4th Primer On Hospital Finance: Arjohuntleigh
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Assessment of comprehension and application of concepts presented in the 4th Primer on Hospital Accounting and FInance
Questions and Answers
- 1.
Income for a hospital or health system is recognized when:
- A.
When patient services are provided
- B.
When charges are posted
- C.
When reimbursement is collected
- D.
When a patient submits a co-payment
- E.
When charges and reimbursements are matched
Correct Answer
A. When patient services are providedExplanation
Income for a hospital or health system is recognized when patient services are provided. This means that revenue is recognized when the hospital or health system delivers healthcare services to patients. This is the point at which the hospital has fulfilled its obligation to provide the service, and it can now recognize the revenue associated with that service. It is important to note that revenue recognition is not dependent on when charges are posted, reimbursement is collected, or when a patient submits a co-payment. The key factor is the provision of patient services.Rate this question:
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- 2.
Because patients stay in a hospital for different periods of time, and differing charges are generated based on the patient condition, the preferred ways to recognize revenue for a hospital include: (Select all that apply)
- A.
A Per Case basis
- B.
A Per Diem basis
- C.
A Capitated Fee basis
- D.
A Percentage of Charges basis
- E.
A Cost-plus Margin basis
Correct Answer(s)
A. A Per Case basis
B. A Per Diem basis
C. A Capitated Fee basisExplanation
The preferred ways to recognize revenue for a hospital include a per case basis, a per diem basis, and a capitated fee basis. These methods take into account the varying lengths of patient stays and the charges generated based on the patient's condition. A per case basis means that revenue is recognized for each individual case or treatment provided to a patient. A per diem basis means that revenue is recognized based on a daily rate for the patient's stay. A capitated fee basis means that revenue is recognized based on a fixed fee per patient, regardless of the services provided. These methods allow for more accurate and consistent revenue recognition in the hospital setting.Rate this question:
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- 3.
Payers for Hospital and General Healthcare Services include: (Select all that apply)
- A.
The Federal Government
- B.
State and Local Governments
- C.
Private Payers like Commercial Insurance Providers
- D.
Patients and their Families
- E.
Employers
- F.
Foundations
Correct Answer(s)
A. The Federal Government
B. State and Local Governments
C. Private Payers like Commercial Insurance Providers
D. Patients and their Families
E. Employers
F. FoundationsExplanation
Payers for hospital and general healthcare services include a variety of entities. The Federal Government contributes through programs such as Medicare and Medicaid. State and Local Governments also provide funding and support for healthcare services. Private payers like commercial insurance providers play a significant role in financing healthcare by providing coverage for individuals and families. Patients and their families contribute through out-of-pocket expenses and co-payments. Employers often offer healthcare benefits to their employees as part of their compensation package. Lastly, foundations may provide grants and funding to support healthcare initiatives.Rate this question:
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- 4.
Hospitals struggle to provide patients and payers with an up-front transparent price for their services because:
- A.
Hospitals don't know what they charge for procedures
- B.
Hospitals don't want to disclose their pricing
- C.
Hospitals need to charge different populations different prices
- D.
The link between hospital pricing and financing is complex
Correct Answer
D. The link between hospital pricing and financing is complexExplanation
The link between hospital pricing and financing is complex. This means that hospitals have various factors to consider when determining the prices for their services, such as the cost of medical equipment, staff salaries, overhead expenses, and insurance reimbursements. Additionally, hospitals often negotiate different prices with different payers, such as insurance companies and government programs. Therefore, providing an up-front transparent price becomes challenging as it requires hospitals to navigate through this complex web of financial considerations and agreements.Rate this question:
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- 5.
Medicare is the single largest payer for virtually every hospital, accounting for an average of at least ________ % of payments #next_pages_container { width: 5px; hight: 5px; position: absolute; top: -100px; left: -100px; z-index: 2147483647 !important; }
- A.
22%
- B.
32%
- C.
42%
- D.
52%
Correct Answer
B. 32%Explanation
Medicare's proportion of payment varies between 32% and 45% on average. The minimum average reported over the past 5 years is 32%, and is therefore the target answer to this question. Note that the proportion of Medicare payment is rising, but the Primer correctly cites 32% as a global average. Medicare dependent hospitals, and regions with high rates of retired persons will also have higher proportion of Medicare payment.Rate this question:
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- 6.
Medicare covers beneficiaries out of two separate trust funds: (Select both that apply) #next_pages_container{width:5px;hight:5px;position:absolute;top:-100px;left:-100px;z-index:2147483647!important;} #next_pages_container { width: 5px; hight: 5px; position: absolute; top: -100px; left: -100px; z-index: 2147483647 !important; }
- A.
