MHA 706 Financial Management 2025/2026
Complete Study Guide | Master of Health
Administration Course Review |
Comprehensive Financial Planning and
Analysis, Healthcare Budgeting, Cost
Accounting, Revenue Cycle
Management, Financial Reporting,
Healthcare Economics, Investment
Strategies, Risk Management, Strategic
Decision-Making, Case Studies, Practical
Exercises, and Verified Practice
Questions for MHA Students and
Professionals
Question 1: Which financial statement provides a snapshot of a healthcare organization's assets,
liabilities, and net assets at a specific point in time?
A. Statement of Operations
B. Statement of Cash Flows
C. Balance Sheet
D. Statement of Changes in Net Assets
CORRECT ANSWER: C. Balance Sheet
RATIONALE: The balance sheet, also known as the statement of financial position, reports an
organization's assets, liabilities, and net assets (or equity) at a specific point in time. This distinguishes it
from the statement of operations (income statement), which reports revenues and expenses over a
period, and the statement of cash flows, which tracks cash movements.
Question 2: In healthcare financial management, what does the term "days cash on hand" primarily
measure?
A. The average time to collect accounts receivable
B. The number of days an organization can operate using available cash without additional revenue
C. The time required to convert inventory to cash
D. The average payment period for accounts payable
CORRECT ANSWER: B. The number of days an organization can operate using available cash without
additional revenue
RATIONALE: Days cash on hand is a liquidity ratio calculated as (Cash + Cash Equivalents + Short-term
Investments) divided by (Operating Expenses minus Non-cash Expenses) times 365. It indicates how
,many days an organization could continue operations using only its available cash resources if revenue
ceased.
Question 3: Which reimbursement methodology pays providers a predetermined fixed amount per
patient episode, regardless of actual services delivered?
A. Fee-for-service
B. Capitation
C. Diagnosis-Related Group (DRG)
D. Cost-based reimbursement
CORRECT ANSWER: C. Diagnosis-Related Group (DRG)
RATIONALE: DRG-based reimbursement assigns patients to diagnostic categories and pays a fixed
amount per case based on the assigned DRG. This shifts financial risk to providers, incentivizing
efficiency, unlike fee-for-service (payment per service) or capitation (payment per member per period).
Question 4: When performing a break-even analysis for a new healthcare service line, which cost
component remains constant regardless of patient volume?
A. Supplies cost per procedure
B. Hourly nursing labor
C. Annual equipment lease payment
D. Pharmaceutical costs per patient
CORRECT ANSWER: C. Annual equipment lease payment
RATIONALE: Fixed costs, such as annual lease payments, remain unchanged within the relevant range
of activity. Variable costs (supplies, hourly labor, pharmaceuticals) fluctuate with patient volume. Break-
even analysis requires separating fixed and variable costs to determine the volume at which total
revenue equals total costs.
Question 5: Which financial ratio best assesses a healthcare organization's ability to meet its short-
term obligations?
A. Debt-to-equity ratio
B. Return on assets
C. Current ratio
D. Operating margin
CORRECT ANSWER: C. Current ratio
RATIONALE: The current ratio (Current Assets ÷ Current Liabilities) measures liquidity and short-term
solvency. A ratio above 1.0 indicates sufficient current assets to cover current liabilities. Debt-to-equity
assesses long-term leverage, return on assets measures profitability efficiency, and operating margin
reflects operational profitability.
Question 6: In capital budgeting for healthcare projects, which method accounts for the time value of
money by discounting future cash flows to present value?
,A. Payback period
B. Accounting rate of return
C. Net present value (NPV)
D. Simple return on investment
CORRECT ANSWER: C. Net present value (NPV)
RATIONALE: NPV calculates the present value of expected future cash inflows minus the present value
of cash outflows, using a discount rate that reflects the cost of capital. Positive NPV indicates value
creation. Payback period ignores time value; accounting rate of return uses accrual accounting income,
not cash flows.
Question 7: Which component of the revenue cycle is most directly impacted by accurate patient
registration and insurance verification?
A. Claims submission
B. Clean claim rate
C. Denial management
D. Patient collections
CORRECT ANSWER: B. Clean claim rate
RATIONALE: Accurate registration and insurance verification at point of service reduce errors in
demographic and coverage data, directly increasing the percentage of claims paid on first submission
(clean claim rate). This minimizes rework, accelerates reimbursement, and reduces administrative costs
throughout the revenue cycle.
Question 8: What is the primary purpose of a flexible budget in healthcare financial management?
A. To eliminate all variances between actual and budgeted results
B. To adjust budgeted costs based on actual activity levels for meaningful performance evaluation
C. To fix reimbursement rates for all payer contracts
D. To standardize costs across all departments regardless of volume
CORRECT ANSWER: B. To adjust budgeted costs based on actual activity levels for meaningful
performance evaluation
RATIONALE: A flexible budget recalculates expected costs for the actual level of activity (e.g., patient
days, procedures), enabling managers to distinguish between variances due to volume changes versus
efficiency or price differences. This provides more accurate performance assessment than a static
budget.
