Healthcare Finance Test 1 Practice

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• Accounting rules and regulations provide an exact answer to every accounting question, leaving no opportunity for negotiation, compromise, or interpretation in the preparation and presentation of financial statements.
• Like the balance sheet, the income statement reports the status of an organization over some period.
• Which strategy helps optimize the cash conversion cycle?
• The days-cash-on-hand ratio and current ratio both are rough measures of liquidity. The best way to assess liquidity is to construct a cash budget.
• What is the difference between operating cash flow and net income, and why is it important in hospital budgeting?
• What is a cost-to-charge ratio (CCR) and how is it used in pricing and reimbursement analysis?
• If the business uses $30,000 of its cash to pay salaries, which balance sheet change occurs?
• What is depreciation, and how is it treated differently for tax purposes and financial reporting in healthcare organizations?
• Why is it important for tax-exempt hospitals to track donor-imposed restrictions on net assets?
• Which statement best describes Medicare reimbursement for physicians?
• In physician payment, which statement best describes the role of relative value units (RVUs)?
• To be workable, insurance must have which characteristics?
• There are several types of managed care organizations (MCOs). Regardless of type, all MCOs have an incentive to reduce utilization.
• What is the difference between general net assets and restricted net assets in a tax-exempt hospital?
• Which is a typical method hospitals use to manage accounts receivable (AR) days?
• Which item would appear as a liability on the balance sheet, given typical items?
• The statement: The return on equity (ROE) is irrelevant for not-for-profit organizations.
• In calculating NPR, what does 'contractual adjustments' refer to?
• Which statement about moral hazard is true?
• Charity care is reported as part of which financial concept?
• What is a DRG-based prospective payment system, and how does it affect hospital reimbursement?
• A medical home (patient-centered medical home) is a team-based model of care led by a personal physician who works collaboratively with the team's other healthcare professionals to provide continuous, coordinated, and integrated care throughout a patient's lifetime.
• What is the primary purpose of a cash budget in hospital finance?
• Analysts interpret ratio results primarily through trend and comparison rather than a single value.
• Define liquidity ratios and name two commonly used in healthcare finance.
• What is activity-based costing (ABC) in healthcare?
• The role of finance in healthcare organizations has increased in importance over time because the finance function must support activities such as
• Net patient revenue (NPR) is defined as NPR from gross charges by subtracting which categories?
• Which statement about the limitations of financial condition analysis is most correct?
• Which statement best describes non-operating income?
• Which statements about the Medicare IPPS (hospital inpatient payment system) are most correct?
• In accrual accounting, when is revenue recognized?
• In the United States, the highest proportion of healthcare expenditures is for
• Under capitation, providers are paid a fixed amount per enrolled patient and thus assume utilization risk.
• Which of the following would most likely appear as an asset on the balance sheet of a healthcare organization?
• Which statement about healthcare reform is true regarding its impact on private insurers and major government programs?
• Carlisle Clinic, a not-for-profit organization, reported an equity balance of $1,000,000 on its December 2012 balance sheet. Assuming net income of $200,000 for the year and no other equity adjustments during 2012, what was Carlisle Clinic's equity balance as of December 31, 2011?
• Which statement about accountable care organizations (ACOs) is most correct?
• What is the purpose of a capital budget in a hospital, and what methods are commonly used to evaluate proposals?
• Cost allocation relies on drivers to assign indirect costs to cost objects. Which statement is true?
• If an organization's non operating and operating activities are profitable in a given year, which statement is most correct?
• KPI stands for?
• Which statement about financial statement analysis is most correct?
• In not-for-profit organizations, return on equity is typically viewed as irrelevant.
• Payer mix variance analysis is used to
• Which statement about revenues is most correct?
• Which of the following would most likely appear as a liability on the balance sheet of a healthcare organization?
• Which statement about healthcare reform is incorrect?