Hospital Insurance - Known as Medicare Part A
- B.
Supplementary Insurance - Known as Medicare Parts B & D
- C.
Direct Insurance - Known as Medicare Part C
- D.
Disability Insurance - Known as Medicare Part D
Correct Answer(s)
A. Hospital Insurance - Known as Medicare Part A
B. Supplementary Insurance - Known as Medicare Parts B & DExplanation
Medicare covers beneficiaries out of two separate trust funds: Hospital Insurance, known as Medicare Part A, and Supplementary Insurance, known as Medicare Parts B & D. Medicare Part A provides coverage for inpatient hospital care, skilled nursing facility care, and some home health care. Medicare Parts B & D provide coverage for outpatient medical services, such as doctor visits, preventive care, prescription drugs, and medical supplies. Therefore, the correct answer is Hospital Insurance - Known as Medicare Part A and Supplementary Insurance - Known as Medicare Parts B & D.Rate this question:
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- 7.
Medicaid is a State Administered program for disabled and low-income individuals and families that cannot afford to pay for some or all of their medical care. It is not a carbon copy of Medicare. Instead, each State sets their own guidelines for coverage and eligibility.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
Medicaid is a State Administered program that provides medical care for disabled and low-income individuals and families who cannot afford it. Unlike Medicare, Medicaid is not a standardized program nationwide. Instead, each state has the authority to establish its own guidelines for coverage and eligibility. Therefore, the statement that Medicaid is not a carbon copy of Medicare is true.Rate this question:
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- 8.
Different payers reimburse hopsitals at different payment rates, resulting in different amounts of cost coverage. As a percent of costs, the different payment rates are approximately: #next_pages_container{width:5px;hight:5px;position:absolute;top:-100px;left:-100px;z-index:2147483647!important;} #next_pages_container{width:5px;hight:5px;position:absolute;top:-100px;left:-100px;z-index:2147483647!important;} #next_pages_container{width:5px;hight:5px;position:absolute;top:-100px;left:-100px;z-index:2147483647!important;} #next_pages_container{width:5px;hight:5px;position:absolute;top:-100px;left:-100px;z-index:2147483647!important;} #next_pages_container { width: 5px; hight: 5px; position: absolute; top: -100px; left: -100px; z-index: 2147483647 !important; }
- A.
Medicare's Payment to Cost ratio is approximately 90%
- B.
Medicare's Payment to Cost ratio is approximately 100%
- C.
Medicaid's average Payment to Cost ratio is approximately 85%
- D.
Medicaid's average Payment to Cost ratio is approximately 65%
- E.
Private Payers' average Payment to Cost ratio is approximately 140%
- F.
Private Payers' average Payment to Cost ratio is approximately 130%
Correct Answer(s)
A. Medicare's Payment to Cost ratio is approximately 90%
C. Medicaid's average Payment to Cost ratio is approximately 85%
F. Private Payers' average Payment to Cost ratio is approximately 130%Explanation
A notable exception to the partial cost coverage norm in Medicare and Medicaid reimbursement comes form the Critical Access Hospital program. If a hospital is designated as "Critical Access," Medicare reimburses 101% of all Medicare Patient costs. There are 1300 hospitals that have received this designation, but there are stringent requirements to maintain the designation. A facility must be 35 miles or more form another facility, maintain a 24hour Emergency Department, operate and staff a maximum of 25 acute care beds, discharge or transfer a patient within 96 hours, and secure transfer agreements with a tertiary hospital.
Importantly, when considering private payers: payment rates for private payers are not necessarily higher than Medicare rates. Instead, the costs to treat private payer patients is significantly lower, and therefore, the opportunity to make a profit on these patients is real, but not assured.
Consequently, costs of care dominate executives' decision making.Rate this question:
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- 9.
A Health Maintenance Organization (HMO) is a managed healthcare plan that integrates financing and delivery of healthcare for an enrolled population. HMOs sometimes contract with, directly employ, or own participating providers. #next_pages_container { width: 5px; hight: 5px; position: absolute; top: -100px; left: -100px; z-index: 2147483647 !important; }
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
An HMO is indeed a managed healthcare plan that combines the financing and delivery of healthcare for a specific group of individuals. HMOs often have contracts with, directly employ, or own participating healthcare providers. This allows them to provide coordinated and comprehensive care to their enrolled population.Rate this question:
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- 10.
