CPE Financial Management and Business Strategy 2 — Questions and Answers
Question 1: A hospital is evaluating whether to lease or purchase an MRI machine. Which financial analysis best compares the two options?
- Net present value analysis of lease vs. purchase cash flows (Correct answer)
- Gross revenue projection over five years
- Payback period using only purchase price
- Return on equity for the capital equipment division
Correct answer: Net present value analysis of lease vs. purchase cash flows
NPV analysis accounts for the time value of money and compares total costs of each financing option across the same period.
Question 2: Which metric measures how efficiently a hospital uses its assets to generate revenue?
- Debt-to-equity ratio
- Asset turnover ratio (Correct answer)
- Current ratio
- Operating margin
Correct answer: Asset turnover ratio
Asset turnover ratio is calculated as total revenue divided by total assets, reflecting operational efficiency.
Question 3: A physician executive notices that accounts receivable days outstanding has increased from 45 to 72 days. This most likely indicates:
- Improved billing efficiency
- Increased patient volume
- Deteriorating revenue cycle performance (Correct answer)
- Higher payer mix of commercial insurance
Correct answer: Deteriorating revenue cycle performance
Rising days in accounts receivable signals slower collection, which strains cash flow and may indicate billing or payer issues.
Question 4: In a SWOT analysis for a physician group considering expansion, a new competitor hospital entering the market would be categorized as:
- Strength
- Weakness
- Opportunity
- Threat (Correct answer)
Correct answer: Threat
External factors that may negatively impact the organization are classified as threats in a SWOT analysis.
Question 5: Which of the following best describes a 'contribution margin' in healthcare financial management?
- Total revenue minus total operating expenses
- Revenue minus variable costs for a specific service line (Correct answer)
- Net income after taxes and depreciation
- The difference between billed charges and reimbursed amounts
Correct answer: Revenue minus variable costs for a specific service line
Contribution margin equals revenue minus variable costs, showing how much a service contributes to covering fixed costs.
Question 6: A medical group is considering adding a new specialty service line. The break-even analysis shows 2,400 patient visits annually are required. If projected volume is 1,800 visits, the executive should:
- Proceed since fixed costs are already covered
- Re-examine assumptions or reconsider the investment (Correct answer)
- Launch immediately to capture market share
- Increase physician FTEs to drive volume
Correct answer: Re-examine assumptions or reconsider the investment
Projected volume below break-even means the service line would operate at a loss, requiring re-evaluation of costs, pricing, or volume assumptions.
Question 7: Which payment model shifts financial risk for patient care most significantly to the provider?
- Fee-for-service
- Per diem reimbursement
- Global capitation (Correct answer)
- Cost-plus reimbursement
Correct answer: Global capitation
Global capitation pays a fixed per-member-per-month rate regardless of services used, placing full utilization risk on the provider.
CPE Financial Management and Business Strategy 2
A hospital is evaluating whether to lease or purchase an MRI machine.
Which financial analysis best compares the two options?