• The primary difference between financial statement analysis and operating analysis is that operating analysis does not use benchmarking.
• What term describes the periodic allocation of the cost of tangible fixed assets over their useful lives?
• Which statement about adverse selection and underwriting is incorrect?
• When evaluating a capital project using net present value, what discount rate should be used?
• Which factor most directly reduces days in accounts receivable in a hospital setting?
• Which of the following concerning operating income is most correct?
• What is bad debt expense in healthcare accounting, and how does it differ from charity care?
• Charity care is disclosed in which part of financial reporting?
• What is the purpose of a pro forma income statement?
• Which statement concerning depreciation expense is most correct?
• How does days in accounts receivable (A/R) relate to liquidity, and what strategies can improve it?
• A pro forma balance sheet is particularly useful for evaluating financing needs under different scenario assumptions. Which option best describes this use?
• Medicare DSH payments are designed to
• Alternative payment models (APMs) differ from traditional fee-for-service in that they
• Which mechanism is designed to align reimbursement with quality and efficiency, often using targets for outcomes and costs?
• What does the cash conversion cycle measure?
• Which of the following individuals are not stakeholders in not-for-profit corporations?
• Which ratio is most informative for liquidity?
• Which statement best describes interpreting ratio analysis results?
• Given the balance sheet values, what is total liabilities?
• In DRG-based hospital payments, the payment is tied to the diagnosis-related group and may be adjusted for severity.
• What is a finance charge in patient billing?
• Which statement concerning net income versus cash flow is most correct?
• Assume that John Richards pays income taxes at a 30 percent rate. He currently owns a not-for-profit (municipal) bond that pays 5 percent interest. What interest rate would have to be set on a for-profit (corporate) bond to produce the same amount of usable (after-tax) income?
• If the value of diagnostic equipment falls due to obsolescence, how is the balance sheet adjusted to preserve the accounting identity?
• Charity care in healthcare finance refers to
• Which statement best describes the relationship between ROA and ROE when a firm has debt?
• Which statement best describes the difference between accrual accounting and cash accounting in healthcare finance?
• Describe the concept of contribution margin in a hospital's service line and why it matters for decision making.
• A pro forma balance sheet is prepared to
• Explain the role of a balance sheet in healthcare finance and name its three major sections.
• The primary goal of not-for-profit corporations is expressed in a mission statement and often involves service to the community.
• White Memorial Hospital has a debt-to-equity ratio of 0.67. What is the hospital's debt ratio?
• Define operating margin and explain why it matters in healthcare finance compared to total profit margin.
• What is the primary impact of accurate coding in hospital billing?
• Describe the impact of Medicare's Hospital IPPS payment methodology on hospital cost management and pricing strategy.
• Which category accounts for the largest share of healthcare expenditures in the United States?
• When an asset impairment occurs without any cash outlay, which financial statement is affected directly?
• What is the primary purpose of the net patient revenue line on a hospital income statement, and how does payer mix impact its calculation?
• Which statement is NOT typically a component of the balance sheet?
• What is the purpose of a forecast model in healthcare finance, and what are common approaches (e.g., top-down vs bottom-up)?
• In the Medicare IPPS system, what does DRG stand for and what is its role?
• Carter Health System's return on equity, given a profit margin of 5.4 percent, sales of $4 million, total assets of $2 million, and debt financing of $800,000, is most nearly what?
• The requirement to provide financial accounting information is driven by the need for outside stakeholders (primarily investors) to have reliable information about the financial status of an organization.
• What is clinical integration?
• Suppose two hospitals are identical in all ways except that one is newer and the other older. Which statement about comparative financial statement analysis is most correct?
• Which statement accurately reflects the balance sheet identity?
• Which statement about equity is most correct?
• Assume Mercy Hospital uses accrual accounting. Which statement is most correct?
• According to surveys of members of the American College of Healthcare Executives and Healthcare Financial Management Association, which concerns were identified?
