Risk and Value in Privately Financed Health Care Projects

Abstract

An empirical study is presented to investigate the risk factors affecting the value for money that can be obtained from using the public-private partnership delivery system to develop social facility projects. Based on a model describing the main risks affecting a project, a linear regression analysis is conducted on a data set of privately financed health care projects in the United Kingdom to explore the main factors that might have significant relationships with the annual unitary charge payment. The results reveal that the economic and political environment, the hospital capacity, the construction duration, and the concession period are significant factors of the price paid by the granting authority. The study confirms that the unitary charge is not only affected by investment, operations, and financial life-cycle costs, but also by risk factors and the level of risk allocated to the private sponsors. The proposed methodology might help both public and private parties in improving a private finance initiative project’s compensation design, in order to achieve a higher value in privately financed infrastructures. The given model might also support the process of better determining the amount of annual payment based on select drivers and appropriately transferred risk factors.