The Practice Year-End Financial Review: Five Questions to Ask Before the Books Close

Your Practice’s Year-End Financials Are a Post-Op Film

Picture how the review usually goes. Collections are up a few points. Days in accounts receivable came down. Overhead held roughly steady. Everyone around the table nods, the conversation drifts toward the tax return, and the meeting ends with a quiet sense that it was a good year.

All of that may be true. Every number in that meeting also describes work that has already happened. A post-op film tells you how the last case went, and you would never use it as the only imaging for the next one.

This year, the next one deserves more of your attention than usual, because CMS has proposed changes to the Medicare rates your practice will be paid in 2027.

What Changed Since Your Midyear Review

As of October 27, 2026, CMS’s proposed 2027 Physician Fee Schedule includes several changes worth reviewing before you commit to next year’s budget:

• The 2.5% efficiency adjustment introduced in 2026 would remain reflected in affected services. It applies to work relative value units, or work RVUs, and corresponding intraservice time for certain non-time-based services—not as a blanket 2.5% reduction in every procedure’s total reimbursement.

• The proposed conversion factor decreases 1.68% for physicians who are not qualifying alternative payment model participants and 1.19% for qualifying participants. The expiration of the temporary 2.5% increase for 2026 contributes to those decreases.

• The American Alliance of Orthopaedic Executives’ preliminary review estimates an approximately 9% reduction for orthopedic surgery under the proposal. That is a specialty-level estimate, not a forecast for an individual practice.

• CMS proposes reducing payment for certain additional same-day surgical and office/outpatient evaluation and management services when furnished together. The proposal does not mean every evaluation billed with modifier 25 would automatically be paid at 50%; which service receives the reduction matters.

• AAOS President Wilford K. Gibson has described proposed payment cuts of roughly 20% for certain major joint-replacement procedures, including total hip, knee, and shoulder arthroplasty and shoulder hemiarthroplasty. That does not mean every joint-replacement service—or every surgeon’s revenue—would fall by that amount.

These are proposals. The comment period closed September 14, and AAOS submitted comments opposing significant provisions. The final rule could change the outlook, and Congress could also act. Before using these figures in a budget, check them against the final rule and any subsequent legislation.

Here, I want to stay on what that uncertainty means for your budget.

Here Is What That Looks Like at Surgeon-Level Numbers

Consider a hypothetical surgeon whose share of annual practice collections is $1.5 million:

• $600,000 from Medicare.

• $900,000 from commercial payers, including $700,000 under contracts assumed to adopt the current Medicare fee schedule.

For illustration, assume the surgeon’s affected Medicare rates decline by 8.5%. This is a scenario assumption—not a CMS estimate for that surgeon.

Applied to the $600,000 Medicare portion, that would mean $51,000 less in annual collections. If the $700,000 of Medicare-linked commercial business experiences the same reduction, that would mean another $59,500.

Together, that is $110,500 less in annual collections, before any changes in how the surgeon practices.

This simplified illustration assumes unchanged volume, code mix, payer mix, collection rates, and commercial contracts that adopt the same updated Medicare values without contractual exceptions. It does not estimate the surgeon’s take-home income or account for changes in expenses.

Your actual result could be materially different. The proposal’s effects vary across services, and the specialty average is not a substitute for repricing your own work.

The Five Questions

1. What does the 2027 rule do to our top ten codes?

Ask whoever runs your billing to reprice last year’s volume for your ten highest-revenue codes using the proposed values—and then update the analysis when the final values are available.

Use the applicable Medicare locality and site of service. Account for relevant modifiers and payment policies rather than simply multiplying every code by a headline percentage.

That gives you a practice-specific starting point instead of a specialty-level estimate.

2. How much of our commercial revenue is priced off Medicare?

Pull the contracts. Note which ones reference the current Medicare fee schedule, which use a fixed year, and when updates take effect.

Do not assume that a Medicare change flows through every contract automatically. The answer depends on the contract’s reference schedule, update provisions, carve-outs, and other terms.

Renewal dates matter too. They tell you when you have an opportunity to address unfavorable provisions—not whether a payer will agree to change them.

3. Where is each procedure actually most profitable?

Collections by site of service and margin by site of service are two different numbers.

Also keep the payment streams separate: a physician’s professional payment for work performed in a facility is not the same as the hospital’s or surgery center’s facility payment.

If your midyear review showed overhead drifting, this is where that thread picks back up: per-procedure margin, by site, after the costs that follow each case.

Use that analysis to understand the economics—not to override clinical appropriateness, patient needs, or applicable payer requirements.

4. Is the cash sitting in the practice doing a job before December 31?

Three items deserve a year-end deadline review.

First, coordinate 401(k) deferrals. For W-2 compensation, review deferral elections and withholding before the final applicable payroll. The deadline for depositing withheld contributions is separate, and self-employed owners can have different rules. Employer contributions may also have later deadlines. Confirm the requirements with your plan administrator.

Second, review any pass-through entity tax election with your CPA. Under IRS Notice 2020-75, qualifying state income-tax payments made by partnerships and S corporations can generally be deducted at the entity level rather than being subject to the owners’ individual SALT deduction limits. For an eligible calendar-year entity seeking that federal deduction for the current year, payment timing matters; state election and payment deadlines may be earlier than December 31.

The individual SALT deduction is no longer universally capped at $10,000. For 2026, the limit is $40,400, with a phase-down beginning above $505,000 of modified adjusted gross income, but generally not below $10,000. Married-filing-separately amounts are half those figures. Whether a PTET election helps—and by how much—depends on your circumstances and state rules.

Third, review equipment the practice genuinely needs. For a calendar-year practice, qualifying equipment generally must be acquired after January 19, 2025, and placed in service by December 31 to claim 100% bonus depreciation for the current year, subject to applicable eligibility requirements. “Placed in service” means ready and available for its intended business use—not merely ordered or paid for.

A deduction is never a reason to buy something you do not need. Keeping cash available can also be the right decision when it supports operating reserves, payroll, or other expected obligations.

5. Are we budgeting 2027 on 2026 rates?

If next year’s budget starts with this year’s collections and adds a growth assumption, it may miss the effect of changing reimbursement.

Build a proposal-based scenario and a separate relief scenario. Once the final rule is available, update both.

Then test staffing and capital commitments against the lower-revenue case. The point is not to predict Congress. It is to understand which commitments the practice can support if relief does not arrive.

The Treatment Plan Comes After the Diagnosis

Start with the billing data, contracts, financial statements, and advisers you already have. The first step is not necessarily a new consultant or a new software system. It is asking forward-looking questions of information you already use to look back.

You would never schedule a revision without reviewing fresh imaging, and your practice deserves the same discipline before it commits to a year of hiring, leases, and equipment.

Growing up on welfare taught me what it feels like when every money decision is a reaction to a bill that has already arrived. Building wealth, for me, has always meant getting far enough ahead to make decisions before they get made for you.

The fee schedule is out of your hands. Preparing for its possible effects is not.

So, if you sat down with your practice’s numbers this December, which of these five questions could you answer today?

Capably Yours,

Jared

DISCLAIMER

This article is for informational and educational purposes only and does not constitute investment, tax, or legal advice. It does not take into account the specific objectives, financial situation, or needs of any particular person. You should consult your own tax, legal, and investment professionals before acting on any information contained herein. Capable Wealth, a New York registered investment adviser, provides advisory services only where properly licensed or exempt from licensing.