Implementation of Performance-Based Budgeting in the Health System: Luxury or Necessity?

Dear Editor in ChiefA recent study showed that budgeting system in Iran based on incremental method and relies on inventory of the National Treasury's (1). In fact, most experts believe that budgeting in Iran is faced with several complications (2, 3). Studies (4- 9) confirmed that traditional methods of budget- ing have been ineffectiveness and inapplicable. It is worth noting that traditional methods of budg- eting do not meet requirements of managers and decision-makers. Hence, reforming the budgeting system and implementation of performance-based budgeting system as a necessity has been men- tioned in the fourth economic, social and cultural development Plan Act of the Islamic Republic of Iran (articles 138 and 144). This has been empha- sized in the general policies of the fifth economic, social and cultural development Plan Act of the Islamic Republic of Iran (point's 32 and article 219) (3).Nowadays there are at least four alternatives to traditional methods of budgeting as following: a) planning programming budgeting system (PPBS), b) zero-based budgeting, c) Incremental budgeting and d) performance-based budgeting. Perfor- mance-based budgeting has the advantage of be- ing flexible for needs of decision-makers than most other methods and is much popularity in Iran (3). Therefore, financial management reforms launched to the Ministry of Health and Medical Education (MOHME) as a "new financial system" in recent years and have been suggested in four steps following:1- Accounting approach change from cash-based to accrual-based2- Establishment of cost price system3- Implementation of performance-based budget- ing4- Productivity management, evidence-based ana- lyzing and decision makingThe first step was started from 2005 and it has been currently developed up in the affiliated units of MOHME. It is remarkable that the MOHME are preparing the basic infrastructure to appropri- ate implementation of performance-based budget- ing. Encoding of cost centers and identifying the revenue and cost behavior are requirements to establishment of performance-based budgeting in the health system. Thus, cost price of services will be calculated and even MOHME can forecast of cost price. Also, elasticity of revenue and cost of services should be examined and analyzed. After the implementing performance-based budgeting, MOHME can expect that tariffs are actually and funding of government insurances is obtained from the public sources. …