PFI redux? Assessing a new model for financing hospitals

There is a growing need for investments in hospital facilities to improve the efficiency and quality of health services. In recent years, publicly financed hospital organisations in many countries have utilised private finance arrangements, variously called private finance initiatives (PFIs), public–private partnerships (PPPs) or P3s, to address their capital requirements. However, such projects have become more difficult to implement since the onset of the global financial crisis, which has led to a reduction in the supply of debt capital and an increase in its price. In December 2012, the government of the United Kingdom outlined a comprehensive set of reforms to the private finance model in order to revive this important source of capital for hospital investments. This article provides a critical assessment of the ‘Private Finance 2’ reforms, focusing on their likely impact on the supply and cost of capital. It concludes that constraints in supply are likely to continue, in part due to regulatory constraints facing both commercial banks and institutional investors, while the cost of capital is likely to increase, at least in the short term.