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C811 FINANCIAL RESOURCE
MANAGEMENT IN HEALTHCARE with
Correct Answers
A medical center is expanding its hospital staff to accommodate the increasing number of flu cases seen over the past weeks.
Which type of finance activity is described in this scenario? - ✔️ Cost
A healthcare organization's senior finance leader is responsible for all financial plans and activities related to reimbursement, accounting, budgeting, and management for a healthcare system's financial well-being.
Which role matches this description? - ✔️ Chief financial officer
The most common structures of hospitals are religious, secular, or academic. These organizations raise capital through donations and tax-exempt debt.
What is the legal structure of hospitals that raise capital through these means? - ✔️ Not-for-profit: to meet charitable purposes
An established diagnostic center needs a new mammogram machine. The center has incurred higher debt and is very highly leveraged but decides to apply for another secured loan at its local bank.
What will the bank decide about the secured loan? - ✔️ The interest rate will be higher.
A private hospital with a successful history of traditional patient care is seeking to open a holistic treatment center off-site. It has secured an initial loan of five million dollars.
How would the nature of this venture affect the interest rate that could be expected on the loan? - ✔️ A higher interest rate loan due to the alternative patient care
A healthcare organization has the following financial information available in a balance sheet:
Assets: Cash of $10, Accounts receivable of $5, Machinery & equipment of $50, Liabilities:
Accounts payable of $6, Loans payable of $25, Common stock of $34, The organization decides to use $5,000 of the organization cash reserves to pay off some of the loans payable of $25,000.
What is the organization's business debt after the debt is paid off? - ✔️ $26,
A not-for-profit clinic is required to make monthly payments of $31,819.65 for the next 10 years to repay its long-term debt. The interest rate is 5%.
What is the clinic's current level of business debt? - ✔️ $3 million
An insurance group is in the process of evaluating a zero coupon bond purchase from a healthcare organization that needs capital financing. On January 1, 2001, the bonds were purchased at a discounted rate of $6,757.04 with a 5.5% original - issue yield and semiannual compounding.
On which date will they become due if these bonds have a face value of $20,000, and assuming the interest rates remain stable? - ✔️ January 1, 2021
A healthcare company is a non-profit provider but has had problems maintaining any significant cash balance in its portfolio. The curren t market trend is favorable long- term interest rates, and the healthcare company wishes to build an addition and repay debt over 20 years. - ✔️ Tax-exempt bonds
A for-profit healthcare organization wants to maximize its return on investment (ROI) in a major equipment purchase by using a financial analysis technique that will determine the point at which the net present value is equal to zero. The capital decision will be based on an 8% current cost of capital throughout the life of the new equipment investment.
Which financial analysis method is being used to determine the equipment purchase? - ✔️ Internal rate of return
An assisted living center administrator has determined that a renovation of the rehabilitation center will increase the profitability of the organization. Although interest expense will increase 80% from $200,000, the annual net income after renovation is projected to be one million dollars from the previous year's $400, profit. The times interest earned ratio industry standard is 3.25.
How has this financial analysis impacted the renovation decision? - ✔️ For every dollar in interest expense, the organization will earn $3.78 in profit.
A medical group has expanded its facilities in anticipation of the Affordable Care Act (ACA). Prior to the ACA, the group accepted insurance from private plans only. Now, many patients have individual policies through a marketplace exchange plan.
How will accepting this new form of insurance increase revenue? - ✔️ It will use the group's excess capacity.
The following is a portion of a healthcare organization's budget:
What is the budget variance and was the spending over or under budget? - ✔️ Budget variance was $73,000 and spending was over budget.
The following is a portion of a healthcare organization's budget:
What is the central supply budget variance, and was the department over or under budget? - ✔️ The budget variance was $800 and the department was over budget.
As the newly hired administrator at a private ear, nose, and throat (ENT) practice has a goal of the position is to increase patient volume. Many physicians and nurse practitioners (NP) of the practice are not at capacity. Two physicians are specially trained in facial trauma and reconstruction and would like to expand the practice to include these services.
The current general ENT patients from these two physicians could be moved to the others to allow for all the physicians to be at full capacity. With this change, it is determined that the NPs are not needed.
How will these changes affect the budgetary process? - ✔️ Operational budget revenue is increased due to increased surgeries and more patients; operational expenses are down due to less salaries and fringe benefits.
The administrator of a private ear, nose, and throat (ENT) practice would like to add additional services by hiring new physicians. The goal is to hire six new physicians by the end of the fiscal year while keeping salaries payable within certain parameters.
Which budget should be monitored? - ✔️ Human resources
A current revenue cycle and process includes the following: Check in patients Verify insurance Assign codes
Enter charges Submit claims What is the next step to be applied to ensure reimbursement? - ✔️ Follow-up payment and collections
Place the steps of the revenue cycle in order from first (step one) to last (step five).
Select your answers from the pull-down list.
