NE-BC Finance Flashcards: 90 Practice Questions & Answers

CMS withholds 2% of base operating DRG (Diagnosis-Related Group) payments from all participating PPS hospitals to fund the program. This creates a pool that is redistributed based on the hospital's Total Performance Score (TPS). The program is budget-neutral, meaning the total amount withheld equals the total amount redistributed. High-performing hospitals can earn back more than their 2% contribution, resulting in a net gain, while low performers lose a portion or all of that 2%. Exam Strategy: Distinguish between VBP (incentive-based, budget-neutral) and the Hospital Readmissions Reduction Program (HRRP), which is penalty-only and not budget-neutral.

Flexible Budgeting. Rationale: A static budget is based on a single predicted volume. If the census is higher than predicted, a static budget will show an unfavorable variance. A flexible budget recalculates what the expenses *should* have been at the actual higher census. Exam Strategy: Flexible budgeting is the gold standard for high-acuity units because it allows executives to differentiate between volume-driven variances (more patients = more supplies) and efficiency-driven variances (wasting supplies).

Fixed FTEs are roles that do not fluctuate with patient census (Average Daily Census). Examples include: Nurse Manager, Assistant Manager, Nurse Educator, Clinical Nurse Specialist, and sometimes Unit Secretaries. Variable FTEs (staff nurses, techs) fluctuate based on volume/acuity. Exam Tip: ANCC may ask you to identify which roles to adjust during low census; you would adjust variable FTEs, while fixed FTEs remain constant to maintain infrastructure.

**Flexible Budgeting.** Unlike a Static (Fixed) Budget, which remains the same regardless of volume, a Flexible Budget adjusts the expected costs based on the *actual* volume of activity. **Rationale:** By using a Flexible Budget, the executive can calculate what the costs *should* have been for the 460 patients actually seen, rather than the 400 originally planned. This flexed number is then compared to actual spending to isolate the true **Efficiency Variance**. Without a flexible budget, it is impossible to tell if a cost overrun is due to more patients or poor resource management.

NPV accounts for the Time Value of Money (TVM). Rationale: ROI is a simple ratio that does not account for the timing of cash flows or the cost of capital. NPV calculates the current value of all future cash flows minus the initial investment, using a discount rate. Exam Strategy: If NPV is greater than zero, the project adds value to the organization. ANCC often tests the understanding that a high ROI on a small project may be less desirable than a lower ROI/positive NPV on a larger, more impactful project.