• Payer mix affects hospital revenue and risk; which statement best describes this relationship?
• Because the organizational and financial goals of for-profit and not-for-profit provider organizations differ, their financial decision-making processes lead to different decisions.
• Profit margin is defined as which of the following?
• Which statement about net income is most correct?
• Which statement about accumulated depreciation is correct?
• A single ratio value is seldom meaningful; analysts rely on trend and benchmarking across periods and peers.
• Which costing method is required by GAAP for external reporting?
• Which statement reflects accrual accounting revenue recognition?
• Under accrual accounting, are all expenses reported on the income statement cash costs?
• Inaccurate coding can lead to which of the following outcomes?
• Which statement about the legal forms of for-profit business organization is most correct?
• Which of the following is not a finance activity?
• Because financial statements are based on historical data, financial statement analysis is typically used only to evaluate an organization's past financial condition.
• What does limited liability in a corporation mean?
• Which of the following is an example of non-operating income?
• What does the 'days cash on hand' metric measure in hospital finance?
• Operating analysis uses benchmarking in the same way as financial statement analysis.
• The cash flow statement presents cash inflows and outflows from which activities?
• Which of the following statements is true about not-for-profit corporations?
• IPPS stands for Inpatient Prospective Payment System.
• Explain the difference between full absorption costing and variable costing in healthcare cost accounting and when each is appropriate.
• Seasonality can distort financial ratios. Which of the following is true about this effect?
• Which of the following activities are characteristic of businesses?
• Rate banding in hospital pricing is used to
• From a provider's perspective, which third-party payment method has utilization risk?
• Which statement describes how ACOs handle performance targets?
• What is healthcare cost shifting?
• How does rate setting differ between fee-for-service and value-based care models?
• Which statement best describes the purpose of a monthly financial close?
• Consider the balance sheet scenario where the business uses $10,000 of cash to pay for suppliers that were ordered on credit terms and have already been received and recorded on the balance sheet. Which statement reflects the resulting balance sheet change?
• Which statement about the income statements is most correct?
• Which statement about cash versus actual accounting is most correct?
• Define a hurdle rate and its role in evaluating healthcare capital projects.
• Which of the following statements about debt management ratios is incorrect?
• Which statement best describes the primary purpose of the income statement?
• Financial statement analysis is typically used to evaluate past financial condition.
• Capital budgeting decisions in healthcare primarily concern
• Which statement correctly describes the accounting equation for the balance sheet?
• In addressing high charity care with low reimbursements, a hospital may pursue which action?
• In evaluating a capital project, which statement best describes what the hurdle rate accounts for?
• Contribution margin ratio is defined as
• Integrated delivery systems are able to provide higher-quality care at lower cost than stand-alone specialized provider organizations.
• Which of the following is a measure of asset efficiency mentioned in the material?
• Explain payer mix and two major implications for hospital financial performance.
• What is the breakeven point in units for a hospital service line, and which costs are included in its calculation?
• What is the primary function of capital markets in healthcare organizations?
• Which statement about hospitals is most correct?
• Form 990 is a report filed with state regulators that is used to rank hospitals on patient satisfaction.
• Which statement describes the use of top-down forecasting in healthcare?
• Net patient revenue equals patient service revenue less provision for bad debts. Which statement is true?
• Which statement about investor-owned (for-profit) corporations is incorrect?
• Grady Home Health has a profit margin of 15 percent on sales of $20 million. If the firm has debt of $7.5 million and total assets of $22.5 million, what is Grady's return on assets?
• What does supply chain finance aim to improve?
• Which statement about fee-for-service reimbursement is incorrect?
• Net patient revenue components when deriving NPR from gross charges: which items are included?
• Which statement best describes the relationship between accrual accounting and cash flow?
• What is the purpose of scenario analysis in capital budgeting?
• What is a primary benefit of activity-based costing in healthcare?
