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Quiz: Healthcare Revenue and Cost Analysis

Test your understanding of healthcare revenue and cost analysis with these review questions.

1. What is a charge master?

  1. The actual dollar amount a payer reimburses a provider
  2. A comprehensive, provider-maintained price list assigning a standard charge to every billable service, drug, and supply item a facility offers
  3. The proportional breakdown of a provider's patient volume across different payer types
  4. A fixed payment per member per month paid regardless of care used
Show Answer

The correct answer is B. A charge master is a comprehensive, provider-maintained price list assigning a standard charge to every billable service, drug, and supply item, with each entry mapping to one or more billing codes. Option A describes reimbursement, a distinct concept from Chapter 15. Option C describes payer mix. Option D describes capitation.

Concept Tested: Charge Master

2. What is cost of care?

  1. The negotiated maximum amount a payer recognizes as payable for a service
  2. Operating income divided by revenue, expressed as a percentage
  3. The proportional breakdown of a provider's patient volume across payer types
  4. The sum of the labor, supplies, equipment, and overhead an organization spends to deliver a given service
Show Answer

The correct answer is D. Cost of care is the sum of labor, supplies, equipment, and overhead an organization spends to deliver a service, frequently much lower than the charge master's billed price for the same service. Option A describes the allowed amount from Chapter 15. Option B describes operating margin. Option C describes payer mix.

Concept Tested: Cost Of Care

3. What is capitation?

  1. A fixed payment per member per month, paid to a provider or provider group regardless of how much care that member actually uses
  2. A standardized measure of physician effort expended per service
  3. The systematic study of what care costs, to whom, and why
  4. A comprehensive price list of every billable service a facility offers
Show Answer

The correct answer is A. Capitation pays a fixed PMPM amount regardless of actual utilization, pushing incentives toward prevention and efficient care since avoided costs become provider margin. Option B describes a wRVU, a productivity measure. Option C describes healthcare cost analysis. Option D describes a charge master.

Concept Tested: Capitation

4. Why does risk adjustment matter for capitation to work fairly?

  1. Because it eliminates the need to track a patient panel's chronic conditions
  2. Because it converts a capitation arrangement into a fee-for-service model
  3. Because it scales the PMPM payment to a patient population's underlying health risk, so a provider caring for a sicker panel receives proportionally higher payment rather than the same flat rate as a group with a healthy panel
  4. Because it only applies to Commercial payers, never to Medicare or Medicaid
Show Answer

The correct answer is C. Risk adjustment scales the PMPM payment using a score like the Hierarchical Condition Category, so a sicker panel receives a proportionally higher payment, aligning payment with the actual cost of caring for that population. Option A contradicts the entire mechanism risk adjustment relies on. Option B mischaracterizes risk adjustment as changing the payment model entirely. Option D fabricates an unsupported payer restriction.

Concept Tested: Risk Adjustment

5. Why does payer mix have such significant leverage over a provider's overall profitability?

  1. Because every payer type reimburses at exactly the same rate for identical care
  2. Because each payer type reimburses at a different rate for identical care, so shifting volume toward better-reimbursing payers can move a service line's profitability without any change in clinical efficiency
  3. Because payer mix only ever affects Medicaid patients
  4. Because payer mix is fixed by federal law and cannot be influenced by contract negotiation
Show Answer

The correct answer is B. Because Commercial, Medicare, and Medicaid reimburse at different rates for identical care, a provider's payer mix can outweigh differences in clinical efficiency between two otherwise similar organizations. Option A contradicts the chapter's explicit point about differing reimbursement rates. Option C incorrectly narrows the effect to one payer type. Option D contradicts the chapter's discussion of shifting volume through negotiation.

Concept Tested: Payer Mix

6. Why does modeling direct costs and indirect costs as separate Cost nodes attached to a service line matter for a finance team?

  1. Because it eliminates the need to ever compute an operating margin
  2. Because direct and indirect costs must always be identical in dollar amount
  3. Because indirect costs can never be attributed to any specific service line
  4. Because it lets a finance team distinguish a line that is unprofitable due to its own high direct costs from one that is unprofitable only because it absorbs a large share of shared overhead
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The correct answer is D. Separating direct costs, like surgeons and supplies specific to a service line, from indirect costs, like a proportional share of hospital-wide overhead, lets a finance team pinpoint the actual source of a line's unprofitability. Option A contradicts the ongoing need to compute margin. Option B and C both misstate how direct and indirect costs actually behave in the model.

Concept Tested: Profitability

7. A hospital's orthopedic service line generates $2.4 million in gross charges, which reduces to $1.5 million in actual expected revenue after contractual adjustments, and direct, indirect, and overhead costs of $1.35 million are subtracted. What is the operating margin?

  1. 10%
  2. 60%
  3. 90%
  4. 6.25%
Show Answer

The correct answer is A. Operating income is $1.5 million − $1.35 million = $150,000, and operating margin is $150,000 ÷ $1.5 million = 10%. Option B and C both misapply the gross charges figure instead of the actual revenue figure. Option D incorrectly divides operating income by the gross charges figure instead of revenue.

Concept Tested: Operating Margin

8. A primary-care group has 2,000 capitated lives, a base PMPM rate of $40, and an average HCC risk score of 1.3. What is the risk-adjusted PMPM payment?

  1. $40
  2. $1.30
  3. $52
  4. $2,600
Show Answer

The correct answer is C. The risk-adjusted PMPM is the base rate multiplied by the risk score: $40 × 1.3 = $52. Option A ignores the risk adjustment entirely. Option B confuses the risk score itself with the payment amount. Option D incorrectly multiplies the base rate by panel size instead of the risk score.

Concept Tested: Risk Adjustment

9. That same group's risk-adjusted PMPM of $52 is paid across 2,000 lives for 12 months, for annual capitation revenue of $1,248,000, and the panel's actual medical costs run to $1,100,000 for the year. What is the group's net surplus?

  1. $1,248,000
  2. $148,000
  3. $1,100,000
  4. $52,000
Show Answer

The correct answer is B. Net surplus is annual capitation revenue minus actual medical costs: $1,248,000 − $1,100,000 = $148,000. Option A reports the gross capitation revenue without subtracting costs. Option C reports only the cost figure. Option D applies an unrelated calculation that does not match either given figure.

Concept Tested: Capitation

10. Why can a healthcare organization's payer mix, rather than clinical efficiency, be the primary driver of overall profitability between two otherwise similar organizations?

  1. Because clinical efficiency has no bearing on any organization's financial outcomes
  2. Because Commercial payers always reimburse below cost, while Medicaid always reimburses above cost
  3. Because payer mix can never be influenced through contract negotiation
  4. Because Commercial payers typically reimburse well above cost, Medicare closer to cost, and Medicaid frequently below cost, so the proportion of volume from each payer type can outweigh differences in clinical efficiency between organizations
Show Answer

The correct answer is D. Because reimbursement rates vary substantially by payer type, an organization's payer mix can be a bigger driver of profitability than differences in clinical efficiency between two otherwise similar organizations. Option A overstates the claim; the chapter never suggests efficiency is irrelevant. Option B reverses the actual reimbursement pattern for Commercial payers and Medicaid. Option C contradicts the chapter's discussion of contract negotiation as a lever.

Concept Tested: Payer Mix