This study evaluated the effect of global budgeting on health service utilization, health care expenditures, and the quality of care among patients with pneumonia in Taiwan. The National Health Insurance Research Database (NHIRD) was used for analysis. Data on patients diagnosed with pneumonia during 2000-2001 (the prebudget group) were used as the baseline data, and data on patients diagnosed with pneumonia during 2004-2005 (the postbudget group) were used as the postintervention data. The length of stay (LOS), diagnostic costs, drug costs, therapy costs, total costs, risk of readmission within 14 days, and risk of revisiting the Emergency Department (ED) within 3 days of discharge before and after implementing the global budget system were analyzed and compared. Data on 32,535 patients with pneumonia were analyzed. The mean LOS increased from 6.36 ± 0.07 to 10.78 ± 0.09 days after implementing the global budget system. The mean total costs in the prebudget and postbudget groups were 22,697.82 ± 542.40 and 62,016.7 ± 793.19 New Taiwan dollars (NT$), respectively. The mean rate of revisiting the ED within 3 days decreased from 5.5 ± 0.2 % to 4.6 ± 0.1 % in the prebudget and postbudget groups, respectively. The mean rates of readmission within 14 days before were 6.1 ± 0.2 % and 8.2 ± 0.2 % in the prebudget and postbudget groups, respectively. Global budgeting is associated with a significantly longer LOS, higher health care costs, and poorer quality of care among patients with pneumonia.