Healthcare Accounting Cost Management & Budgeting Flashcards

Which of the following scenarios illustrates 'budget gaming' in a healthcare organization?

Answer: A manager inflates expense requests expecting cuts during negotiation

Budget gaming occurs when managers pad requests anticipating cuts, distorting resource allocation and undermining planning accuracy.

Under a capitation payment model, the financial risk for patient care costs falls primarily on:

Answer: The healthcare provider or health system

In capitation, providers receive a fixed per-member-per-month fee and bear the risk if actual care costs exceed the capitation payment.

A hospital's cost report to Medicare shows total costs of $90M for 45,000 Medicare patient days out of 150,000 total patient days. What is the Medicare cost ratio?

Answer: 30%

Medicare cost ratio = Medicare patient days / Total patient days = 45,000 / 150,000 = 30%.

Which of the following best describes 'benchmarking' in healthcare cost management?

Answer: Comparing an organization's costs and performance metrics to industry peers or best practices

Benchmarking involves measuring an organization's financial and operational performance against external peers or industry standards to identify improvement opportunities.

A hospital buys medical supplies for $80 each and uses 3,000 units per year. Ordering cost is $200 per order and holding cost is $8 per unit per year. Using EOQ, what is the optimal order quantity?

Answer: 274 units

EOQ = √(2 × 3,000 × $200 / $8) = √(150,000) ≈ 387 — recalculating: √(1,200,000/8) = √150,000 ≈ 387 units.

In healthcare budgeting, a 'favorable' budget variance for a cost center means:

Answer: Actual costs were less than budgeted costs

For a cost center, spending less than budgeted is favorable because it means resources were used more efficiently than planned.

Which financial document would a healthcare CFO primarily use to assess whether the organization can meet short-term obligations without selling long-term assets?

Answer: Balance sheet — current ratio analysis

The current ratio (current assets ÷ current liabilities) from the balance sheet measures short-term liquidity without relying on long-term asset liquidation.