What are the major risks involved in funding a new Hospital project?

Completion risk - Whether the hospital has the capability to complete capital projects and whether the past trends support the same ?

Reputation risk & Regulatory risk - In many countries there are healthcare regulators who check the hospital on a timely basis and award rankings. If the hospital's performance is not up to mark then severe consequences will be faced by these hospitals

Hospital's financial performance - Several important metrics such as days cash on hand, debt-to-capitalization, debt service coverage, funded status of the pension plan, risk-based capital.

Cash transactions - This is one of the major hurdle in many countries where doctors/hospitals are generally paid in cash and some may go unaccounted for. 

Capability of the hospital to handle debt mitigating risks - When considering the options, a hospital’s top priority is to balance both the upfront and ongoing capital costs with the non-financial terms and covenants of a debt structure. This balance is key to managing its current exposure to risks associated with short and/or long term debt. The debt structure used to achieve this balance will depend on a variety of factors for a hospital, including credit worthiness, geographic location, current capital structure, financial capacity to take on risk and the capital market’s “appetite” for health care transactions.

 

 

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Given constrained national liquidity since mid

-2008, most hospitals have experienced more limited capital access, fewer borrowing options, higher cost of capital, more restrictive terms, less flexibility, and higher risks related to available borrowing options. This is especially true for smaller hospitals, which have almost al ways experienced a more difficult time accessing capital than larger organizations.

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The major risks in any project finance are the ability  of both the project's cash flow to repay and the sponsors willingness to repay. Hospitals have an added risk as the lenders reputation might be negatively affected if they are obliged to take over the project assets.