• It is always easy to determine whether a given ratio value is 'good' or 'bad'.
• Under accrual accounting, do revenues reported on the income statement always represent cash collections?
• Which of the following is a common driver used in cost allocation?
• Which of the following items are included in a business's set of financial statements?
• From a financial perspective, businesses and pure charities are identical.
• Most providers' primary legal concern is
• Which item is an example of equity in the given balance sheet?
• The four Cs (character, capability, charisma, and courtesy) as described in the textbook summarize the attributes needed to be a good financial manager.
• Which statement best describes the impact of declines in volumes and changes in price on net patient revenue?
• Which of the following statements about benefit corporations (B corporations) is most correct?
• Payer mix variance analysis informs adjustments to which financial areas?
• The Government Accounting Procedures (GAP) is the set of rules and regulations that govern the content and format of financial statements.
• Which of the following statements about financial condition analysis is most correct?
• Which statements about balance sheet organization are correct?
• Using the given balance sheet, what is the total equity?
• Regarding the finance departments of large healthcare organizations, which statement is correct?
• Assume that Jane Adams pays income taxes at a 35 percent rate. What would be the after-tax amount on $100 of interest income she receives?
• Explain the concept of encumbrances in budgeting and how they affect spending control.
• Assume that Reginald Worthington, who pays 40 percent in income taxes, plans to contribute 100,000 to not-for-profit Ravenswood Community Hospital. Without contribution, his tax bill would be 500,000. What would be his tax bill if he makes the contribution?
• Which statement best describes risk sharing in alternative payment models?
• What is working capital, and which two actions illustrate its management in a hospital?
• Which statement about coding is incorrect?
• What is payer contract leakage and why is it important to monitor?
• Which statement about regulatory and legal issues is most correct?
• What is the difference between capital budgeting and operating budgeting in a healthcare setting?
• Fund accounting is used by investor-owned (for-profit) businesses to differentiate between operating funds and retirement funds.
• Which statement about the Chief Financial Officer's role is true?
• Which statement best describes the relation of net income and cash flow?
• Why are risk adjustments important in reimbursement planning?
• Which of the following statements is not a limitation of ratio analysis?
• Which statement best describes the CFO's role in mergers or affiliations in healthcare?
• Which statement about healthcare providers is incorrect?
• Which statement best defines the primary role of finance in an organization?
• Cost allocation in a hospital assigns indirect costs to cost objects using drivers. Which of the following statements is correct?
• Common-size financial statements are created by dividing all income statement items and balance sheet accounts by total assets.
• Which statement best describes how a fee-for-service system incentivizes providers?
• Which of the following statements about the balance sheet is correct?
• How do capital leases differ from operating leases in healthcare financial reporting under current standards?
• Which equation best describes the accounting identity?
• If a business has total assets of 500,000 and total liabilities of 300,000, and 20,000 of net fixed assets are written off, what is the total equity after the write-off?
• Within healthcare finance, the comptroller and treasurer often supervise managers responsible for which functions?
• The set of rules and regulations that govern the content and format of financial statements is called Government Accounting Procedures (GAP).
• Which financial statement provides information about assets, liabilities, and equity at a point in time?
• Which statement about investor-owned (for-profit) corporations is incorrect?
• Pay-for-performance plans typically
• The best approach to liquidity assessment.
• Which statement about income statement expenses is most correct?
• A single ratio value cannot reliably indicate overall performance.
• Which statement best defines return on assets (ROA)?
• In ratio analysis, a single value has little meaning; analysts use trend and comparative analyses to interpret the numbers.
• Which statement about the cash flow statement is correct?
• Which of the following statements about not-for-profit corporations is most correct?
• A taxpayer in the 40 percent tax bracket makes a charitable contribution of 100,000 to a not-for-profit hospital. How much does the tax bill decrease as a result?
• Which statement accurately describes bundled payments and shared savings arrangements for providers?