Hospitals are the most costly and important components of any health care system, so it is important to know their economic values, pay attention to their efficiency and consider factors affecting them. Objective: The aim of this study was to assess the technical scale and economic efficiency of hospitals in the West Azerbaijan province of Iran, for which Data Envelopment Analysis (DEA) was used to propose a model for operational budgeting. Materials and Methods: This study was a descriptive-analysis that was conducted in 2009 and had three inputs and two outputs. Deap2, 1 software was used for data analysis. Slack and radial movements and surplus of inputs were calculated for selected hospitals. Finally, a model was proposed for performance-based budgeting of hospitals and health sectors using the DEA technique. Results: The average scores of technical efficiency, pure technical efficiency (managerial efficiency) and scale efficiency of hospitals were 0.584, 0.782 and 0.771, respectively. In other words the capacity of efficiency promotion in hospitals without any increase in costs and with the same amount of inputs was about 41.5%. Only four hospitals among all hospitals had the maximum level of technical efficiency. Moreover, surplus production factors were evident in these hospitals. Conclusions: Reduction of surplus production factors through comprehensive planning based on the results of the Data Envelopment Analysis can play a major role in cost reduction of hospitals and health sectors. In hospitals with a technical efficiency score of less than one, the original and projected values of inputs were different; resulting in a surplus. Hence, these hospitals should reduce their values of inputs to achieve maximum efficiency and optimal performance. The results of this method was applied to hospitals a benchmark for making decisions about resource allocation; linking budgets to performance results; and controlling and improving hospitals performance.
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