Managing Healthcare Project Financing Investments: A Corporate Finance Perspective

Abstract

Healthcare infrastructures are a typical risky investment, which can be financed in many different and competing ways, and Public Private Partnership and project financing techniques are increasingly recognized as a useful and appropriate device. Risk identification, transfer, sharing and management are a key point of the whole structure and the risk matrix, used in order to classify and - wherever possible - measure risk is an unavoidable part of the investment package. To the extent that it can be professionally managed by specialized agents, risk sharing or transmission is not a zero sum game, even if risk pricing is never a trivial issue. While the public part traditionally bears core market risk (demand for health services), other key risks, such as those related to construction and management of commercial (hot) activities, are typically transferred to the private part, often represented by a private entity. A corporate finance perspective is crucial for preparing a proper business model, where economic and financial flows are projected along the time span of the investment, with managerial and strategic insights for not ephemeral sustainability. Capital structure issues, rotating around (optimal) leverage, are eventually discussed, starting from a Modigliani & Miller framework, with practical insights and sensitivity analyses.