HPHM 4302 HC Financial Mgt - Midterm Exam Review (Qns & Ans) - TTUHSC 2025, Exams of Nursing

Download HPHM 4302 HC Financial Mgt - Midterm Exam Review (Qns & Ans) - TTUHSC 2025 and more Exams Nursing in PDF only on Docsity!

HPHM 4302 Healthcare Financial

Management

Midterm Exam Review

(Questions & Solutions)

1. Multiple Choice Question: A hospital’s executive team is reviewing a proposed capital expenditure for a new imaging facility. Which capital budgeting method is best suited to determine whether the investment will generate a positive net present value (NPV) given projected cash flows and a required rate of return?

• A. Payback Period Analysis
• B. Net Present Value (NPV) Calculation
• C. Internal Rate of Return (IRR)
• D. Accounting Rate of Return (ARR) Correct ANS : B. Net Present Value (NPV) Calculation Rationale: NPV calculates the present value of all future cash flows—both inflows and outflows—using a discount rate. A positive NPV indicates that the investment is expected to generate value over the required rate of return, making it the best approach for evaluating long-term capital projects.

---

2. Fill-in-the-Blank Question: When evaluating long-term investments in healthcare, the __________ rate is used to discount future cash flows to their present value. Correct ANS : discount

Correct ANS s: A, B, D, E Rationale: Operating margin, days cash on hand, ROI, and bed occupancy rate are key quantitative metrics used to evaluate financial and operational performance. Although staff turnover can affect performance, it is typically managed under human resources rather than as a direct financial performance measure.

---

5. Multiple Choice Question: In the context of Medicare’s process of reimbursing hospitals, the diagnosis-related group (DRG) system is primarily used to:

• A. Determine the quality of patient care
• B. Classify hospital cases into groups for cost control purposes
• C. Evaluate physician performance
• D. Monitor patient satisfaction scores Correct ANS : B. Classify hospital cases into groups for cost control purposes Rationale: DRGs group hospital cases into categories that are expected to have similar hospital resource use. This method is used for prospective payment systems to control costs and allocate reimbursement efficiently.

---

6. Fill-in-the-Blank Question: The __________ analysis evaluates the sensitivity of outcomes to changes in key assumptions and variables, helping managers understand

the financial risk associated with a project. Correct ANS : sensitivity Rationale: Sensitivity analysis is a tool used by healthcare financial managers to assess how changes in input variables (e.g., discount rates, cash flow estimates) impact the project’s net present value, thereby identifying risks and guiding decision-making.

---

7. True/False Question: True or False: Economies of scale and economies of scope are both strategies that healthcare organizations use to reduce unit costs. Correct ANS : True Rationale: Economies of scale lower costs as the volume of services increases, while economies of scope reduce costs by sharing resources among different services. Both concepts are integral for strategic financial management in healthcare.

---

8. Multiple Response Question: Which of the following are key steps in the budgeting process within healthcare organizations? (Select all that apply)

• A. Setting financial goals and priorities
• B. Forecasting patient volume and revenue

10. Fill-in-the-Blank Question: A __________ is a formal document that summarizes an organization’s financial performance over a specific period and is essential in decision- making and accountability. Correct ANS : financial statement Rationale: Financial statements, including income statements, balance sheets, and cash flow statements, provide critical data for analyzing an organization’s financial performance and making informed managerial decisions.

---

11. True/False Question: True or False: Profit margin, an important indicator of financial health, measures the percentage of revenue that remains after all expenses have been deducted. Correct ANS : True Rationale: Profit margin is calculated by dividing net profit by total revenue, indicating overall profitability. It reflects the organization’s efficiency in managing its costs relative to its revenue.

---

12. Multiple Response

Question: When assessing revenue sources in a healthcare organization, which of the following should be considered? (Select all that apply)

• A. Patient service revenues
• B. Government reimbursements
• C. Private insurance payments
• D. Donations and grants
• E. Employee training costs Correct ANS s: A, B, C, D Rationale: Revenue in healthcare can come from patient services, governmental programs (e.g., Medicare, Medicaid), private insurers, and philanthropic donations or grants. Employee training costs (E) represent an expense rather than a revenue source.

---

13. Multiple Choice Question: 

A healthcare organization is evaluating its capital structure to determine how best to finance a new technology upgrade. Which financial metric is most essential for assessing the cost of debt compared to the cost of equity?

• A. Debt-to-equity ratio
• B. Return on Assets (ROA)
• C. Dividend payout ratio
• D. Current ratio Correct ANS : A. Debt-to-equity ratio Rationale:

helping managers identify risks and make more informed budgeting and financial planning decisions.

---

16. Multiple Response Question: When evaluating a capital project, which factors should be considered in addition to the projected cash flows? (Select all that apply)

• A. Discount rate used in the calculation
• B. Expected project lifespan
• C. Potential for technological obsolescence
• D. The personal opinion of the CEO
• E. Risk of regulatory or reimbursement changes Correct ANS s: A, B, C, E Rationale: Capital project evaluation must consider the discount rate, project duration, technological advances, and external risks (regulatory, reimbursement). The CEO’s personal opinion (D) is not a quantitative factor in financial analysis.

---

17. Multiple Choice Question: Which measure best indicates a healthcare organization’s short‑term liquidity?

• A. Debt-to-equity ratio
• B. Quick ratio
• C. Gross profit margin
• D. Return on Assets

Correct ANS : B. Quick ratio Rationale: The quick ratio (or acid-test ratio) measures an organization’s ability to cover its short‑term liabilities using its most liquid assets. This is especially critical in healthcare where cash flow and liquidity are essential for ongoing operations.

