CMC Financial Management & Budgeting 3 — Questions and Answers
Question 1: A cardiac surgery program is analyzing its payer mix and finds 60% Medicare, 15% Medicaid, 20% commercial, and 5% self-pay. Which payer group typically offers the highest reimbursement rates relative to cost?
- Medicare
- Medicaid
- Commercial insurance (Correct answer)
- Self-pay
Correct answer: Commercial insurance
Commercial insurers generally negotiate rates that exceed Medicare and Medicaid reimbursement, often producing the highest margins per case.
Question 2: A hospital's cardiac program has a contribution margin of $2,400 per case and fixed costs of $3,600,000 annually. What volume is required to break even?
- 1,000 cases
- 1,200 cases
- 1,500 cases (Correct answer)
- 1,800 cases
Correct answer: 1,500 cases
$3,600,000 ÷ $2,400 = 1,500 cases needed to cover fixed costs at the break-even point.
Question 3: Which financial statement provides a snapshot of an organization's assets, liabilities, and net assets at a specific point in time?
- Income statement
- Statement of cash flows
- Balance sheet (Correct answer)
- Statement of changes in equity
Correct answer: Balance sheet
The balance sheet (or statement of financial position) reflects assets, liabilities, and net assets as of a single date.
Question 4: A cardiac manager is asked to prepare a zero-based budget. This approach requires that:
- Last year's budget is used as the baseline and adjusted by a standard percentage
- Every budget line must be justified from scratch each cycle regardless of history (Correct answer)
- Only new program expenses are scrutinized; existing expenses are carried forward
- Budget increases are capped at the consumer price index (CPI)
Correct answer: Every budget line must be justified from scratch each cycle regardless of history
Zero-based budgeting requires full justification of all expenditures each period rather than incremental adjustments from prior budgets.
Question 5: Which cost behavior pattern describes expenses such as cardiac cath lab equipment depreciation that remain constant regardless of procedure volume?
- Variable costs
- Fixed costs (Correct answer)
- Semi-variable costs
- Controllable costs
Correct answer: Fixed costs
Fixed costs, like depreciation, do not change with volume within a relevant range of activity.
Question 6: A cardiac program is evaluating two capital projects with equal initial investment. Project A has an NPV of $450,000 and Project B has an NPV of $310,000. Which project should be selected and why?
- Project B, because lower NPV indicates lower risk
- Project A, because higher NPV indicates greater value creation (Correct answer)
- Project B, because it likely has a shorter payback period
- Project A, because it probably has a higher IRR
Correct answer: Project A, because higher NPV indicates greater value creation
NPV measures the net value added to the organization; the project with the higher positive NPV creates more financial value.
Question 7: The cardiac catheterization lab's charge capture rate is found to be 94%. The MOST direct impact of closing this charge capture gap is:
- Reduction in supply costs
- Increased net revenue from services already rendered (Correct answer)
- Improved patient satisfaction scores
- Reduction in staff overtime
Correct answer: Increased net revenue from services already rendered
Improving charge capture ensures that services provided are billed and reimbursed, directly increasing net revenue without additional volume.
CMC Financial Management & Budgeting 3
A cardiac surgery program is analyzing its payer mix and finds 60% Medicare, 15% Medicaid, 20% commercial, and 5% self-pay.
Which payer group typically offers the highest reimbursement rates relative to cost?