Exam 3: Chapter 20

Question 1

The chief nursing office of a Magnet® hospital has conducted a study of ways to improve healthcare services. Healthcare services
that add value for clients:
a. accomplish healthcare goals.
b. minimize costs.
c. decrease the number of services used.
d. use high-technology treatments.

Answer 1

ANS: B
Models of reimbursement affect which services and approaches (e.g., decreasing the number of services used) might be financially
viable and add value for clients. It is critical to determine and advertise the value of nursing care. Services that add value are of
high quality, affect health outcomes positively, and minimize costs.

Question 2

The difference between a nurse practitioner’s charge of $45 for an office visit and the insurance company’s payment of $34 is:

a. a contractual allowance.
b. a profit.
c. a flat rate.
d. revenue.

Answer 2

ANS: A
Because the amount that is allowed for an office visit is less than the amount that the NP charges, this is known as a contractual
allowance or discount. If the amount allowed were more than what the NP charges, then a profit would be realized. All of the
answers represent sources of revenue.

Question 3

The chief nursing office continues to seek ways to improve healthcare services to clients and to save the hospital money. However,
with the federal guidelines of paying agencies based on capitation, the chief nursing office faces a challenge. Capitation provides incentives for healthcare providers to control costs by:
a. providing fewer services to fewer clients.
b. using fewer services per client.
c. using high-technology treatments.
d. requiring second opinions.

Answer 3

ANS: B
In a capitated environment, a single fee is paid for all services provided. To be financially viable under this reimbursement model,
organizations would be interested in decreasing the volume of services used and increasing the volume of patients. High-technology treatments and second opinions may increase the number of services used.

Question 4

In a nurse managers’ meeting, the chief nursing officer encourages the managers to brainstorm ways to reduce costs. Nurse
managers have the greatest impact on reducing costs by managing:
a. supplies.
b. staffing.
c. fixed costs.
d. medication costs.

Answer 4

ANS: B
Because staffing constitutes the largest portion of any healthcare budget, managing the mix and numbers of staff required for
patient care to meet identified outcomes will have the largest impact on budgets.

Question 5

The chief nursing officer works with her nurse managers by helping them understand how to develop and implement a budget. A
nurse manager can best describe a budget as a:
a. day-to-day plan for operations.
b. unit of service.
c. statement of revenues and services.
d. financial plan.

Answer 5

ANS: D
The budget is an overall financial plan that reflects organizational assumptions, objectives, and standards, and various types of
budget planning, including operational and capital budgets, which, in turn, reflect revenues and costs.

Question 6

A nurse manager approves two staff nurses to attend a national conference. When reviewing the budget, the nurse manager looks at
which line item?
a. Cash budget
b. Capital budget
c. Operating budget
d. Supply and expense budget

Answer 6

ANS: C
The operating budget includes a personnel budget, which takes into account productive and non-productive paid work hours. Education hours are covered under nonproductive paid work hours in the operating budget

Question 7

A staff nurse regularly works two 12-hour shifts each week and one 8-hour shift every other week. How many FTEs is this
position?
a. 0.6
b. 0.7
c. 0.8
d. 1

Answer 7

ANS: B
Assuming that a full-time RN works 2080 hours/year (40 hours × 52 weeks), the nurse works (24 hours × 52 weeks + 8 hours × 26
weeks)/2080, which is 0.7 FTE.

Question 8

After reviewing her monthly budget report, the nurse manager sees that she has a negative variance, which prompts her to change
the staffing schedule. A negative or unfavorable variance in a monthly expense report may result from:
a. overestimation of inflation.
b. higher than expected client acuity.
c. net revenue exceeding net expenses.
d. not replacing staff who called in sick.

Answer 8

ANS: B
Variance reflects the difference between what was projected and the actual performance in a budget. When the variance is negative or unfavorable, the amount spent is more than what was budgeted (expenses exceed revenue); this may be a result of higher acuity. To help managers interpret and use variance information better, some institutions use flexible budgets that automatically account
for census variances.

Question 9

An example of an initiative that may reduce total healthcare costs would be:
a. offering nurse practitioner–led clinics that educate parents about
non-pharmacologic strategies for managing ear infections.
b. educating seniors about the comparative costs of medications that are prescribed
to them.
c. lowering copayments for prescription drugs for seniors.
d. advocating for more readily available MRI services to ensure early diagnosis.

