July this year? Get a good sense of all that. And it’s all because. You’re focusing on the one thing that drives the overall business volumes and the types of cases that are being done.

Matt: If you focus on that, it’s going to drive your budget processes.

Erica: Yeah. And in addition to, those [00:12:00] conversations you have with your docs, are there any other kind of metrics you would suggest people look at to support that conversation? So like block utilization, obviously historical case volume, but yeah, like block utilization special, anything else that you would recommend they pull?

Matt: It’s a great opportunity to revisit things like block utilization on time starts Okay. That sort of thing and, you start getting into the weeds a little bit, but from an operational standpoint, if Dr. Smith knows that he or she is going to do 30 percent fewer cases this year or next year than they did this year, Then you go, okay, well, you know what?

Matt: Let’s take a look at your block utilization. Let’s take a look at our time starts and do you need every other Monday at seven o’clock? Or if your volumes are expected to go down, maybe we just do one, one Monday or [00:13:00] every third Monday or something like that. And you can start, massaging your scheduling and maybe somebody else is going to pick up that volume and you start operationally thinking about how those volumes are going to take place, who’s going to be on the kind of the slide from a volume perspective, who’s going to be picking up from a volume perspective.

Matt: And then you can plan around that, but it really starts with those discussions with your docs.

Erica: Yeah, and one, one more follow up question. Do you, when you do your budgets, do you like to be on more on, so on the conservative end? So let’s say a doctor says, Yes, I’m going to increase by 10%.

Erica: Are we putting in 8%? Or what is your suggestion, suggestions there?

Matt: Generally speaking, I think docs may have the, may lean on the side of more aggressive from a numbers perspective.

Matt: Don’t think about their best month they’ve ever had and say, Oh, I did. 35 total joints that, [00:14:00] that month I’ll do 40 every month for the entire next year. And so you have to balance input from the doc with historical kind of reality check. And I always hate to over promise and under deliver on budgets, on projections, on anything really.

Matt: Thank you. So, so balancing and having that, that, that discussion with your docs got to be part of that, like, all right, really, Dr. Smith, are you really going to be doing your best month every month? Or I’ll tell you what you can, you’d come back at them and say, here’s what the data shows.

Matt: You averaged 20 cases per month last month last year. Is that, does that seem right? Do why would you think it’s going to go up by 50%? Or, and if there’s a good reason, great. But I always like to balance reality with, Hey, if you want to stretch and you want to be [00:15:00] aggressive, that’s great.

Matt: But we want to rely on these numbers as a guide for next year and having a stretch budget is fine, but I’d rather have a more accurate depiction of what we’re going to do next year than a pie in the sky. Because oftentimes, if you have too much of a stretch, it becomes almost a disincentive.

Matt: I’d rather have something that’s more accurate or even leans to the conservative side. Now I’m an accountant by nature, so I suppose most accountants are probably more conservative than anything else, but I’d really rather have more realistic than aggressive.

Erica: Perfect. That makes a lot of sense.

Erica: All right. So we have step one, the narrative. Step two, we’re doing an in depth case volume analysis. What is step three?

Matt: Step three is, all right. You’ve got your big picture of what you want for next year. You’ve got your volumes that are going to drive your business. No, it’s time to marry the volumes to how are we going to [00:16:00] convert those lines into dollars.

Matt: And so you want to take a look at, Hey what are you averaging from a reimbursement per case on average? Buy for each document if possible. So Dr. Smith averages 2, 000 per case in terms of collections to the center. We’re projecting, 120 cases. Great. Let’s, 120 times 2, 000 per case equals 240.

Matt: And just extend that when you do that for all of your docs. Now, what you also want to do is just don’t assume that your peer mix is going to remain consistent, and your contracts are going to be consistent. If you know that those numbers are going to change well, we did recruit some new docs.

Matt: But their patient mix their practice is mostly Medicare. And Medicare is going to reimburse less than our payer contracts. [00:17:00] Well, then you’re going to have to determine what their average reimbursement is going to be based on those inputs, those data inputs. And payer mix is a big part of that, but using.

Matt: History as an example, if we don’t think anything is going to change much in terms of Dr. Smith’s payer mix, and we know our contracts are locked in, then you can be reasonably certain that what you’ve been collecting on dr. Smith’s cases on average is probably what you’re going to be collecting in the upcoming 12 months.

Matt: And so you could use that number, but. Don’t just blindly put that in as, okay, we’re going to, we’re going to keep reimbursing exact same, right? You have to do some thinking and critical thinking around, okay, is our payment’s going to change? It’s our contrast going to change and go from there.

Matt: And if they’re not great, but if they are, you’re going to have to layer that into what we think is going to be our average reimbursement per case for Dr. Smith’s case is going forward [00:18:00] and you do the same thing for all your other docs, you do the same thing, by the way, with your average supply costs per case even labor per case.

Matt: If you’ve got that history then you say, well, I know in the number of cases, I know how much on average it costs on in terms of supplies and implants and pharmacy and even, again, even labor, say cost per case times the number of cases equals what our expense is going to be in our budget for that particular type of expense.

Matt: And so those historical averages, specifically on the more recent, in the last 12 months of averages, you use those per case cost averages or per case revenue averages multiplied by the number of cases. And now you’ve got your annual budget for those revenue items and expense items. And it really is that simple.

Matt: If you know your average [00:19:00] cost per case, your average revenue per case, and you have your number of cases, you A times B equals C and you just drop it right into your budget and you’re off and running.

Erica: Perfect. Segway. Spreadsheet time. Step number four. You make it sound so easy with those three metrics, but what all right, so you have triangulated, you’ve gotten there.

Erica: Now it’s time for our line items in the spreadsheet. What does that part look like?

