Comparison of Operational Efficiency and Allocative Efficiency in Healthcare Sector

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).