Answer 9

ANS: A
Total healthcare costs are a function of prices that are established for various services and the volume or quantity of services used.
Utilization of high-tech diagnostic services and lowering of copayments have been implicated in increasing total healthcare costs (thus C and D would not be correct), as well as attitudes and behaviors of consumers of health care. In general, consumers prefer to
“be fixed” when something goes wrong rather than to practice prevention. Many consumers still believe that the physician knows
best, so they do not seek much information related to costs and effectiveness of different healthcare options. When information is
sought, it is not readily available or understandable. Also, consumers are not accustomed to using other, less costly healthcare
providers, such as nurse practitioners.

Question 10

Which of the following factors is not implicated in rising healthcare costs?

a. Rising expectations of consumers for cure and care
b. Marketing of drugs to consumers
c. Large administrative staffs to process medical billings
d. Rising Medicare costs

Answer 10

ANS: D
Unintentional injuries, socioeconomic conditions (e.g., poverty and violence), marketing of pharmaceuticals, and the rising expectations of consumers with regard to what should be done to manage health concerns all contribute to rising healthcare costs.
The costs of Medicare are not considered in relation to rising costs of health care.

Question 11

An older adult couple with limited means and on Medicare is considering options after the hospitalization of Mrs. A. with a fractured hip. Mrs. A. is stable but requires assistance with bathing, transfer, and mobility, and this will present stress for Mr. A.,
who was hospitalized with a mild myocardial infarction last year. Considering their means and health concerns, which of the
following might be the best option?
a. Hospice care
b. Custodial nursing home care
c. Home care
d. Hospital care

Answer 11

ANS: C
Custodial nursing care is not covered under Medicare and therefore, the financial burden of this option may cause further stress for the couple. Medicare Part A is an insurance plan for hospital, hospice, home health, and skilled nursing care that is paid for through
Social Security. Because Mrs. A. is stable and not terminal, she does not require hospice care. The assistance provided through home care is covered under Medicare and provides assistance for needs such as those of Mrs. A.

Question 12

After a major flu vaccination campaign, an agency bills a private insurance company for allowable costs for administration of each
vaccination according to the schedule established by the insurance company for reimbursement. This is an example of which major
payment method?
a. Cost-based reimbursement
b. Charges
c. Contractual allowance
d. Prospective reimbursement

Answer 12

ANS: A
Because the agency is submitting costs after the campaign is completed and in accordance with an established schedule of
allowable costs, a retrospective, cost-based reimbursement payment method is being utilized. If a desire for profit was indicated,
then the answer would be “charges.”

Question 13

Physicians in a small urban hospital are reluctant to discharge older adult patients because many of the patients lack private
insurance and the resources to travel distances for follow-up care. The hospital administration pressures the physicians to discharge
patients sooner and to be more consistent with the number of hospitalization days specified within the DRGs. Which of the
following would most likely prompt the action of administrators?
a. The hospital is incurring a deficit related to a gap between the PPS and the DRGs
and costs of care.
b. Local home care services are expressing concern about the increased acuity of
patients being discharged into their care.
c. The resource-based relative scale for physicians does not account for the
increased length of stay.
d. Acute care patients are being denied entry to the hospital because of the increased
stay of patients.

Answer 13

ANS: A
Length of stay (LOS) is the most important predictor of healthcare costs and extra days are a cost to the organization in terms of
both the extra days and decreased patient volume. The situation, as outlined, does not indicate that there is a bed shortage and
therefore, there is no evidence that other patients are being denied access to services or that additional patient volume is not being captured. The hospital would be concerned about the impact on its income because of the additional, uncompensated care costs
incurred for patients who exceed the usual length of stay explicitly calculated under PPS and the DRGs.

Question 14

Within a healthcare environment, where the gap between revenues and costs can mean the difference between sustainability of an
organization and nonsustainability of an organization or services, it is critical for nurse managers to:
a. maintain a clear vision of how to trim healthcare costs.
b. balance value-added services against costs and revenues.
c. consistently delete programs that are of high cost.
d. implement programs that bring in additional revenues.

