HSM340
Health Services Finance
4.0 Credits
Final Exam Review (Qns & Ans)
2025
©2025
,Multiple Choice Questions (MCQs)
A hospital is considering issuing long-term bonds to finance a new
wing. Which of the following factors primarily influences the bond
interest rate it will pay?
A) Hospital’s credit rating
B) Number of beds in the hospital
C) Hospital CEO’s experience
D) Number of outpatient visits annually
ANS: A) Hospital’s credit rating
Rationale: The credit rating reflects risk to investors and directly
impacts the interest rate on bonds.
When analyzing capital budgeting for a new medical device, which
financial metric best incorporates the time value of money?
A) Payback Period
B) Net Present Value (NPV)
C) Accounting Rate of Return
D) Profitability Index
ANS: B) Net Present Value (NPV)
Rationale: NPV discounts future cash flows to present value,
accounting for time value of money.
Which reimbursement model shifts financial risk to providers by
paying a fixed amount per patient regardless of services provided?
A) Fee-for-Service
B) Prospective Payment System (PPS)
C) Capitation
D) Bundled Payments
ANS: C) Capitation
Rationale: Capitation involves fixed payments per enrollee,
transferring risk to providers.
In activity-based costing (ABC), what primarily determines the
allocation of overhead costs?
A) Number of patients served
B) Number of direct labor hours
C) Activities that drive costs
©2025
,D) Department size
ANS: C) Activities that drive costs
Rationale: ABC assigns overhead based on the cost-driving
activities, rather than generic metrics.
Which financial statement provides a snapshot of an organization’s
assets, liabilities, and equity at a specific point in time?
A) Income Statement
B) Statement of Cash Flows
C) Balance Sheet
D) Budget Report
ANS: C) Balance Sheet
Rationale: The balance sheet details financial position at a fixed
date.
Fill-in-the-Blank Questions
The __________ measures an organization's ability to meet its
short-term liabilities using only its most liquid assets.
ANS: quick ratio (or acid-test ratio)
Rationale: Quick ratio excludes inventory to evaluate short-term
liquidity.
The __________ is a financial planning tool that estimates
revenues and expenses for a future period, often a year.
ANS: budget
Rationale: Budgets forecast expected income and expenditures.
In health services finance, __________ risk refers to the
uncertainty associated with reimbursement rates and payer mix
changes.
ANS: revenue
Rationale: Revenue risk arises due to unpredictability in payments
from insurers and patients.
A __________ is a legally binding document that outlines terms
and conditions of borrowing funds for capital investment.
ANS: loan agreement (or debt covenant)
Rationale: It specifies loan repayment and covenants between
©2025
, borrower and lender.
__________ analysis helps determine how changes in patient
volume or reimbursement affect profitability.
ANS: Sensitivity
Rationale: Sensitivity analysis evaluates financial impacts from
varying key assumptions.
True/False Questions
True or False: The internal rate of return (IRR) is the discount rate
that makes the net present value (NPV) of a project zero.
ANS: True
Rationale: IRR equals the NPV discount rate where investment
breaks even.
True or False: Higher operating leverage in a healthcare facility
implies greater variability of operating income with volume
changes.
ANS: True
Rationale: Fixed costs lead to greater income fluctuation with
volume changes.
True or False: In fee-for-service payment models, providers are
incentivized to reduce the number of services delivered.
ANS: False
Rationale: Fee-for-service incentivizes increased volume of
services.
True or False: Depreciation expense is a non-cash cost that does
not affect an organization's cash flow.
ANS: True
Rationale: Depreciation reduces accounting profit but does not
involve cash outflow.
True or False: A nonprofit healthcare organization's primary goal is
to maximize stakeholder wealth.
ANS: False
Rationale: Nonprofits focus on mission-related goals, not wealth
©2025
Health Services Finance
4.0 Credits
Final Exam Review (Qns & Ans)
2025
©2025
,Multiple Choice Questions (MCQs)
A hospital is considering issuing long-term bonds to finance a new
wing. Which of the following factors primarily influences the bond
interest rate it will pay?
A) Hospital’s credit rating
B) Number of beds in the hospital
C) Hospital CEO’s experience
D) Number of outpatient visits annually
ANS: A) Hospital’s credit rating
Rationale: The credit rating reflects risk to investors and directly
impacts the interest rate on bonds.
When analyzing capital budgeting for a new medical device, which
financial metric best incorporates the time value of money?
A) Payback Period
B) Net Present Value (NPV)
C) Accounting Rate of Return
D) Profitability Index
ANS: B) Net Present Value (NPV)
Rationale: NPV discounts future cash flows to present value,
accounting for time value of money.
Which reimbursement model shifts financial risk to providers by
paying a fixed amount per patient regardless of services provided?
A) Fee-for-Service
B) Prospective Payment System (PPS)
C) Capitation
D) Bundled Payments
ANS: C) Capitation
Rationale: Capitation involves fixed payments per enrollee,
transferring risk to providers.
In activity-based costing (ABC), what primarily determines the
allocation of overhead costs?
A) Number of patients served
B) Number of direct labor hours
C) Activities that drive costs
©2025
,D) Department size
ANS: C) Activities that drive costs
Rationale: ABC assigns overhead based on the cost-driving
activities, rather than generic metrics.
Which financial statement provides a snapshot of an organization’s
assets, liabilities, and equity at a specific point in time?
A) Income Statement
B) Statement of Cash Flows
C) Balance Sheet
D) Budget Report
ANS: C) Balance Sheet
Rationale: The balance sheet details financial position at a fixed
date.
Fill-in-the-Blank Questions
The __________ measures an organization's ability to meet its
short-term liabilities using only its most liquid assets.
ANS: quick ratio (or acid-test ratio)
Rationale: Quick ratio excludes inventory to evaluate short-term
liquidity.
The __________ is a financial planning tool that estimates
revenues and expenses for a future period, often a year.
ANS: budget
Rationale: Budgets forecast expected income and expenditures.
In health services finance, __________ risk refers to the
uncertainty associated with reimbursement rates and payer mix
changes.
ANS: revenue
Rationale: Revenue risk arises due to unpredictability in payments
from insurers and patients.
A __________ is a legally binding document that outlines terms
and conditions of borrowing funds for capital investment.
ANS: loan agreement (or debt covenant)
Rationale: It specifies loan repayment and covenants between
©2025
, borrower and lender.
__________ analysis helps determine how changes in patient
volume or reimbursement affect profitability.
ANS: Sensitivity
Rationale: Sensitivity analysis evaluates financial impacts from
varying key assumptions.
True/False Questions
True or False: The internal rate of return (IRR) is the discount rate
that makes the net present value (NPV) of a project zero.
ANS: True
Rationale: IRR equals the NPV discount rate where investment
breaks even.
True or False: Higher operating leverage in a healthcare facility
implies greater variability of operating income with volume
changes.
ANS: True
Rationale: Fixed costs lead to greater income fluctuation with
volume changes.
True or False: In fee-for-service payment models, providers are
incentivized to reduce the number of services delivered.
ANS: False
Rationale: Fee-for-service incentivizes increased volume of
services.
True or False: Depreciation expense is a non-cash cost that does
not affect an organization's cash flow.
ANS: True
Rationale: Depreciation reduces accounting profit but does not
involve cash outflow.
True or False: A nonprofit healthcare organization's primary goal is
to maximize stakeholder wealth.
ANS: False
Rationale: Nonprofits focus on mission-related goals, not wealth
©2025
