Comparison of Operational Efficiency and Allocative Efficiency in Healthcare Sector

This article discusses the differences between operational efficiency and allocative efficiency in the healthcare sector. It explains how these efficiencies impact resource allocation and healthcare outcomes. The article emphasizes the importance of both efficiencies in improving overall efficiency in hospitals.

Compare and contrast Operational Efficiency and
Allocative Efficiency in the Healthcare Sector

The current health sector reform initiatives in the majority of developing countries emphasize
on the association of the hospitals with formal healthcare system of the country. The health
care facilities experience efficiency challenge in achieving expected levels of efficiency from
them and in resolving healthcare requirements of the population of the region (Cylus,
Papanicolas, & Smith, 2016).
Two basic measures of efficiency are allocative as well as operational or technical efficiency.
The allocative efficiency is considered as an economic conception, which indicates
combination of various resource inputs to bring out outputs. On the contrary, technical or
operational efficiency is related to the achievement of maximum outputs with least resources
or costs. The overall efficiency measures the collaborative impact of operational as well as
allocative efficiency (Akazili, et al., 2012).
There are various differences in allocative efficiency and operational efficiency, for example
in operational room management in healthcare environment (OECD, 2016). The allocative
efficiency refers to the utilization of optimal mixture of the inputs to create the services. The
hospital utilizes its relative cost per hour of over-utilization in contrast to the regularly
scheduled operating room time in order to compute most advantageous hours of staffing to
every individual speciality cases (Cylus, Papanicolas, & Smith, 2016). The inefficiency
occurs when costs or time becomes irrelevant in providing appropriate outcomes. Secondly,
comparison among the hospitals also becomes imprecise as every hospital knows its relative
cost but not of other hospitals. Lastly, the size of the hospital is not a concerned matter as
staffing decisions consider the contribution of only relative costs (Cylus, Papanicolas, &
Smith, 2016). On the contrary, technical inefficiency occurs when the probability to produce
more outputs with the least available inputs being utilized that could be measured by the use
of examination of data envelopment analysis (Athanassopoulos & Gounaris, 2011).

The technical efficiency occurs when performance increases with less resources or
performance remains the same with reduction in costs. The outputs increase for the given
inputs i.e. either through financial resources, physical or labour resources or by reducing the
costs on outputs. In the context of hospital, the indicators of technical efficiency comprise
increasing the number of consultations per healthcare professionals and increasing the
number of operations per surgeon in operation unit (Akazili, et al., 2012). Similarly,
allocative efficiency emphasizes on performing appropriate thing at the appropriate time. The
allocation of resources either in financial terms or physical or labour terms in order to achieve
best healthcare outcomes at minimum costs indicates allocative efficiency (Akazili, et al.,
2012). The best example of allocative efficiency comprises unnecessary admissions in
hospital and reallocating the resources to primary or intensive care unit. It results in best
health outcomes within reasonable costs and reveals possible efforts of the hospital made in
the direction of reallocation of resources in preventive units instead of unnecessary waste of
resources (Akazili, et al., 2012).
In this way, it can be concluded that both the efficiencies are essential in healthcare sector so
that overall efficiency of the hospitals could be increased.
References
Akazili, J., Adjuik, M., Chatio, S., Kanyomse, E., Hodgson, A., Aikins, M., & Gyapong, J.
(2012). What are the technical and allocative efficiencies of public health centres in
Ghana? Ghana medical journal, 42(4), 149-155.
Athanassopoulos, A. D., & Gounaris, C. (2011). Assessing the technical and allocative
efficiency of hospital operations in Greece and its resource allocation implications.
European Journal of Operational Research, 133(2), 416-431.

Cylus, J., Papanicolas, I., & Smith, P. C. (2016). A framework for thinking about health
system efficiency. Health system efficiency: How to make measurement matter for
policy and management, 46(1), 1-20.
OECD. (2016). Cooperation with OECD in promoting efficiency in health care – Scoping
paper on health system efficiency measurement. Retrieved from Ec.europa.eu:
https://ec.europa.eu/social/BlobServlet?docId=16940&langId=en