Canadian health regions are required to set priorities and allocate resources within a limited funding envelope. Program budgeting and marginal analysis (PBMA) was piloted in continuing care in Claresholm, Alberta, with the aim of improving overall benefit from available resources. A marginal-analysis expert panel was used to assess options for continuing-care delivery. Inputs into the decision-making process included evidence from the literature, regional and provincial reports, program budgeting information, and local knowledge. Recommendations included implementing adult, day-and-night support programs and converting long-term beds to convalescent beds. Changes were funded through allocating provincial "Broda" funding and altering nursing assistant and physiotherapy activity. PBMA was demonstrated to be an effective framework in aiding decision makers with redesigning services in Claresholm. This case study is one of several which indicate PBMA to be a valuable aid to priority setting in health care service provision. (Contains 4 tables.) [Abstract provided in both French and English.]