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The Role of Value Creation in the Healthcare Industry

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Why is value creation an important concept to health care organizations? Is value creation more or less important in health care than other industries?

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Solution Summary

The health care industry is in a state of flux and under intense scrutiny. This subject is reviewed in terms of creating value within the firm providing health care, and how this value translates to the individual investor.

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The first item to consider is the notion of the creation of value within the health care industry, and within the business community in general. We must recognize what this means, how it is measured, how it is defined, and the impacts upon the firms and institutions within each market segment.

Upon the deregulation of the health care industry, many profit oriented firms have been established with the sole purpose of offering medical solutions to patients, while being totally involved in providing a satisfactory return to its shareholders, and also providing a sustainable business model for stakeholders. To this end, any firm is ultimately responsible to shareholders for providing a competitive rate of return on the initial investment outlay, meaning that a FOR PROFIT firm within any industry segment has as its primary financial goal the maximization of wealth to the true owners of the firm --- the shareholders. Within that context, the firm has to be aware of, and deal with, the following financial principles:

* time value of money --- using the discounting and compounding effects of calculating the real value of funding and return on investment to the firm after determining the value of future cash flows relative to the initial outlay for the investment, as well as the economic factors which can influence the present value of those cash flows based upon changes in inflation, interest rates, ...

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