C428 Preassessment

C428 Preassessment 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 Cash Capital Control - ANS 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? Controller Treasurer Staff accountant Chief financial officer - ANS 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 break even For-profit: to maximize profits For-profit: to maximize shareholder value Not-for-profit: to meet charitable purposes - ANS 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 lower. The interest rate will be higher. The interest rate will be variable. The interest rate will remain stable. - ANS 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 lower interest rate loan due to the organization's current assets A higher interest rate loan due to the hospital's success rate A lower interest rate loan due to the location of new site A higher interest rate loan due to the alternative patient care - ANS 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 $10,000 Accounts receivable of $5,000 Machinery & equipment of $50,000 Liabilities: Accounts payable of $6,000 Loans payable of $25,000 Common stock of $34,000 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? $10,000 $15,000 $20,000 $26,000 - ANS $26,000 ()+6000 = 26000 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 $4 million $3.5 million $2.5 million - ANS $3 million BAII Plus: PMT = 31819.5 N = 120 I/Y = 0.4167 FV = 0 CPT PV = 2999944.27 (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, 2020 December 31, 2020 January 1, 2021 January 1, 2022 - ANS January 1, 2021 BAII plus: FV = 20000 PV = -6757.04 PMT = 0 I/Y = 2.75 CPT N = 40 (divide by 2 since compounding done semi-annually and get 20) 2001 + 20 years = 2021 A healthcare company is a non-profit provider but has had problems maintaining any significant cash balance in its portfolio. The current market trend is favorable long-term interest rates, and the healthcare company wishes to build an addition and repay debt over 20 years. Which debt financing vehicle will provide lower interest payments for this situation? Bank loans Capital leases Tax-exempt bonds Conventional mortgages - ANS 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? Payback method Net present value Capital restructure Internal rate of return - ANS 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 $400,000 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 $2.50 in profit. For every dollar in profit earned, the organization will pay $0.20 cents in interest. For every dollar in interest expense, the organization will earn $3.78 in profit. For every dollar in profit earned, the organization will pay $0.36 cents in interest. - ANS For every dollar in interest expense, the organization will earn $3.78 in profit. TIE = Earnings before interest and taxes/interest expense 200000*1.8 = 360000 (figure out interest expense) 1000000 + 360000 = 1360000 (add interest to net income) 1360000/360000 = 3.78 (EBIT/interest expense) A hospital board of directors decides to purchase a surgical robot using a line of credit from a local bank. Surgical patient revenues are forecasted to increase by 15% as a result of this purchase. Which set of information will determine whether the purchase was a financial success, once operational? Surgical business risk Surgical costs and surgical claims Surgical patient satisfaction rate Net present value and internal rate of return - ANS Surgical costs and surgical claims A doctor wants to purchase a scan machine to provide bone densitometry screenings. The cost is $75,000 and the doctor can charge $35 per test. The doctor feels that 500 tests can be done per year. The machine can be purchased for cash, financed in full, or leased. This is the doctor's first major investment in a solo practice. What type of project classification is appropriate? Replacement Expansion New Regulatory - ANS New An acute care hospital chief financial officer (CFO) is trying to decide whether to lease or purchase a new computer for the CFO's administrative assistant. If the CFO purchases the computer outright for the assistant, the total cost will be $4,000; however, a three-year lease for the computer would cost the standard rate of $40/month per $1,000. Which decision is cost-effective regarding the new computer, using break-even analysis? Lease the new computer because leasing it would be $320 less. Lease the new computer because leasing it would be $1,760 less. Purchase the new computer because leasing it would cost $320 more. Purchase the new computer because leasing it would cost $1,760 more. - ANS Purchase the new computer because leasing it would cost $1,760 more. LEASE = 40*4= 160/month * 36 months = 5760 BUY = 4000 = 1760 more to lease The current software cost for the coding system in the health information management (HIM) department is $10,000 per year for licensing. Replacement and upgrades of hardware for the system cost $6,000 per year. A new coding system with added features is being considered. The HIM department plans to reconfigure the work area as part of this project with a one-time cost of $10,000. The new software subscription is $8,000 per year, and maintenance fee for hardware of $8,000 per year. With the new coding system, the department expects that it will increase reimbursement by at least $5,000 per year by the end of year one. In addition, the new software system should improve productivity. What is the break-even point? 