Billing Surgery Discharge Admission Scheduling - ✔️ Step Five Step Three Step Four Step Two Step One
The chief financial officer (CFO) at the hospital noticed the collection department is not contacting patients with overdue accounts, which is affecting hospital stability. The CFO has instructed staff members to be more aggressive and document their efforts.
Which component is the CFO trying to address? - ✔️ Receivables management
A clinic administrator is implementing a new point of service collections system to help improve collections at time of service during appointments. The patients will be asked to pay their co-pays, co-insurance, and deductibles prior to being seen by the physician.
How will this revenue cycle change in the clinic impact the cash flow management? - ✔️ Accounts receivable will decrease but point of service collections will increase.
A national HMO has asked a pediatric group practice to provide 3,000 annual well- baby visits at a payment of $35 per visit. Although the practice has the excess capacity, they would need to hire additional staff for $85,000 as well as increase the supply of linens and thermometers at an average cost of $10 per visit. The practice has determined that the total contribution margin is positive and decides to accept the request and terms of the agreement.
Why was this a poor decision? - ✔️ Because fixed cost of $85,000 was not deducted
An employee is going to be seen at a medical lab for blood work that has been requested by the employer for a wellness check. The employee has been advised that the employer will pick up 90% of the cost, and the insurance carrier will pay the remaining 10%.
Which type of payer is the insurance carrier? - ✔️ Third-party payer
A private third-party payer provides healthcare insurance services for a large group plan. The contract states reimbursements will be based on a fee schedule with maximum limits for each service performed.
Which reimbursement method is utilized in this contract? - ✔️ Modified fee-for-service
A hospital decides to adopt the accru al method of accounting. The accountant wants to make sure that generally accepted accounting principles (GAAP) are followed.
How will revenue be recognized using this approach? - ✔️ When earned
In December, 100 inpatients received healthcare services. The insurers did not provide the financial reimbursement for services until the following year, and the controller did not record the revenues until the payments were received.
Which method of accounting is demonstrated? - ✔️ Cash
In June, an outpatient clinic purchased $2,000 in medical supplies. The supplier's invoice is received and paid in mid-July. The office manager recorded the expense in the ledger during the month of July.
Which accounting method was utilized? - ✔️ Cash
Use the given income statement to answer the following question:
What are the expenses for the period ending January 31, 2015? - ✔️ $7,
Use the given income statement to answer the following question:
What are the total expenses for the period ending January 31, 2015? - ✔️ $16,
Use the given hospital income statement from 2014 to answer the following question:
What is the hospital's operating income from 2014? - ✔️ ($1,738)
A hospital's projected revenues for fiscal year 2014 of $335,000 and bad debt of $15,000.
Use the given income statement to answer the following question.
Why was there a profit for this time period? - ✔️ Patient service revenue was higher than expected
Use the given balance sheet for a healthcare organization to answer the following question:
How much is the total equity of this organization? - ✔️ $70,
Use the given balance sheet for an organization to answer the following question:
What is the change in net asset for this organization? - ✔️ They made a profit of $567,293 this year.
Use the given balance sheet for a hospital to answer the following question:
A hospital chief operating officer (COO) wants to open a new physician office and projects the facility will cost $10,000,000 and will fund the project with cash. An additional $200,000 is necessary for the first three months of operating costs. The COO has asked the CFO to analyze the idea and offer a recommendation.
What would the chief financial officer (CFO) determine from this balance sheet? - ✔️ The cash flow projection and analysis are needed.
Use the given balance sheet for a hospital to answer the following question:
The current liabilities on the Balance sheet are $9,000,000.
A hospital organization is applying for a new loan to buy magnetic resonance imaging (MRI) equipment. The bank asks for financial statements before it will consider the loan. The income statement shows $500,000 of income before interest expense and income taxes. The overall interest expense for the year was $50,000.
Which additional information will the bank need to determine if the loan can be approved? - ✔️ Times interest earned ratio
A network of for-profit regional hospitals in the Midwest recently reviewed its statement of operations, via vertical (common - size) analysis. Its year-over-year comparisons saw an increase in total operating expenses as a percent of total operating revenue from 90.3%to 97.3%.
What problem could this observation present, considering the regional hospital's current financial scenario? - ✔️ That it provides further evidence to explain the decrease in operating income
A large, metropolitan hospital has used ratio analysis in the completion of its recent financial statement reviews. While comparing its times interest earned ratios over the last several years, it has fallen from a high of 6.80 to a most recent low of 1.34. The industry standard is 4.20.
How does this measurement impact for the future financial growth of the organization? - ✔️ It may negatively affect its ability to borrow in the future.
A 100-bed acute care hospital recently completed a horizontal analysis of its financial statements over the last five fiscal years. The hospital realized that its Operating Income percentage changes varied greatly over these years, with a low of
- 69 percent up to 147 percent.
What is a limitation with using this type of analysis and a possible explanation to the wide range in this scenario? -
✔️ The percentage changes won't translate into high or low dollar amounts.
