Does the Private Sector Receive an Excessive Return from Investments in Health Care Infrastructure Projects? Evidence from the UK

V. Vecchi, Mark Hellowell, Stefano Gatti

Research output: Contribution to journalArticlepeer-review

Abstract / Description of output

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.
Original languageEnglish
Pages (from-to)243–270
JournalHealth Policy
Volume110
Issue number2-3
Early online date14 Jan 2013
DOIs
Publication statusPublished - May 2013

Keywords / Materials (for Non-textual outputs)

  • Capital investment
  • Private finance initiative
  • Hospitals
  • Project finance
  • Internal Rate of Return

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