1 year 2 years 3 years 4 years - ANS 2 years 10000/5000 = 2 A private practice with excess capacity has received additional state funding to provide services to the underinsured. Reimbursement by the state will be based on a flat percentage of 10% above cost. Which action ensures the likelihood of profitability for the company? Comparing the practice to its competitors Determining the current source of referrals for the company Increasing the services provided while operating within the current budget Decreasing the services provided while utilizing the prior budget as a reference - ANS Increasing the services provided while operating within the current budget 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. It will reduce patient co-pays for services. It will eliminate compliance fines with ACA. It will control the number of contracted providers. - ANS 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 $72,000 and spending was over budget. Budget variance was $72,000 and spending was under budget. Budget variance was $73,000 and spending was over budget. Budget variance was $73,000 and spending was under budget. - ANS 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. The budget variance was $800 and the department was under budget. The budget variance was $2,250 and the department was over budget. The budget variance was $2,250 and the department was under budget. - ANS 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? Capital budget is increased due to surgeries and more patients; capital expenses are down due to less salaries and fringe benefits. Capital budget is increased due to increased surgeries and more patients; operational expenses are down due to less salaries and fringe benefits. Operational budget revenue - ANS 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? Marketing Cash flow Operational Human resources - ANS 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? Set up payment plan Generate patient statement Prepare and transmit claims Follow-up payment and collections - ANS 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 - ANS Billing - Step five Surgery - Step three Discharge - Step four Admission - Step two Scheduling - 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? Float management Liquidity management Payables management Receivables management - ANS 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, coinsurance, and deductibles prior to being seen by the physician. How will this revenue cycle change in the clinic impact the cash flow management? Current assets will decrease but point of service collections will increase. Current assets will increase but point of service collections will decrease. Accounts receivable will decrease but point of service collections will increase. Accounts receivable will decrease and point of service collections will decrease. - ANS 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 Because fixed cost of $10 per visit has increased Because variable cost of $30,000 was not deducted Because variable cost of $35 per visit has increased - ANS Because fixed cost of $85,000 was not deducted A medical center wants to reduce its accounts receivable that are over 30 days old. It plans to upgrade its billing system to automate the invoice process while reducing fixed costs. Where can the medical center reduce these fixed costs? Credit card fees Packaging items Delivery services Internet service provider fees - ANS Internet service provider fees A chief financial officer (CFO) is in the process of cost allocation for a hospital. What is a direct cost for the hospital facility? Lease Marketing Real estate taxes Maintenance fees - ANS Marketing A newly hired manager is asked to see if purchasing a new ultrasound machine and being able to schedule more ultrasounds will help the radiology department be more profitable. Which analysis should the manager choose? Break-even analysis Cost-validation analysis Cost-benefit analysis Capital-budget analysis - ANS Break-even analysis A hospital currently occupies 250,000 square feet of space, and the chief financial officer (CFO) has decided to allocate the $110,000 annual maintenance costs to each department based on the square footage it occupies. Physical Therapy occupies 15,000 square feet of space and has an annual budget of $350,000. What is the annual maintenance cost allocation to Physical Therapy? $4,714 $6,600 $21,000 $34,091 - ANS $6,600 15000/250000=0.06 0.06*110000=6600 A for-profit hospital is planning the purchase of a magnetic resonance imaging machine for one million dollars and is setting the fee schedule. Many other hospitals are using this equipment, so the chief financial officer is considering the purchase regardless of profit margins. Which costing strategy should the hospital use? Full Variable Marginal Competitive - ANS Competitive A small outpatient clinic that focuses on minor injury procedures and surgeries uses a cost-based payment system to determine patient charges. Due to their need to increase their profit margin, the Chief Financial Officer (CFO) informally encourages the care providers to maximize their procedural charges regardless of its status as usual, customary, or reasonable. What is a possible explanation for the CFO's request? The payors cover a percentage of the claim based on similar industry average cost reports. The operational procedures and forecasted revenues are being inaccurately budgeted. The care providers must offer efficient quality of care that will increase personal bonuses. The clinic needs to decrease operating expenses and facilitate revenue growth of the facility. - ANS The payors cover a percentage of the claim based on similar industry average cost reports. Which revenue source is financially beneficial to a managed care organization? Self-pay Case mix index Negotiated rates Pay-for-performance - ANS Negotiated rates 