Does the private sector receive an excessive return from investments in health care infrastructure projects? Evidence from the UK

Veronica Vecchi, Mark Hellowell and Stefano Gatti

Health Policy, 2013, vol. 110, issue 2, 243-270

Abstract: This paper is concerned with the cost-efficiency of Private Finance Initiatives (PFIs) in the delivery of hospital facilities in the UK. We outline a methodology for identifying the “fair” return on equity, based on the Weighted Average Cost of Capital (WACC) of each investor. We apply this method to assess the expected returns on a sample of 77 contracts signed between 1997 and 2011 by health care provider organisations in the UK. We show that expected returns are in general in excess of the WACC benchmarks. The findings highlight significant problems in current procurement practices and the methodologies by which bids are assessed. To minimise the financial impact of hospital investments on health care systems, a regulatory regime must ensure that expected returns are set at the “fair” rate.

Keywords: Capital investment; Private finance initiative; Hospitals; Project finance; Internal Rate of Return (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (18)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:hepoli:v:110:y:2013:i:2:p:243-270

DOI: 10.1016/j.healthpol.2012.12.010

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