MHA 706 Financial Management Midterm Exam.
Questions & Verified Answers
Question Distribution:
• Multiple Choice: 35 questions
• Problem Solving/Calculations: 10 questions
• Short Answer: 5 questions
Difficulty Mix: 30% Recall | 45% Application | 25% Analysis
DOMAIN I: HEALTHCARE FINANCIAL ENVIRONMENT & REIMBURSEMENT (Questions 1–6)
Q1 [Multiple Choice | Recall]
A hospital receives a fixed payment per day for each inpatient day, regardless of the specific
services provided that day. This payment methodology is called:
A. Fee-for-service (per-service payment)
B. Per diem
C. Capitation (per member per month)
D. Bundled payment (episode of care)
Correct Answer: B (Per diem)
Rationale: Per diem reimbursement pays a fixed daily rate per inpatient day. The provider bears
moderate financial risk because shorter stays reduce revenue. Fee-for-service (A) pays per
individual service rendered. Capitation (C) provides a fixed monthly payment per enrolled
patient regardless of services used. Bundled payment (D) provides a single payment for an
entire episode of care (e.g., joint replacement including pre-op, surgery, post-op, and rehab).
Q2 [Problem Solving | Application]
A hospital's gross charges for a patient stay are $50,000. The payer's allowable amount (contract
rate) is $25,000. The patient has a $2,000 deductible (already met) and 20% coinsurance. What
is the hospital's net patient service revenue from this payer for this patient?
,A. $25,000
B. $20,000
C. $50,000
D. $23,000
Correct Answer: B ($20,000)
Rationale:
• Contractual adjustment = $50,000 - $25,000 = $25,000 (write-off, not revenue)
• Patient coinsurance = 20% × $25,000 = $5,000 (patient responsibility)
• Net patient service revenue = Allowed amount - Patient responsibility = $25,000 -
$5,000 = $20,000
• The hospital receives $20,000 from the payer + $5,000 from the patient = $25,000 total
(the allowed amount)
Q3 [Multiple Choice | Application]
Under a capitation reimbursement model, which statement is TRUE?
A. Providers have low financial risk and are incentivized to increase service volume
B. Payers bear high financial risk due to unpredictable per-service costs
C. Providers receive a fixed monthly payment per enrolled patient regardless of services used,
bearing high utilization risk
D. Payment is made per individual procedure with no risk sharing
Correct Answer: C
Rationale: Under capitation, providers receive a fixed per-member-per-month (PMPM) payment
regardless of how many services the patient uses. This creates high financial risk for providers
(must manage utilization efficiently) but low risk for payers (predictable costs). Providers are
incentivized toward prevention and efficiency. Option A describes fee-for-service; B is incorrect
because payers have low risk under capitation; D describes fee-for-service.
Q4 [Multiple Choice | Recall]
Which of the following represents the difference between the provider's billed charge and the
payer's allowable amount?
,A. Bad debt
B. Charity care
C. Contractual adjustment
D. Net patient service revenue
Correct Answer: C (Contractual adjustment)
Rationale: The contractual adjustment (or contractual write-off) is the difference between the
provider's listed price (charge) and the maximum amount the payer will reimburse
(allowable/contract rate). This amount is not collected from either the patient or the payer. Bad
debt (A) is uncollected patient responsibility. Charity care (B) is services provided with no
expectation of payment for indigent patients. Net patient service revenue (D) is gross charges
minus contractual adjustments, charity care, and bad debt.
Q5 [Multiple Choice | Analysis]
A Medicare inpatient admission is reimbursed using a Diagnosis-Related Group (DRG) system.
Which statement best describes the financial risk allocation?
A. Provider bears low risk; payer bears high risk
B. Provider bears high risk (must manage length of stay and resources within fixed payment);
payer bears low risk
C. Risk is equally shared between provider and payer
D. Payer bears all financial risk
Correct Answer: B
Rationale: DRG payment provides a fixed amount per admission based on the patient's
diagnosis/procedure. The provider bears high financial risk because they must manage the
patient's entire stay (length of stay, resources, complications) within that fixed payment. If costs
exceed the DRG payment, the provider loses money. The payer (Medicare) bears low risk
because costs are predictable per admission. This creates strong incentives for efficient care
delivery and cost control.
