The move from PFI to PF2 is likely to make it more, rather than less, expensive to deliver new healthcare facilities in the future

What impact the introduction of ‘Private Finance 2’ (PF2) have on the cost of projects for the public authorities that use it? Mark Hellowell is the author of a new report which looks into how PF2 will affect the healthcare sector. He writes that, far from avoiding the ‘PFI mess’ ascribed to its predecessors, the government is taking a route that may lead to another

Sustaining progress towards universal health coverage amidst a full-scale war:Learning from Ukraine

In the aftermath of Russia’s military response to the 2014 Revolution of Dignity, the government of Ukraine implemented a package of health financing reforms underpinned by universal health coverage (UHC) principles. By the time of Russia’s full-scale invasion of Ukraine in February 2022, the new systems and institutions envisaged in the reforms were largely established. In this Commentary article, we explain how these attributes strengthened the Ukrainian health system’s response to the impacts of the war. Ukraine’s experience highlights the role that health financing arrangements, designed in accordance with UHC principles, can play in strengthening health system resilience.</p

Fair return for risk? An examination of structure, competition and profitability in the market for private finance in the National Health Service

Since 1993, the Private Finance Initiative (PFI) has been the dominant form of large-scale infrastructure procurement used by National Health Service (NHS) organisations in the United Kingdom. As of April 2011, 123 PFI projects for new hospital facilities had been agreed between NHS organisations and private sector consortia, representing privately financed investment of £15.9 billion (in 2010 prices), and a projected long-term cost to the NHS of £70.5 billion. Eight additional hospital PFI schemes were being procured or prepared for tender as of April 2011, with an estimated capital investment value of £2 billion. Despite the financial significance of PFI projects to the NHS, the literature has not assessed whether, or the extent to which, the returns expected by investors are excessive. This gap in the evidence base is highly problematic. The presence of excess returns to investors will have an impact on the cost efficiency and affordability of PFI projects, and consequently the financial sustainability of the NHS organisations that pay for them. This thesis evaluates the returns that investors in NHS-commissioned PFI projects expect to earn with reference to the scale of risk being borne by these investors, and explores the sources of the identified excess via an examination of the structure and competitiveness of the PFI financing markets. The study therefore comprises two substantial empirical components. The first draws on the financial models of 11 NHS PFI projects to describe and evaluate the return to investors. Cost of capital benchmarks, constructed on the basis of the Capital Asset Pricing Model, are used as comparators to assess the Internal Rate of Return (IRR) for the 11 projects, and as discount rates to calculate Benefit-Cost Ratios. Both measures agree on the presence of significant excess returns for investors on each project – with large “spreads” between the IRRs and the corresponding cost of capital benchmarks, and high Benefit-Cost Ratio scores. The second empirical component provides an analysis of the structure and competitiveness of the market for private finance. Two indicators of this market’s structure – concentration and entry/exit rates – in addition to the dynamics of the procurement process are the focus of measurement and evaluation. It is demonstrated that: (a) the market for private finance in this sector is an oligopoly, (b) market share is highly concentrated when assessed against UK regulatory standards, and (c) churn and market penetration rates are extremely low. Constraints on the competitiveness of the market are identified as: (i) the low number of bidders; and (ii) the extensive period of non-competitive bidding in the final phase of the procurement process, in which the output specifications of projects are materially altered. The thesis concludes that recent reforms to the procurement process have been ineffective, and the problems underpinning a lack of competitive pressure in procurement may be insuperable, given the inherent complexity of this form of investment and the need to secure external financing. For the NHS, this source of cost inefficiency implies substantial opportunity costs (i.e. foregone opportunities for additional capital investment) and excess costs (i.e. a higher than necessary burden on the revenue budget). A stronger regulatory regime, incorporating regulation of the profitability of PFI projects for investors, is required to minimise the threat posed by this policy to the financial sustainability of the NHS

Government policies to enhance access to credit for infrastructure-based PPPs:an approach to classification and appraisal

Analysis of ways the public sector can ease the use of private money for infrastructure financing