Question 9: Which Medicare payment system applies to inpatient hospital services and uses patient
classification based on diagnosis, procedures, age, and complications?
A. Ambulatory Payment Classification (APC)
B. Resource-Based Relative Value Scale (RBRVS)
C. Inpatient Prospective Payment System (IPPS)
D. Medicare Advantage capitation
, CORRECT ANSWER: C. Inpatient Prospective Payment System (IPPS)
RATIONALE: The IPPS uses DRGs to classify inpatient cases and pays hospitals a predetermined rate per
discharge. APCs apply to hospital outpatient services; RBRVS determines physician payments under
Medicare Part B; Medicare Advantage uses capitated payments to managed care plans.
Question 10: In healthcare cost accounting, which method assigns indirect costs to departments using
multiple cost drivers that reflect causal relationships?
A. Direct allocation
B. Step-down allocation
C. Activity-Based Costing (ABC)
D. Reciprocal allocation
CORRECT ANSWER: C. Activity-Based Costing (ABC)
RATIONALE: ABC identifies activities that consume resources and assigns costs to cost objects (e.g.,
services, patients) using multiple cost drivers that reflect actual consumption patterns. This provides
more accurate cost information than traditional methods that may use a single allocation base like
square footage or labor hours.
Question 11: Which financial metric is most appropriate for evaluating the profitability of a specific
service line after allocating all direct and indirect costs?
A. Gross margin
B. Contribution margin
C. Operating margin
D. Net profit margin
CORRECT ANSWER: B. Contribution margin
RATIONALE: Contribution margin (Revenue minus Variable Costs) shows how much revenue remains to
cover fixed costs and generate profit for a specific service. While operating margin includes all costs,
contribution margin is superior for service-line decisions because it isolates variable cost behavior and
avoids arbitrary fixed cost allocations.
Question 12: What is the primary financial risk associated with a high accounts receivable days (ARD)
metric in a healthcare organization?
A. Increased depreciation expense
B. Cash flow shortages despite reported revenue
C. Higher inventory carrying costs
D. Reduced tax liability
CORRECT ANSWER: B. Cash flow shortages despite reported revenue
RATIONALE: High ARD indicates slow collection of billed services, creating a mismatch between
accrual-based revenue recognition and actual cash inflows. This can cause liquidity problems even when
the organization is profitable on paper, potentially requiring external financing to meet obligations.
Complete Study Guide | Master of Health
Administration Course Review |
Comprehensive Financial Planning and
Analysis, Healthcare Budgeting, Cost
Accounting, Revenue Cycle
Management, Financial Reporting,
Healthcare Economics, Investment
Strategies, Risk Management, Strategic
Decision-Making, Case Studies, Practical
Exercises, and Verified Practice
Questions for MHA Students and
Professionals
Question 1: Which financial statement provides a snapshot of a healthcare organization's assets,
liabilities, and net assets at a specific point in time?
A. Statement of Operations
B. Statement of Cash Flows
C. Balance Sheet
D. Statement of Changes in Net Assets
CORRECT ANSWER: C. Balance Sheet
RATIONALE: The balance sheet, also known as the statement of financial position, reports an
organization's assets, liabilities, and net assets (or equity) at a specific point in time. This distinguishes it
from the statement of operations (income statement), which reports revenues and expenses over a
period, and the statement of cash flows, which tracks cash movements.
Question 2: In healthcare financial management, what does the term "days cash on hand" primarily
measure?
A. The average time to collect accounts receivable
B. The number of days an organization can operate using available cash without additional revenue
C. The time required to convert inventory to cash
D. The average payment period for accounts payable
CORRECT ANSWER: B. The number of days an organization can operate using available cash without
additional revenue
RATIONALE: Days cash on hand is a liquidity ratio calculated as (Cash + Cash Equivalents + Short-term
Investments) divided by (Operating Expenses minus Non-cash Expenses) times 365. It indicates how
,many days an organization could continue operations using only its available cash resources if revenue
ceased.
Question 3: Which reimbursement methodology pays providers a predetermined fixed amount per
patient episode, regardless of actual services delivered?
A. Fee-for-service
B. Capitation
C. Diagnosis-Related Group (DRG)
D. Cost-based reimbursement
CORRECT ANSWER: C. Diagnosis-Related Group (DRG)
RATIONALE: DRG-based reimbursement assigns patients to diagnostic categories and pays a fixed
amount per case based on the assigned DRG. This shifts financial risk to providers, incentivizing
efficiency, unlike fee-for-service (payment per service) or capitation (payment per member per period).
Question 4: When performing a break-even analysis for a new healthcare service line, which cost
component remains constant regardless of patient volume?
