Financial Healthcare

Student: Anabis Albino

The net present social value (NPSV) is based on the total value equals its economic value (NPV) plus its social value. The present value of the future annual social values is added to the NPV, estimating the project’s total value. NPSV incorporates both financial and social value into a single model. The present value of a project's social worth is NPSV. Even though it is difficult to estimate, the model formalizes the concept where non-profit providers should consider financial and social values when deciding on capital budgeting. NPSV is also the sum of the present values for each year’s social value (Gapenski & Reiter, 2021)

In order to estimate a project’s NPSV, it is necessary to first estimate in dollars the social value of services provided in each year. When projects provide individual services, those values are captured by the amount that the individual pays. When the value of services provided cannot be paid, or the total amount cannot be paid, then the average net price paid by those who can pay is estimated. Following, the discount rate needs to be applied to the social value cash flows. Generally, the providers require returns on their social value stream to approximate their equity investment return availability. Few organizations attempt to qualify NPSV even though the NPSV model for the capital budgeting decision process is formulized for not-for-profit healthcare firms. Many companies use NPSV for capital budgeting because it is the most insightful and helpful method to evaluate the investment in a new capital project (Gapenski & Reiter, 2021).

Reference:

Gapenski, L. C., & Reiter, K. L. (2021). Gapenski’s Healthcare Finance: An Introduction to Accounting and Financial Management. Health Administration Press; Washington, Dc