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? First-party payer Secondary payer Third-party payer Self-pay payer - ANS Third-party payer 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? Per diem Capitation Fee-for-performance Modified fee-for-service - ANS Modified fee-for-service A hospital decides to adopt the accrual 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 Upon receipt of cash During negotiation periods Prior to the delivery of services - ANS 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? Fund Cash Fiscal Accrual - ANS 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 Credit Net 30 Accrual - ANS Cash Use the given income statement to answer the following question: What are the expenses for the period ending January 31, 2015? $2,000 $7,000 $38,500 $46,500 - ANS $7,000 Use the given income statement to answer the following question: What are the total expenses for the period ending January 31, 2015? $4,550 $16,050 $46,500 $30,450 - ANS $16,050 Use the given hospital income statement from 2014 to answer the following question: What is the hospital's operating income from 2014? $1,738 $1,938 ($1,738) ($1,938) - ANS ($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? Salaries were lower than expected Bad debt was higher than expected Patient service revenue was higher than expected Rent, leases, and utilities were lower than expected - ANS 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? $25,650 $70,650 $84,000 $94,150 - ANS $70,650 Use the given balance sheet for an organization to answer the following question: What is the change in net asset for this organization? They had a loss of $567,293 this year. They made a profit of $567,293 this year. Total partner's capital was $1,391,203 Total partner's earnings was $1,391,203 - ANS 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. The cash is insufficient to absorb this additional expense. The cash balance is secondary and a line of credit can be utilized. The accounts receivable conversion to cash would need to be known. - ANS 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. Which financial initiative should be part of the hospital's current financial goals? Pay off debt Increase savings Expand inventory Decrease depreciation - ANS Pay off debt Which calculation is used in a major capital budgeting decision when comparative analysis is being used? Direct profit Ratio analysis Net present value Cash flow from operations - ANS Net present value Use the given financial information to answer the following question: (existing equipment vs new equipment) Which type of analysis should be used to determine whether to purchase new equipment? Ratio analysis DuPont analysis Variance analysis Comparative analysis - ANS Comparative analysis A for-profit healthcare provider is conducting a ratio analysis of sections of its financial statements. Portions of the financial statements include the following: Current Assets: Cash - 163,181 Marketable Securities - 200,000 Total Operating Expenses: 10,681,112 (interest expense - 500,000) (depreciation exp - 383,493) What is the days cash on hand? 11 days 12 days 13 days 15 days - ANS 13 days 163181 + 200000 = 363181 = 9797619 9797619/365 = 26842.79 363181/26842.79 = 13.53 The chief financial officer (CFO) of a hospital is using ratio analysis on the financial statements to determine the type of financing that will be used to purchase a major piece of diagnostic equipment. Which decision should the CFO reach, based on the information from the balance sheet? Repay existing debt, since the hospital has a high leverage ratio Take out more debt, since the hospital has a favorable debt-to-asset ratio Use owner's equity, since the hospital has an unfavorable debt-to-equity ratio Spend the restricted capital, since weighted average cost per capital is positive - ANS Take out more debt, since the hospital has a favorable debt-to-asset ratio The chief financial officer (CFO) of a hospital wants to evaluate income statement expense trends looking at each line item as a percent of net patient service revenue for a given year. Which method of analysis will the CFO use? Vertical Horizontal Straight Line Fundamental - ANS Vertical A hospital manager wants to maintain 10 days inventory to support its emergency preparedness plan. Based on current ending inventory, the hospital has seven days inventory on hand. What additional information is needed to make this decision? Beginning inventory Patient revenue Supply expense Patient receivables - ANS Supply expense 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? Income tax ratio Income earned ratio Return on assets ratio Times interest earned ratio - ANS 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 justifies the need to lower wages payable That it gives insight into the increase in operating margin That it determines the percentage increase in net patient revenues That it provides further evidence to explain the decrease in operating income - ANS 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 will positively affect its ability to secure future funding. It may negatively affect its ability to borrow in the future. It will identify cash inflows needed to include depreciation plus interest. It may identify cash outflows needed for principal plus interest payments. - ANS 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 base year always remains constant. The operating income was only compared to a few competitors. The percentage changes won't translate into high or low dollar amounts. The horizontal analysis is limited to the overall change since the base year. - ANS The percentage changes won't translate into high or low dollar amounts.