Q6 [Multiple Choice | Application]
In a value-based payment (VBP) model, a hospital receives a base payment plus bonuses or
penalties based on quality metrics, patient satisfaction, and cost efficiency. What is the primary
strategic implication for hospital financial management?
, A. Focus exclusively on maximizing patient volume
B. Invest in quality improvement, care coordination, and cost reduction to earn bonuses and
avoid penalties
C. Increase billed charges to offset potential penalties
D. Avoid high-acuity patients to minimize quality metric exposure
Correct Answer: B
Rationale: Value-based payment creates moderate-to-high financial risk for providers through
upside (bonuses) and downside (penalties) risk. The optimal strategic response is to invest in
quality improvement initiatives, care coordination, population health management, and
operational efficiency to maximize bonus opportunities and avoid penalties. Option A reflects a
fee-for-service mentality. Option C is ineffective because VBP is based on quality/cost
performance, not charges. Option D (cherry-picking patients) is unethical and may violate
regulatory requirements.
DOMAIN II: FINANCIAL STATEMENTS (Questions 7–14)
Q7 [Multiple Choice | Recall]
Which of the following appears on the Balance Sheet (Statement of Financial Position)?
A. Net patient service revenue
B. Salaries and benefits expense
C. Accounts receivable
D. Depreciation expense
Correct Answer: C (Accounts receivable)
Rationale: The balance sheet reports assets, liabilities, and equity at a specific point in time
(snapshot). Accounts receivable is a current asset representing cash to be collected from
patients/insurers for services already provided. Net patient service revenue (A) and
salaries/benefits expense (B) appear on the income statement (flow statement over a period).
Depreciation expense (D) also appears on the income statement; accumulated depreciation
appears on the balance sheet as a contra-asset.
Q8 [Multiple Choice | Recall]
The fundamental accounting equation for the balance sheet is:
Questions & Verified Answers
Question Distribution:
• Multiple Choice: 35 questions
• Problem Solving/Calculations: 10 questions
• Short Answer: 5 questions
Difficulty Mix: 30% Recall | 45% Application | 25% Analysis
DOMAIN I: HEALTHCARE FINANCIAL ENVIRONMENT & REIMBURSEMENT (Questions 1–6)
Q1 [Multiple Choice | Recall]
A hospital receives a fixed payment per day for each inpatient day, regardless of the specific
services provided that day. This payment methodology is called:
A. Fee-for-service (per-service payment)
B. Per diem
C. Capitation (per member per month)
D. Bundled payment (episode of care)
Correct Answer: B (Per diem)
Rationale: Per diem reimbursement pays a fixed daily rate per inpatient day. The provider bears
moderate financial risk because shorter stays reduce revenue. Fee-for-service (A) pays per
individual service rendered. Capitation (C) provides a fixed monthly payment per enrolled
patient regardless of services used. Bundled payment (D) provides a single payment for an
entire episode of care (e.g., joint replacement including pre-op, surgery, post-op, and rehab).
Q2 [Problem Solving | Application]
A hospital's gross charges for a patient stay are $50,000. The payer's allowable amount (contract
rate) is $25,000. The patient has a $2,000 deductible (already met) and 20% coinsurance. What
is the hospital's net patient service revenue from this payer for this patient?
,A. $25,000
B. $20,000
C. $50,000
D. $23,000
Correct Answer: B ($20,000)
Rationale:
• Contractual adjustment = $50,000 - $25,000 = $25,000 (write-off, not revenue)
• Patient coinsurance = 20% × $25,000 = $5,000 (patient responsibility)
• Net patient service revenue = Allowed amount - Patient responsibility = $25,000 -
$5,000 = $20,000
• The hospital receives $20,000 from the payer + $5,000 from the patient = $25,000 total
(the allowed amount)
Q3 [Multiple Choice | Application]
Under a capitation reimbursement model, which statement is TRUE?