---

18. Fill-in-the-Blank Question: An analysis comparing the current cost of a service to the cost after implementing a new technology is typically evaluated using a __________ analysis. Correct ANS : cost-benefit Rationale: A cost-benefit analysis allows healthcare managers to assess whether the expected financial benefits of a new technology justify the investment, balancing expenditures against anticipated outcomes.

---

19. True/False Question: True or False: Mergers and acquisitions in healthcare are often pursued to achieve cost synergies and improve bargaining power with suppliers. Correct ANS : True

• C. Capitation
• D. Bundled payments Correct ANS : C. Capitation Rationale: Capitation pays providers a set amount per patient per period, irrespective of services rendered, thereby incentivizing efficient care delivery and cost control. This model contrasts with fee‑for‑service, which reimburses per procedure.

---

22. Fill-in-the-Blank Question: 

A __________ payment system adjusts the reimbursement rate based on the risk profile of the patient population, thereby compensating providers for treating sicker patients. Correct ANS : risk‑adjusted Rationale: Risk‑adjusted payment systems take into account the health status and demographic factors of patients when calculating reimbursement rates, ensuring that providers are adequately compensated for higher-risk populations.

---

23. True/False Question: 

True or False: Break-even analysis is a vital tool for healthcare managers to determine the minimum patient volume needed to cover operating

costs. Correct ANS : True Rationale: Break-even analysis helps healthcare managers understand how many services or patient encounters are required to cover fixed and variable costs, making it a key component in financial planning.

---

24. Multiple Response Question: Which strategies are commonly employed to improve revenue cycle management in healthcare organizations? (Select all that apply)

• A. Streamlining patient registration processes
• B. Utilizing electronic health records and billing software
• C. Implementing standardized coding and documentation
• D. Encouraging delay in patient payments
• E. Conducting regular audits of reimbursements Correct ANS s: A, B, C, E Rationale: Efficient revenue cycle management involves optimizing registration, leveraging technology for billing, ensuring precise coding, and routinely auditing reimbursement processes. Delaying patient payments (D) would counteract revenue cycle improvement efforts.

---

25. Multiple Choice Question:

True or False: A budget variance analysis compares actual financial performance with the budgeted targets and is crucial for performance improvement and accountability in healthcare organizations. Correct ANS : True Rationale: Variance analysis identifies discrepancies between planned and actual performance, helping managers locate inefficiencies, adjust operations, and ensure that financial goals are met.

---

28. Multiple Response Question: Which of the following risks are associated with healthcare finance management? (Select all that apply)

• A. Market risk due to fluctuating reimbursement rates
• B. Credit risk from delayed or uncollected patient payments
• C. Operational risk related to process inefficiencies
• D. Reputation risk impacting patient volume and revenue
• E. Astrological risk predictions Correct ANS s: A, B, C, D Rationale: Market, credit, operational, and reputation risks are all significant in healthcare financial management. Astrological risk predictions (E) are not considered a valid or actionable risk factor.

---

29. Multiple Choice

Question: In financial reporting, which measure best captures operating performance by excluding non-recurring items, interest, taxes, depreciation, and amortization?

• A. Gross Margin
• B. Net Profit Margin
• C. EBITDA
• D. Return on Equity (ROE) Correct ANS : C. EBITDA Rationale: EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) provides a clear view of operating performance by excluding non- operational expenses and non-cash charges, making it a standard metric in healthcare financial analysis.

---

30. Fill-in-the-Blank Question: 

A __________ analysis compares the costs and benefits of different healthcare interventions, aiding managers in the prioritization of resource allocation. Correct ANS : cost-effectiveness Rationale: Cost-effectiveness analysis evaluates the economic efficiency of interventions by comparing the costs incurred with the health benefits achieved. This analysis underpins strategic decision-making in healthcare finance management.

term obligations with current assets.

4. Which federal program is primarily responsible for funding healthcare services for individuals over age 65 in the US? A) Medicaid B) TRICARE C) Medicare D) CHIP ANS : C Rationale: Medicare is the federal program covering individuals aged 65 and older.
5. Which method of reimbursement pays providers a predetermined rate regardless of the delivered care? A) Fee-for-service B) Capitation C) Retrospective reimbursement D) Cost-based reimbursement ANS : B Rationale: Capitation involves paying a fixed amount per enrollee regardless of care usage.
6. Under DRG (Diagnosis-Related Group) payment methods, hospitals are incentivized to: A) Increase length of stay B) Minimize costs per admission C) Order unnecessary tests D) Focus only on outpatient services ANS : B

Rationale: DRG pays a fixed amount per case, so minimizing cost increases hospital profit.

7. When calculating the Weighted Average Cost of Capital (WACC), which of the following is NOT typically included? A) Cost of equity B) Cost of long-term debt C) Cost of grants D) Cost of preferred stock ANS : C Rationale: Grants are not a component of capital that carries a cost in WACC calculation.
8. What is the primary goal of supply chain management in healthcare financial management? A) Increasing clinical trial outcomes B) Ensuring uninterrupted supply at optimal cost C) Maximizing physician reimbursement D) Enhancing patient satisfaction through marketing ANS : B Rationale: Supply chain management ensures essential items are available at the best possible cost.
9. What is the primary risk associated with adopting value-based purchasing? A) Increased administrative simplicity B) Potential for reduced revenue due to penalties C) Higher investment yields D) Elimination of compliance reporting