Answer 14

ANS: B
To achieve and maintain financial viability, nurse managers must be able to think strategically financially and in terms of nursing
care. Cutting costs by deleting programs and bringing in additional revenue through new programs and services are not in themselves strategic unless the decisions made lead to quality care, have positive outcomes, and are efficient in terms of cost.

Question 15

Because of the complexity of reimbursement systems and its implications for the services available to patients, the nurse has a key
role in:
a. advocacy for patients with regard to services required and services utilized.
b. increasing the volume of services and decreasing the number of patients served.
c. accomplishing more with each visit and decreasing the volume of services used.
d. decreasing the volume of services used and the number of return visits.

Answer 15

ANS: A
The specific strategies employed by organizations and nurses to contain costs and increase revenues depend on the reimbursement
system(s) within which the organization operates and therefore on whether the volume of services is increased or whether the
volume of services is decreased by placing greater emphasis on efficacy in each visit and reducing the number of return visits. Because of the complexity of the reimbursement environment, the nurse is placed in a position of advocacy in terms of what the
patient needs and how those needs can be best met within the funding structures.

Question 16

Of the following, which is the most effective strategy that a nurse manager could employ to reduce unnecessary costs in specific
healthcare settings?
a. Training nurses on accurate documentation of supplies used for patient care
b. Reducing the number of overtime hours worked by staff
c. Reducing the number of staff on a unit
d. Making decisions for patients about which care is important to their health

Answer 16

ANS: A
Reducing overtime hours needs to be carefully assessed against the reasons for overtime (e.g., staff overload, recent illnesses, increased acuity) in terms of whether this reflects an ongoing or temporary situation and therefore whether it is a necessary
variance or not. Reducing staff may or may not be effective, depending on the services being provided. Making decisions for the
patient misses an important opportunity to invite the patient into discussion about patient priorities and needs and relative costs of
options, which may lead to improved adherence with regimens and less waste of resources. An effective approach to cost
containment is ensuring that supplies are accurately accounted for and charged in a timely manner.

Question 17

In preparing her budget, a nurse manager determines that she needs to budget for six FTE RN positions in the upcoming year.
Based on a 40-hour week, this means that the nurse manager has determined that the budget will provide for _____ hours.
a. 12,480 productive
b. 10,820 productive
c. 12,480 paid
d. 10,800 patient care

Answer 17

ANS: C
From the information given, it is not possible to determine how many non-productive hours (vacation, holiday, sick time,
education) the nurse manager has accounted for in her budget calculations and therefore whether the total number of hours (40
hours × 52 weeks × 6 staff = 12,480 paid hours) is productive (paid time that is worked) or non-productive hours. 12,480 accurately
reflects the total number of hours of work paid per year.

Question 18

In preparing her budget, a nurse manager determines that she needs to budget for six FTE RN positions in the upcoming year. The
nurse manager determines that RN 1 has 5 weeks of vacation and 3 days of education and has averaged 3 sick days a year. RN 2
has 6 weeks of vacation, has asked to attend a 3-day conference and a 2-day workshop, and has no history of sick time. RN 3 is
new, and you anticipate 3 weeks of orientation, as well as 4 weeks of vacation. RN 4 has 6 weeks of vacation and has an ongoing
health condition, so you anticipate 2 weeks of sick time, as well as 3 days for education. RN 5 has 5 weeks of vacation, has no
education planned, and averages 5 sick days per year. RN 6 has 6 weeks of vacation, has no educational opportunities planned, and
has been off ill for 4 weeks. How many hours of productive paid time can be anticipated for the budget?
a. 12,480
b. 11,200
c. 10,848
d. 10,688

Answer 18

ANS: C
From the information given, there are 32 weeks of vacation (40 hours × 32 weeks = 1280 hours), 11 days of education (11 days × 8
hours = 88 hours), 15 days of orientation (15 days × 8 hours = 120 hours), and 18 days of sick time anticipated (18 days × 8 hours =
144) or 1280 + 88 + 120 + 144 = 1632 hours of non-productive time. This will leave 10,848 hours of productive time available,
based on the information available and the fact that the manager is not anticipating sick time for RN 6 in the upcoming budget year.

