HSA 4109 Lecture Notes - Lecture 4: Risk Pool, Artificial Insemination, Professional Liability Insurance

14. Which of the following is NOT expected to result from healthcare reform initiatives? Increased formation of accountable care organizations (ACOs) Increased emphasis on population health Decreased need for data analytics Increased provider consolidation Staffing shortages in selected areas 15.Which of the following statements does NOT apply to not-for-profit corporations? The corporation needs profits to sustain operations. The corporation must file an annual report with the Internal Revenue Service. The corporation must meet the tax definition of a charitable organization as defined by the Internal Revenue Service. The residual earnings of the corporation belong to the owners. The corporation is generally exempt from income and property taxes. 16. True or False: Under current law, the profits of not-for-profit corporations can be distributed to individuals. 17. True or False: The specific amount of charity care not-for-profit hospitals must provide in order to maintain their tax-exempt status is defined by an existing federal legislative standard. 18.Which of the following tax-related benefits are generally granted to not-for- profit corporations? a. Exemption from federal and state income taxes b. Exemption from property taxes c. Ability to issue tax-exempt (municipal) debt d. Ability to accept contributions that are tax deductible to the donor e. Answers a., b., c., and d. are correct. 19.Which of the following reimbursement methods creates the greatest incentive for providers to control the cost of delivering health services? a. Cost-based reimbursement b. Charge-based reimbursement c. Discounted charge–based reimbursement d. Per diagnosis prospective payment e. Capitation 20. True or False: All prospective payment methods of reimbursement involve a transfer of risk from insurers to providers. 21.Which of the following statements about medical coding is incorrect? ICD, CPT, and HCPCS provide a standard set of codes used to transform medical diagnoses and procedures into code numbers that can be universally recognized and interpreted. ICD codes are published by the World Health Organization. CPT codes were developed and are copyrighted by the American Medical Association. HCPCS expands the CPT codes to include nonphysician services and durable medical equipment. Because the coding process is technical and complex, there is little concordance between the information in the medical record and the classifications produced by medical coding. 22.Which of the following statements about bundled payments is most correct? Bundled payments are a single payment that is made to a group of like providers, such as three hospitals in a single service area. Bundled payments are meant to encourage different providers (such as a hospital and physician group) to work together to lower costs and improve quality. Bundled payments are a single payment made to one provider for all services provided for a single diagnosis, say, a broken arm. Statements a. and b. are both correct. Statements b. and c. are both correct. 23.Which of the following statements about capitation is most correct? Capitation creates a delay between providing services and receiving payment. The capitation payment amount to providers varies significantly from month to month and hence is difficult to predict. Capitation encourages providers to focus on prevention and wellness. Capitation places a greater administrative burden on providers than does fee-for-service payment. Capitation uses a per diagnosis methodology to set hospital payment rates. 24.Which of the following statements about the financial risk to providers under different reimbursement methods is most correct? a. Risk is the least under cost-based reimbursement. b. Risk is the most under capitation. c. Risk is the most under charge-based reimbursement. d. Statements a. and b. are both correct. e. Statements a. and c. are both correct. 25.Which of the following statements about the financial risk to providers under different reimbursement methods is most correct? Different payers use different reimbursement methods, so providers face varying levels of risk. Prospective payment transfers the cost risk (of each reimbursable episode) from insurers to providers. Capitation transfers both cost risk and utilization risk to providers. Statements a. and b. are both correct. Statements a., b., and c. are all correct. 26. True or False: Medicare has a single payment methodology that is applied to all providers, such as hospitals, physicians, and ambulatory (outpatient) surgery centers. 27.Which of the following statements about Medicare’s inpatient prospective payment system (IPPS) is most correct? Each discharge is assigned to a Medicare severity diagnosis-related group (MS-DRG) with a specified relative rate. The relative weight is multiplied by a base dollar payment amount adjusted for local input prices to obtain the reimbursement amount. The relative weight is multiplied by a base dollar payment amount adjusted for the size of the hospital to obtain the reimbursement amount. Statements a. and b. are both correct. Statements a., b., and c. are all correct. 28.Which of the following statements about Medicare’s payment system for physicians’ services is most correct? Each patient is assigned a Medicare Patient Identification Code (PIC) that reflects the severity of the patient’s diagnosis. Patients are divided into five groups (A-E) based on diagnosis, with the E group reimbursement being the greatest. Each service performed has a relative value unit (RVU) assigned that reflects the amount of physician work, practice expenses, and liability insurance costs. Physicians are paid using Medicare’s Outpatient Observation Payment System (OOPS). Physicians are paid using Medicare’s Ambulatory Patient Payment System (APPS). 29.Which of the following payment initiatives are included in healthcare reform legislation (the Affordable Care Act)? a. Value-based purchasing b. New models of bundled payment c. Patient age-based reimbursement d. Initiatives a. and b. are both correct. e. Initiatives a., b., and c. are all correct. 30. True or False: The revenue section of the income statement provides information about the amount of discounts, contractual allowances, and charity care provided by a healthcare organization. 31. True or False: In a healthcare provider organization, net patient service revenue overstates the amount of revenue collected because bad debt expenses have not yet been considered. 32.Which of the following would most likely be considered nonoperating income (versus operating income) on the income statement of a healthcare organization? a. Revenue from patient care activities b. Revenue from cafeteria and parking garage operations c. Premium revenue d. Income from investments in financial securities e. Government appropriations 33.Assume Mercy Hospital underestimated the provision for bad debts reported on its December 31, 2015 income statement. What would be the most likely effect on the actual cash flow stemming from the reported net patient service revenue? The cash flow would be less than expected. The cash flow would be greater than expected. The cash flow would not be affected. The cash flow could be either overstated or understated depending on the nature of the bad debts. None of the statements are correct. 