A. Supplies cost per procedure
B. Hourly nursing labor
C. Annual equipment lease payment
D. Pharmaceutical costs per patient
CORRECT ANSWER: C. Annual equipment lease payment
RATIONALE: Fixed costs, such as annual lease payments, remain unchanged within the relevant range
of activity. Variable costs (supplies, hourly labor, pharmaceuticals) fluctuate with patient volume. Break-
even analysis requires separating fixed and variable costs to determine the volume at which total
revenue equals total costs.
Question 5: Which financial ratio best assesses a healthcare organization's ability to meet its short-
term obligations?
A. Debt-to-equity ratio
B. Return on assets
C. Current ratio
D. Operating margin
CORRECT ANSWER: C. Current ratio
RATIONALE: The current ratio (Current Assets ÷ Current Liabilities) measures liquidity and short-term
solvency. A ratio above 1.0 indicates sufficient current assets to cover current liabilities. Debt-to-equity
assesses long-term leverage, return on assets measures profitability efficiency, and operating margin
reflects operational profitability.
Question 6: In capital budgeting for healthcare projects, which method accounts for the time value of
money by discounting future cash flows to present value?
,A. Payback period
B. Accounting rate of return
C. Net present value (NPV)
D. Simple return on investment
CORRECT ANSWER: C. Net present value (NPV)
RATIONALE: NPV calculates the present value of expected future cash inflows minus the present value
of cash outflows, using a discount rate that reflects the cost of capital. Positive NPV indicates value
creation. Payback period ignores time value; accounting rate of return uses accrual accounting income,
not cash flows.
Question 7: Which component of the revenue cycle is most directly impacted by accurate patient
registration and insurance verification?
A. Claims submission
B. Clean claim rate
C. Denial management
D. Patient collections
CORRECT ANSWER: B. Clean claim rate
RATIONALE: Accurate registration and insurance verification at point of service reduce errors in
demographic and coverage data, directly increasing the percentage of claims paid on first submission
(clean claim rate). This minimizes rework, accelerates reimbursement, and reduces administrative costs
throughout the revenue cycle.
Question 8: What is the primary purpose of a flexible budget in healthcare financial management?
A. To eliminate all variances between actual and budgeted results
B. To adjust budgeted costs based on actual activity levels for meaningful performance evaluation
C. To fix reimbursement rates for all payer contracts
D. To standardize costs across all departments regardless of volume
CORRECT ANSWER: B. To adjust budgeted costs based on actual activity levels for meaningful
performance evaluation
RATIONALE: A flexible budget recalculates expected costs for the actual level of activity (e.g., patient
days, procedures), enabling managers to distinguish between variances due to volume changes versus
efficiency or price differences. This provides more accurate performance assessment than a static
budget.
Question 9: Which Medicare payment system applies to inpatient hospital services and uses patient
classification based on diagnosis, procedures, age, and complications?
A. Ambulatory Payment Classification (APC)
B. Resource-Based Relative Value Scale (RBRVS)
C. Inpatient Prospective Payment System (IPPS)
D. Medicare Advantage capitation
, CORRECT ANSWER: C. Inpatient Prospective Payment System (IPPS)
RATIONALE: The IPPS uses DRGs to classify inpatient cases and pays hospitals a predetermined rate per
discharge. APCs apply to hospital outpatient services; RBRVS determines physician payments under
Medicare Part B; Medicare Advantage uses capitated payments to managed care plans.
Question 10: In healthcare cost accounting, which method assigns indirect costs to departments using
multiple cost drivers that reflect causal relationships?
A. Direct allocation
B. Step-down allocation
C. Activity-Based Costing (ABC)
D. Reciprocal allocation
CORRECT ANSWER: C. Activity-Based Costing (ABC)
RATIONALE: ABC identifies activities that consume resources and assigns costs to cost objects (e.g.,
services, patients) using multiple cost drivers that reflect actual consumption patterns. This provides
more accurate cost information than traditional methods that may use a single allocation base like
square footage or labor hours.
Question 11: Which financial metric is most appropriate for evaluating the profitability of a specific
service line after allocating all direct and indirect costs?
A. Gross margin
B. Contribution margin
C. Operating margin
D. Net profit margin
CORRECT ANSWER: B. Contribution margin
RATIONALE: Contribution margin (Revenue minus Variable Costs) shows how much revenue remains to
cover fixed costs and generate profit for a specific service. While operating margin includes all costs,
contribution margin is superior for service-line decisions because it isolates variable cost behavior and
avoids arbitrary fixed cost allocations.
Question 12: What is the primary financial risk associated with a high accounts receivable days (ARD)
metric in a healthcare organization?
A. Increased depreciation expense
B. Cash flow shortages despite reported revenue
C. Higher inventory carrying costs
D. Reduced tax liability
CORRECT ANSWER: B. Cash flow shortages despite reported revenue
RATIONALE: High ARD indicates slow collection of billed services, creating a mismatch between
accrual-based revenue recognition and actual cash inflows. This can cause liquidity problems even when
the organization is profitable on paper, potentially requiring external financing to meet obligations.
