Healthcare Finance Exam 1
role of finance in health services - correct answer ✔✔plan for, acquire, and utilize resources to maximize
the efficiency and value of the organization
Finance activities can be summarized by the four Cs - correct answer ✔✔costs, cash, capital, control
primary legal issue facing healthcare providers - correct answer ✔✔professional liability
Decision factors when deciding type of business structure - correct answer ✔✔liability, taxes, control
proprietorship and partnerships - correct answer ✔✔taxed just on individual level, fewer regulations,
unlimited liability, difficult to raise capital
corporation - correct answer ✔✔limited liability, easily raise capital, double taxation: taxed on individual
level and corporate level
limited partnership (LP) - correct answer ✔✔general partners have control, limited partners are only
liable for their initial contribution, not commonly used in healthcare
limited liability partnership (LLP) - correct answer ✔✔partners share liability, but partners are only liable
for their own malpractice actions
limited liability company (LLC) - correct answer ✔✔members are taxed like partners, liability like that of
stockholders
professional corporation (PC) or professional association (PA) - correct answer ✔✔owners have benefits
of incorporation, still liable for malpractice, used by clinicians
, hospitals are organized as one of four legal structures: - correct answer ✔✔government owned (23.6%);
private, not-for-profit (60.9%); investor owned (15.2%); federal (5%)
for-profit corporations - correct answer ✔✔publicly traded on stock exchange, stockholders have right of
control and clain on residual earnings
not-for-profit corporations - correct answer ✔✔tax exempt, files form 501C3 IRS, donations are tax write
offs
goal of for-profit corporations - correct answer ✔✔maximize shareholder wealth
goal for not-for-profits - correct answer ✔✔expressed in a mission statement, often in terms of service
to the community, ensure financial viability of the organization
premium= - correct answer ✔✔=average rate of hazards X cost of hazard + administrative, marketing and
profit
high cost of healthcare= - correct answer ✔✔=behavior of physicians + expectations of patients +
escalation of technology + standard of care + defensive medicine + aging population
adverse selection - correct answer ✔✔those with greater risk are more likely to purchase insurance
moral hazard - correct answer ✔✔the overuse of health services or forgoing of prevention because the
individual does not bear the full cost of the consequences
Managed Care Organizations (MCOs) - correct answer ✔✔HMOs and PPOs
fee-for-service (FFS) - correct answer ✔✔payment is tied to the amount of services provided: cost based,
charge based, prospective payment
role of finance in health services - correct answer ✔✔plan for, acquire, and utilize resources to maximize
the efficiency and value of the organization
Finance activities can be summarized by the four Cs - correct answer ✔✔costs, cash, capital, control
primary legal issue facing healthcare providers - correct answer ✔✔professional liability
Decision factors when deciding type of business structure - correct answer ✔✔liability, taxes, control
proprietorship and partnerships - correct answer ✔✔taxed just on individual level, fewer regulations,
unlimited liability, difficult to raise capital
corporation - correct answer ✔✔limited liability, easily raise capital, double taxation: taxed on individual
level and corporate level
limited partnership (LP) - correct answer ✔✔general partners have control, limited partners are only
liable for their initial contribution, not commonly used in healthcare
limited liability partnership (LLP) - correct answer ✔✔partners share liability, but partners are only liable
for their own malpractice actions
limited liability company (LLC) - correct answer ✔✔members are taxed like partners, liability like that of
stockholders
professional corporation (PC) or professional association (PA) - correct answer ✔✔owners have benefits
of incorporation, still liable for malpractice, used by clinicians
, hospitals are organized as one of four legal structures: - correct answer ✔✔government owned (23.6%);
private, not-for-profit (60.9%); investor owned (15.2%); federal (5%)
for-profit corporations - correct answer ✔✔publicly traded on stock exchange, stockholders have right of
control and clain on residual earnings
not-for-profit corporations - correct answer ✔✔tax exempt, files form 501C3 IRS, donations are tax write
offs
goal of for-profit corporations - correct answer ✔✔maximize shareholder wealth
goal for not-for-profits - correct answer ✔✔expressed in a mission statement, often in terms of service
to the community, ensure financial viability of the organization
premium= - correct answer ✔✔=average rate of hazards X cost of hazard + administrative, marketing and
profit
high cost of healthcare= - correct answer ✔✔=behavior of physicians + expectations of patients +
escalation of technology + standard of care + defensive medicine + aging population
adverse selection - correct answer ✔✔those with greater risk are more likely to purchase insurance
moral hazard - correct answer ✔✔the overuse of health services or forgoing of prevention because the
individual does not bear the full cost of the consequences
Managed Care Organizations (MCOs) - correct answer ✔✔HMOs and PPOs
fee-for-service (FFS) - correct answer ✔✔payment is tied to the amount of services provided: cost based,
charge based, prospective payment