34.Meadowlands, a for-profit skilled nursing facility, pays taxes at a rate of 40 percent. Assume Meadowlands recorded depreciation expense of $100,000 for the year ended December 31, 2015. If Meadowlands changed its method of calculating depreciation such that depreciation expense doubled for the year, which of the following statements is most correct? Meadowlands’ net income (after tax) for the year ended December 31, 2015 would increase by $100,000. Meadowlands’ net income (after tax) for the year ended December 31, 2015 would decrease by $100,000. Meadowlands’ estimated cash flow for the year ended December 31, 2015 would increase by $100,000. Meadowlands’ estimated cash flow for the year ended December 31, 2015 would increase by $40,000. Statements b. and d. are both correct. 35.Assume Hospital A is a for-profit organization that pays taxes at a rate of 30 percent and Hospital B is a not-for-profit organization that pays no taxes. If depreciation expense for the year ended December 31, 2015 was doubled (e.g., from $100,000 to $200,000) for both organizations, which of the following statements is most correct? a. Net income would increase for both Hospitals A and B. b. Net income would decrease for Hospital A but not for Hospital B. c. Estimated cash flow would increase for both Hospitals d. Estimated cash flow would increase for Hospital A but e. Estimated cash flow would increase for Hospital B but 36.Which of the following statements about revenues, expenses, most correct? Revenues increase the equity of an organization. Expenses decrease the equity of an organization. Net income (less any dividend payments) increases the organization. Net losses decrease the equity of an organization. Statements a., b., c., and d. are all correct. A and B. not for Hospital B. not for Hospital A. and net income is equity of an 37.Which of the following statements about operating income, nonoperating income, and net income is most correct? Operating income typically is greater than net income. For hospitals, nonoperating income includes outpatient services income. Operating income focuses on the profitability of a provider’s core business. d. Net income is defined as operating income less nonoperating income. e. Net income focuses on the profitability of a provider’s core business. 38.Which of the following statements best describes the statement of changes in equity? It shows how much of net income is retained within the business. It shows how much of net income flows to the balance sheet equity account. For investor-owned businesses, it shows how much of net income is paid out as dividends. Statements a. and c. are both correct. Statements a., b., and c. are all correct. 44.A nonendowment contribution made to a not-for-profit healthcare organization that the donor specifies is to be used only for the provision of charity care would most likely be classified as: Unrestricted Temporarily restricted Forever restricted Board designated A liability 45.Which of the following statements about the balance sheet is most correct? The balance sheet provides information about the financial position of an organization as of a moment in time. The balance sheet provides detailed information about the assets, liabilities, equity, revenues, and expenses of an organization. The balance sheet is affected by changes in the net income of the organization. Statements a. and c. are both correct. Statements a., b., and c. are all correct. 47. True or False: The balance sheet and income statement together provide detailed information about where a business gets its cash and how that cash is spent. 48.Carlisle Clinic, a not-for-profit organization, began 2016 with an equity balance of $1,000,000. Assuming Carlisle Clinic reported net income of $200,000 for the year ended December 31, 2015, and had no other adjustments to equity during 2015, what was Carlisle Clinic’s equity balance as of December 31, 2014? $800,000 $1,200,000 $200,000 $1,000,000 Can’t tell with the information provided 50. True or False: Fixed costs are those costs that are known (fixed) regardless of the relevant range, while variable costs are those costs that are known only within the relevant range. True or False: Managerial accounting data typically require assumptions about the future and are therefore more uncertain than financial accounting data. True or False: Through changes to contracts or other operational decisions, it may be possible to convert fixed costs to variable costs or vice versa. 56.Smith Pharmaceuticals is trying to estimate the breakeven volume of sales on a newly developed drug. Which of the following would be expected to reduce the number of pills Smith would need to sell to breakeven (i.e., which would result in a lower breakeven volume) assuming everything else remains the same? a. An increase in total fixed costs b. A decrease in the selling price per pill c. An increase in the variable cost per pill d. An increase in the unit (per pill) contribution margin e. An increase in allocated overhead (indirect) costs 57.Assume the local children’s hospital implements an outpatient asthma intervention to improve the health outcomes of children with asthma. As a result, the hospital sees a dramatic reduction in the number of inpatient admissions for children with asthma, but very little change in the total cost of operating the hospital. Which of the following statements describes the most likely reason for the lack of cost savings? The hospital’s cost structure primarily consists of variable costs. The hospital’s cost structure primarily consists of fixed costs. The hospital’s cost structure consists of an equal mix of variable and fixed costs. The hospital reduced its capacity (i.e., downsized) following the drop in admissions. The hospital has a very high variable cost per admission. 58. True or False: An organization with high fixed costs (relative to variable costs) will suffer a greater decrease in profit as volume declines than an organization with high variable costs (relative to fixed costs). 59. True or False Costs that remain constant on a per unit basis but that increase in total as volume increases over a relevant range are referred to as semi-fixed costs. 65.Which of the following statements about the step-down method of cost allocation is most correct? The step-down method requires that overhead departments be ranked by the amount of services they provide to one another. The step-down method does not allocate costs from each overhead department to every other overhead department. The step-down method is less complex than the reciprocal method. The step-down method is more complex than the direct method. All of these statements are correct. 67. True or False: The classification of costs as direct or indirect depends on the unit (i.e., organization or department) of analysis. 68. True or False: When conducting a cost allocation, costs of a single support department should never be separated into multiple cost pools. 69. True or False: When the cost driver is changed, support department cost allocations to revenue-generating departments will change under the step-down method of cost allocation but not under the direct method of cost allocation.