Matt: So it really, the way I do this is I start with Your financials take your profit and loss statement, your income statement from the last 12 months. You layer in your volumes at the top and then right next to your total for your 12 month numbers.

Matt: You go, okay, I’m going to take my total revenues, divide them by my total case volumes to get a average revenue per case. I do that with every single line item on your [00:20:00] income statement. Some costs and not everybody does this, but what I like to do is I like to split your expenses into a variable section.

Matt: And a fixed section, the variable section, variable types of costs are going to go up with the number of cases. If the number of cases go up your variable expenses will go up. If your cases go down, your variable costs will go down. And so those types of costs, your supply costs implant costs, labor costs, the more cases that you do, the more expenses you’re going to have in those categories.

Matt: And so I calculate, basically, what have we been doing over the last 12 months? Revenue per case supply cost per case, labor per case and any other variable cost that you could think of per case, and say, oh, now I’ve got these multipliers. I know what our actual history has been, recent history, and when I layer in those [00:21:00] inputs from here’s our updated volumes.

Matt: Volume expectations by doc for the next year, I could just multiply those out right on the spreadsheet, right next to what our actual history was in our actual history on average per case is. And then just extend it out. Here’s what, based on volume expectations, here’s what our revenues are going to be if, based on this particular revenue per case, here’s what our supply costs are going to be based on this supply cost per case.

Matt: And move it out that way for your fixed expenses rent utilities, bank charges, maybe some liability insurance, that sort of thing. You just think, well, those fixed costs are basically costs that. Are not going to change regardless of what the volumes do. So it doesn’t matter if you do zero cases or a hundred cases or a thousand cases in a month your rent is going to stay [00:22:00] the same.

Matt: So you don’t want to do a rent, rent cost per case for that, but you’d want to know what your average monthly cost. Is going to be for those fixed expenses and say, okay, the average monthly times 12, do we think there’s going to be an inflation factor apply that and boom, you are done.

Matt: So, so you’ve done all the heavy lifting, you’ve done the big picture, you’ve done the, you’ve gotten the good sense by talking to your docs about the driver, the types and volume of those cases. You’re applying, what, on the reimbursement side to any changes on the top line, and then you’re using the spreadsheet on kind of averages over the last 12 months.

Matt: To extend out what you’re going to be doing on all your other expenses. And when you’re done, what you should have in total it all up, what you should have is a numerical story of budget [00:23:00] basically matches up with the first step that you took and that’s, what do we want to do for the next year?

Matt: What is that big picture? What is that plan for the following year? Well, does the narrative, the story that we came up with in the first part of this process? Match the numbers that we came up with in the end of the process and if it does And they make sense. That’s a budget that you can take to your board and tell the story behind and really get their approval and off you go.

Erica: Yeah. No, I think that’s a wealth of knowledge of exactly how to get there. So we have all of our steps. You have the story and I agree. Love that we have the story because when you are, presenting it at a board meeting or wherever it is, you can back it up. How we exactly how we got to these numbers and why they’re important.

Erica: And again, tell that story. So, I think going through that process would make people feel a lot more comfortable presenting it as well knowing how they got [00:24:00] there.

Matt: Yeah, and what I found in board meetings is the, is your board members, the physician board, and maybe if you’re at a JV, a hospital board, they don’t want to know, they don’t want you to go through every single line item on the budget.

Matt: They want a high level story. And numbers that correspond to it, but very high level that you can summarize and present in five, 10 minutes and give them the detailed stuff first. But during the board meeting keep it to a succinct, keep it to a tight 10 and your board will appreciate it.

Matt: They, their eyes won’t spin and go into the back of their head. Like probably most administrators do at the beginning of the process. You have that type 10 that includes the story behind the numbers and then just a high level of the numbers. It’s a much easier Presentation and approval process at the board.

Erica: [00:25:00] Perfect. Love it. All right, Matt final question We do this every week with our guests What is one thing our listeners can do this week to improve their surgery centers?

Matt: Great question the one thing that Always pops out to me again, accountant, financial analysts going way back. The one thing that always pops out to me when I look at somebody’s financial statements, ASC’s financial statements, the labor line.

Matt: Is almost always it’s one of the two largest expense line items. For every ASC that I’ve ever seen and how do we control, get a better handle around our labor costs. And one of the things that, that I learned over the years, and again I’m not super into operations, but operations and finance talk to each other a lot.

Matt: And one of the things that I thought, it’s super simple. It works. [00:26:00] Is just on a weekly basis, do simple staff planning. And what I mean by that is take your schedule of cases for, we get to Friday. Take your schedule of cases that you have on the books for the following week and compare that to. To your staffing schedule for the following day by day.

Matt: And when you just line those two up, okay Monday, case volume schedule versus Monday staff schedule, Friday, next Friday case following volume schedule versus staffing schedule, you’ll be able to see, what days are we light? On cases. Do we need to bring in a full clinical team for that day?

Matt: Do we think about potentially cancelling the, the one or two cases that they’re moving into Thursday and not even have the clinical staff come in on Friday? If we’re going to be [00:27:00] done by noon, can we send folks home early? Oh, we’re going to be super, super busy on Tuesday. Maybe we need to bring, additional teams in that day, but that simple process of marrying up and matching up your surgery schedule for the following week to your staff schedule for the following week, day by day, That simple comparison on a Friday, the Friday preceding that week makes a huge difference in your labor efficiency.

Matt: And it could really turn into a lot of dollar savings on your labor of light item when you take that weekly process and extend it out a month, three months, six months, a year, and you could really see how that one simple thing can yield to significant cost savings long term.

Erica: All right. That is great advice. Thank you so much. And thanks for coming on today. I

Matt: appreciate [00:28:00] it.