Budget Shortfalls Deliverable
Employ contemporary economic principles that guide resource allocation decisions in health organizations.
Scenario
Upon reviewing the annual budget and fiscal standing of Metropolitan Memorial, the CFO has identified shortfalls that will impact the funding of its proposed expansion into rural communities. In order to secure adequate funding from the Board, the operational team must reduce current operating budget by a million dollars.
Instructions
The CFO requests that you draft a memo to the Board providing justification for the additional funding in light of the shortfall. You should review current literature to support your justification. Your memo should include the following information based on the literature:
Explain the possible impact of resource allocation within a rural communities .
Discuss the factors that may affect the quality of care by reducing healthcare resources to accommodate budgetary constraints.
Discuss a potential service line and five possible ways in which the service line may maximize resource allocation.
Sample Solution
- The principle of opportunity cost: This principle states that when resources are used for one purpose, they cannot be used for another purpose. This means that when health organizations make resource allocation decisions, they must consider the opportunity cost of those decisions. For example, if a health organization decides to invest in new technology, it must consider the cost of that investment and the benefits that it will generate.
Full Answer Section
- he principle of marginal analysis: This principle states that the decision to allocate resources should be based on the marginal benefit of those resources. The marginal benefit is the additional benefit that is gained from using one more unit of a resource. For example, if a health organization is considering adding a new service, it must consider the marginal benefit of that service. This means that the organization must estimate how many patients will use the service and how much revenue it will generate.
- The principle of diminishing marginal returns: This principle states that the marginal benefit of a resource will eventually decrease as more of the resource is used. This means that the additional benefit that is gained from using one more unit of a resource will eventually be less than the additional benefit that was gained from using the previous unit of the resource. For example, if a health organization is considering adding more beds to a hospital, it must consider the principle of diminishing marginal returns. This means that the organization must estimate how many additional patients will be served by the new beds and how much additional revenue will be generated.
- The principle of cost-benefit analysis: This principle states that resource allocation decisions should be based on a comparison of the costs and benefits of those decisions. The costs of a resource allocation decision are the resources that are used to implement the decision. The benefits of a resource allocation decision are the improvements in health that are generated by the decision. For example, if a health organization is considering adding a new service, it must conduct a cost-benefit analysis. This means that the organization must estimate the costs of the new service and the benefits of the new service.
- The needs of the population they serve
- The availability of resources
- The potential for innovation
- The ethical implications of their decisions