29.Which of the following payment initiatives are included in healthcare reform legislation (the Affordable Care Act)?

a. Value-based purchasing

b. New models of bundled payment

c. Patient age-based reimbursement

d. Initiatives a. and b. are both correct.

e. Initiatives a., b., and c. are all correct.

28.Which of the following statements about Medicares payment system for physicians services is most correct?

a. Each patient is assigned a Medicare Patient Identification Code (PIC) that reflects the severity of the patients diagnosis.

b. Patients are divided into five groups (A-E) based on diagnosis, with the E group reimbursement being the greatest.

c. Each service performed has a relative value unit (RVU) assigned that reflects the amount of physician work, practice expenses, and liability insurance costs.

d. Physicians are paid using Medicares Outpatient Observation Payment System (OOPS).

e. Physicians are paid using Medicares Ambulatory Patient Payment System (APPS).

27.Which of the following statements about Medicares inpatient prospective payment system (IPPS) is most correct?

a. Each discharge is assigned to a Medicare severity diagnosis-related group (MS-DRG) with a specified relative rate.

b. The relative weight is multiplied by a base dollar payment amount adjusted for local input prices to obtain the reimbursement amount. c. The relative weight is multiplied by a base dollar payment amount adjusted for the size of the hospital to obtain the reimbursement amount.

d. Statements a. and b. are both correct.

e. Statements a., b., and c. are all correct.

21.Which of the following statements about medical coding is incorrect?

a. ICD, CPT, and HCPCS provide a standard set of codes used to transform medical diagnoses and procedures into code numbers that can be universally recognized and interpreted.

b. ICD codes are published by the World Health Organization.

c. CPT codes were developed and are copyrighted by the American Medical Association.

d. HCPCS expands the CPT codes to include nonphysician services and durable medical equipment.

e. Because the coding process is technical and complex, there is little concordance between the information in the medical record and the classifications produced by medical coding.

19.Which of the following reimbursement methods creates the greatest incentive for providers to control the cost of delivering health services?

a. Cost-based reimbursement

b. Charge-based reimbursement

c. Discounted charge based reimbursement

d. Per diagnosis prospective payment

e. Capitation

23.Which of the following statements about capitation is most correct?

a. Capitation creates a delay between providing services and receiving payment.

b. The capitation payment amount to providers varies significantly from month to month and hence is difficult to predict.

c. Capitation encourages providers to focus on prevention and wellness.

d. Capitation places a greater administrative burden on providers than does fee-for-service payment.

e. Capitation uses a per diagnosis methodology to set hospital payment rates.

8.Which of the following tax-related benefits are generally granted to not-for- profit corporations?

a. Exemption from federal and state income taxes

b. Exemption from property taxes c. Ability to issue tax-exempt (municipal) debt

d. Ability to accept contributions that are tax deductible to the donor

e. Answers a., b., c., and d. are correct.

16. True or False: Under current law, the profits of not-for-profit corporations can be distributed to individuals.

14.Which of the following is NOT expected to result from healthcare reform initiatives?

a. Increased formation of accountable care organizations (ACOs)

b. Increased emphasis on population health

c. Decreased need for data analytics

d. Increased provider consolidation

e. Staffing shortages in selected areas

13. True or False: Because the organizational and financial goals of for-profit and not-for-profit provider organizations differ, their financial decision-making processes usually lead to very different decisions.