Objective: The paper evaluates the effect of DRG payment method reform on the medical expenses of inpatients in traditional Chinese medicine (TCM) hospitals and the utilization of TCM services. Methods: A pre-post study design was conducted and the data of 508 discharged patients was collected from the first page of medical records in Z Hospital in N City 12 months before and after the reform. Propensity score matching method was used to analyzed the effect of DRG reform on hospitalization cost and TCM service utilization. Results: After the implementation of DRG reform, the total inpatient cost of the three diseases decreased, the cost of western medicine and consumables showed a downward trend, the cost of TCM increased significantly, and the utilization rate of TCM equipment increased by 23.38%. Multivariate regression showed that the average hospitalization cost decreased by 35% after the implementation of DRG reform, and the DRG reform policy and length of stay are important factors affecting the average hospitalization cost. Conclusion: DRG reform decreased inpatient costs and increased the use of TCM services. Clinical pathways for TCM treatment should be strengthened to promote rational use of TCM services.