A. Providers have low financial risk and are incentivized to increase service volume
B. Payers bear high financial risk due to unpredictable per-service costs
C. Providers receive a fixed monthly payment per enrolled patient regardless of services used,
bearing high utilization risk
D. Payment is made per individual procedure with no risk sharing
Correct Answer: C
Rationale: Under capitation, providers receive a fixed per-member-per-month (PMPM) payment
regardless of how many services the patient uses. This creates high financial risk for providers
(must manage utilization efficiently) but low risk for payers (predictable costs). Providers are
incentivized toward prevention and efficiency. Option A describes fee-for-service; B is incorrect
because payers have low risk under capitation; D describes fee-for-service.
Q4 [Multiple Choice | Recall]
Which of the following represents the difference between the provider's billed charge and the
payer's allowable amount?
,A. Bad debt
B. Charity care
C. Contractual adjustment
D. Net patient service revenue
Correct Answer: C (Contractual adjustment)
Rationale: The contractual adjustment (or contractual write-off) is the difference between the
provider's listed price (charge) and the maximum amount the payer will reimburse
(allowable/contract rate). This amount is not collected from either the patient or the payer. Bad
debt (A) is uncollected patient responsibility. Charity care (B) is services provided with no
expectation of payment for indigent patients. Net patient service revenue (D) is gross charges
minus contractual adjustments, charity care, and bad debt.
Q5 [Multiple Choice | Analysis]
A Medicare inpatient admission is reimbursed using a Diagnosis-Related Group (DRG) system.
Which statement best describes the financial risk allocation?
A. Provider bears low risk; payer bears high risk
B. Provider bears high risk (must manage length of stay and resources within fixed payment);
payer bears low risk
C. Risk is equally shared between provider and payer
D. Payer bears all financial risk
Correct Answer: B
Rationale: DRG payment provides a fixed amount per admission based on the patient's
diagnosis/procedure. The provider bears high financial risk because they must manage the
patient's entire stay (length of stay, resources, complications) within that fixed payment. If costs
exceed the DRG payment, the provider loses money. The payer (Medicare) bears low risk
because costs are predictable per admission. This creates strong incentives for efficient care
delivery and cost control.
Q6 [Multiple Choice | Application]
In a value-based payment (VBP) model, a hospital receives a base payment plus bonuses or
penalties based on quality metrics, patient satisfaction, and cost efficiency. What is the primary
strategic implication for hospital financial management?
, A. Focus exclusively on maximizing patient volume
B. Invest in quality improvement, care coordination, and cost reduction to earn bonuses and
avoid penalties
C. Increase billed charges to offset potential penalties
D. Avoid high-acuity patients to minimize quality metric exposure
Correct Answer: B
Rationale: Value-based payment creates moderate-to-high financial risk for providers through
upside (bonuses) and downside (penalties) risk. The optimal strategic response is to invest in
quality improvement initiatives, care coordination, population health management, and
operational efficiency to maximize bonus opportunities and avoid penalties. Option A reflects a
fee-for-service mentality. Option C is ineffective because VBP is based on quality/cost
performance, not charges. Option D (cherry-picking patients) is unethical and may violate
regulatory requirements.
DOMAIN II: FINANCIAL STATEMENTS (Questions 7–14)
Q7 [Multiple Choice | Recall]
Which of the following appears on the Balance Sheet (Statement of Financial Position)?
A. Net patient service revenue
B. Salaries and benefits expense
C. Accounts receivable
D. Depreciation expense
Correct Answer: C (Accounts receivable)
Rationale: The balance sheet reports assets, liabilities, and equity at a specific point in time
(snapshot). Accounts receivable is a current asset representing cash to be collected from
patients/insurers for services already provided. Net patient service revenue (A) and
salaries/benefits expense (B) appear on the income statement (flow statement over a period).
Depreciation expense (D) also appears on the income statement; accumulated depreciation
appears on the balance sheet as a contra-asset.
Q8 [Multiple Choice | Recall]
The fundamental accounting equation for the balance sheet is:
