Financial Management Flashcards

Which of the following is an example of a capital expenditure (CapEx) in a medical practice?

Answer: Purchase of a diagnostic imaging machine

Capital expenditures are funds used to acquire or upgrade long-term assets such as equipment or facilities, like purchasing an imaging machine.

What is the primary risk of relying heavily on a single payer for the majority of a practice's revenue?

Answer: Concentration risk and revenue vulnerability if that payer changes terms

Dependence on one payer creates concentration risk; changes in that payer's rates, policies, or contract status can severely impact the practice's financial stability.

Which financial analysis technique compares each line item on the income statement as a percentage of total revenue?

Answer: Vertical analysis

Vertical analysis expresses each income statement item as a percentage of total revenue, enabling easy comparison of cost structures across periods or entities.

A physician's relative value unit (RVU) production determines compensation in many practices. Which component of the RVU accounts for the physician's time and skill?

Answer: Work RVU

The work RVU reflects the physician's time, mental effort, technical skill, and judgment required to perform a service.

When managing cash flow, which action would MOST directly accelerate cash collections in a medical practice?

Answer: Implementing electronic remittance advice (ERA)

Electronic remittance advice speeds up payment posting and reduces manual errors, shortening the revenue cycle and accelerating cash receipt.

Which term describes the minimum revenue a medical practice must generate to cover all fixed and variable costs without generating profit or loss?

Answer: Break-even point

The break-even point is where total revenues equal total costs, resulting in zero profit or loss; it defines the minimum performance threshold.

Which type of financial ratio measures how efficiently a medical practice uses its assets to generate revenue?

Answer: Activity (efficiency) ratio

Activity ratios, such as asset turnover, measure how effectively a practice converts its assets into revenue.