CMM Financial Management 3 — Questions and Answers
Question 1: Which financial statement shows a practice's assets, liabilities, and equity at a specific point in time?
- Income statement
- Cash flow statement
- Balance sheet (Correct answer)
- Statement of retained earnings
Correct answer: Balance sheet
The balance sheet (statement of financial position) provides a snapshot of what a practice owns (assets), owes (liabilities), and the owner's equity on a given date.
Question 2: A medical practice has total monthly collections of $180,000 and total monthly expenses of $144,000. What is the overhead percentage?
- 75%
- 80% (Correct answer)
- 20%
- 25%
Correct answer: 80%
Overhead percentage = Expenses / Collections × 100 = $144,000 / $180,000 × 100 = 80%.
Question 3: Which cost behavior remains constant in total regardless of changes in patient volume within a relevant range?
- Variable cost
- Mixed cost
- Fixed cost (Correct answer)
- Step cost
Correct answer: Fixed cost
Fixed costs, such as rent and salaried staff, do not change in total as patient volume increases or decreases within a relevant range.
Question 4: What does a negative net present value (NPV) for a capital investment indicate?
- The investment will exceed projected returns
- The investment is expected to destroy value (Correct answer)
- The discount rate used is too low
- The project has a short payback period
Correct answer: The investment is expected to destroy value
A negative NPV means the present value of expected cash inflows is less than the initial investment, indicating the project would reduce the practice's value.
Question 5: Which payer mix change would MOST likely improve a medical practice's average reimbursement per visit?
- Increase in Medicaid patients
- Decrease in Medicare patients
- Increase in commercial insurance patients (Correct answer)
- Increase in self-pay patients
Correct answer: Increase in commercial insurance patients
Commercial insurers typically reimburse at higher rates than government payers, so a greater proportion of commercial patients raises average reimbursement.
Question 6: What is the function of an internal audit in a medical practice's financial management?
- Prepare tax returns for the practice
- Independently verify financial records and internal controls (Correct answer)
- Negotiate contracts with payers
- Manage accounts payable processes
Correct answer: Independently verify financial records and internal controls
An internal audit evaluates the accuracy of financial records and the effectiveness of internal controls to detect errors, fraud, and inefficiencies.
Question 7: A practice's current ratio is 0.8. What does this indicate about short-term financial health?
- The practice has strong liquidity
- Current liabilities exceed current assets (Correct answer)
- The practice is highly profitable
- Long-term debt is well managed
Correct answer: Current liabilities exceed current assets
A current ratio below 1.0 means current liabilities exceed current assets, suggesting potential difficulty meeting short-term obligations.
CMM Financial Management 3
Which financial statement shows a practice's assets, liabilities, and equity at a specific point in time?