Independent Practice Associations (IPA)s are Physician Services providers that maintain their own practices and physicians, and contract with one or more HMOs.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
Independent Practice Associations (IPAs) are indeed physician services providers that maintain their own practices and physicians, and they also contract with one or more Health Maintenance Organizations (HMOs). This allows IPAs to provide services to HMO members while still maintaining their independence and autonomy. Therefore, the statement "Independent Practice Associations (IPAs) are Physician Services providers that maintain their own practices and physicians, and contract with one or more HMOs" is true.Rate this question:
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- 11.
Medicare Serverity Diagnosis Related Groups (MS-DRGs) payment rates are determined using a complex formula based on a base rate (e.g. $5,000) with an intensity or weight of 1.0. Payment for a more intense treatment setting, e.g. a Teaching hospital, weights are increased, e.g. 2.0. Determining the payment involves multiplying the base rate by the intesntiy weight. Therefore the same MS-DRG would have two different reimbursement values based on where the case is treated.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
The explanation for the given correct answer is that Medicare Severity Diagnosis Related Groups (MS-DRGs) payment rates are indeed determined using a complex formula that includes a base rate and an intensity or weight. The payment for a more intense treatment setting, such as a Teaching hospital, is increased by multiplying the base rate by the intensity weight. This means that the same MS-DRG can have different reimbursement values depending on where the case is treated. Therefore, the statement "Medicare Severity Diagnosis Related Groups (MS-DRGs) payment rates are determined using a complex formula based on a base rate with an intensity or weight" is true.Rate this question:
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- 12.
Length of Stay (LOS) varies for a specific MS-DRG based on case and care delivery characterisitics, and is measured by individual patient in whole days. Average Length of Stay (ALOS) is the calculated by dividing the total number of days all patients have stayed in the hospital by the total number of patients. Over time, ALOS is declining nationally.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
The explanation for the given correct answer is that the Average Length of Stay (ALOS) is calculated by dividing the total number of days all patients have stayed in the hospital by the total number of patients. The statement "Over time, ALOS is declining nationally" suggests that, on average, patients are spending less time in the hospital compared to previous years. This could be due to various factors such as improvements in medical treatments, advancements in technology, or changes in healthcare policies that promote shorter hospital stays.Rate this question:
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- 13.
For many years now, Managed Care Organizations have been offering hospital providers incentives to improve quality and reduce costs. These incentives include, but are not limited to Per-Diem payment systems that carve-out certain items and procedures for direct reimbursement. Other incentives involve the measurement of pre-defined metrics, and payment of bonuses for metric performance. #next_pages_container { width: 5px; hight: 5px; position: absolute; top: -100px; left: -100px; z-index: 2147483647 !important; }
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
Managed Care Organizations have been offering hospital providers incentives to improve quality and reduce costs. These incentives include Per-Diem payment systems, which directly reimburse certain items and procedures. Other incentives involve the measurement of pre-defined metrics and payment of bonuses for metric performance. This statement is true as it accurately describes the incentives offered by Managed Care Organizations to hospital providers.Rate this question:
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- 14.
The preferred method of justifying Capital Expenditures is using a risk adjusted Net Present Value (NPV) calculation.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
The preferred method of justifying Capital Expenditures is using a risk adjusted Net Present Value (NPV) calculation. This means that when evaluating potential investments, companies take into account the risk associated with the project and discount the future cash flows to their present value. By using this method, companies can determine whether the expected returns from the investment outweigh the risks involved, helping them make informed decisions about capital expenditures.Rate this question:
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- 15.
Hospitals regularly report and make available financial performance reports, including Balance Sheets, Income Statements, and Statements of Cash Flows. Commonly reported financial performance metrics include: (Select all that apply) #next_pages_container { width: 5px; hight: 5px; position: absolute; top: -100px; left: -100px; z-index: 2147483647 !important; }
- A.
Days in Accounts Receivable: Days in A/R
- B.
Days in Accounts Payable: Days in A/P
- C.
Days Cash on Hand: DCOH
- D.
Operating Margin
- E.
Excess Margin or Net Margin
- F.
Debt Service Coverage Ratio
- G.
Debt to Equity/ Debt to Capitalization Ratio
- H.
Average Age of Plant
Correct Answer(s)
A. Days in Accounts Receivable: Days in A/R
B. Days in Accounts Payable: Days in A/P
C. Days Cash on Hand: DCOH
D. Operating Margin
E. Excess Margin or Net Margin
F. Debt Service Coverage Ratio
G. Debt to Equity/ Debt to Capitalization Ratio
H. Average Age of Plant -
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