Question 19

The primary reason for calculating productive hours paid instead of simply calculating work paid per year is that productive hours
enable the manager to:
a. anticipate total costs for patient care.
b. know how much time staff will likely be unavailable because of illness.
c. determine when orientation needs to occur for new staff.
d. determine the number of hours available for patient care.

Answer 19

ANS: D
Total hours are critical for determining the total number of hours that need to be paid for the year. Productive hours are needed to
determine what hours are actually available for patient care. The number of FTEs required is determined by dividing the total
patient care hours required by the number of productive hours.

Question 20

In preparing a budget, the nurse manager needs to anticipate the cost of benefits (e.g., health, life insurance, pension, and retirement plans). Based on the usual cost of benefits, how much should a nurse manager include for a total full-time salary cost of $312,000?

a. $78,000 to $93,600
b. $62,400 to $78,000
c. $46,800 to −$93,600
d. $31,200 to $46,800

Answer 20

ANS: C
The average cost of benefits is approximately 25% to 30% of a full-time employee’s salary. In this example, the correct response is obtained by multiplying the total full-time salary cost by 0.25 and 0.30.

Question 21

A nurse manager is planning to request three new infusion pumps at a cost of approximately $1500 each. This item would typically
be included in which budget?
a. Operating
b. Strategic
c. Unit of service
d. Capital

Answer 21

ANS: D
Items that have a useful life of longer than a year, which is likely with the pumps, and that have a cost that usually exceeds $300 to
$1000 (specific amount is set by the organization) are considered capital items. Operating budget items include what is used on a
day-to-day basis, such as staffing.

Question 22

A nurse manager is planning to request three new infusion pumps at a cost of approximately $1500 each. What would BEST
support the capital request?
a. Number of patient care hours anticipated for the year
b. Cost comparisons; how much and how often infusion pumps are used; condition
of existing pumps
c. Outline of cost for each pump
d. Estimation of total cost; no further details

Answer 22

ANS: B
Complete well-documented justifications are needed because the competition for limited resources is stiff. Justifications should be
developed using the principle of any business case and should include, at minimum, projected amount of use; services duplicated or replaced; safety considerations; need for space, personnel, or building renovation; effect on operational revenues and expenses; and
contribution to the strategic plan.

Question 23

As an experienced nurse manager who is new to an organization, it would be important to:
a. know the difference between operating and capital budgets.
b. understand the budget timetable and level of involvement expected of individual
managers in budget preparation.
c. know why a budget is essential to the well-being of an organization.
d. understand what factors drive up healthcare costs in the healthcare system.

Answer 23

ANS: B
Although all of the answers reflect knowledge that is critical to budgeting for nurse managers, an experienced nurse manager would likely be already familiar with general knowledge related to budgeting. The nurse manager, however, would need to become
familiar with budget timetables and level of involvement expected in this specific organization because these elements of budgeting
vary from work environment to work environment.

Question 24

A nurse manager discovers that the actual number of visits per patient in a home health service is 3.8 visits per day when the
standard is 5 visits per day. Based on this information, the nurse manager:
a. concludes that the complexity of care in each visit has arisen.
b. concludes that patient volume has been decreased.
c. decides that more information is needed before a conclusion can be reached.
d. initiates a training session regarding the importance of ensuring that visits are
made.

Answer 24

ANS: C
Variance from measures of productivity or ratio of outputs to inputs does not necessarily offer an explanation of whether or not
care was delivered as needed. Before proceeding to any further conclusion, the nurse manager will need to investigate reasons for
the decreased output.

Question 25

Which of the following are considered variable costs? (Select all that apply.)

a. Salaries for the minimum number of staff
b. Utilities and rent
c. Managed care
d. Supplies
e. Medication and treatment supplies

Answer 25

ANS: D, E
The total fixed costs in a unit are those costs that do not change as the volume of patients changes. In other words, with either a
high or a low patient census, expenses related to rent, utilities, loan payments, administrative salaries, and salaries of the minimum
number of staff to keep a unit open must be paid. Variable costs are costs that vary in direct proportion to patient volume or acuity.
Examples include nursing personnel, supplies, and medications.