Abstract: In order to promote the reform of the payment methods of traditional Chinese medicine (TCM) medical insurance, we explore the payment methods and management mechanisms in line with the field of TCM. Based on the diagnosis related groups (DRG) payment and the current payment by project in medical insurance payment implemented by the National Healthcare Security Administration, this paper analyzes the selection of diagnosis and treatment behavior strategies and the influencing factors of traditional Chinese medicine hospitals under the two payment methods with the help of game theory. It is found that under the payment by project, TCM hospitals choose the behavioral strategy of excessive diagnosis and treatment to make more profits; under DRG payment, TCM hospitals change the behavior of transforming from excessive diagnosis and treatment to the behavior of reducing diagnosis and treatment, and finally choose the behavioral strategy of reducing diagnosis and treatment to obtain greater profits. The research shows that, compared with the current payment methods, DRG payment can correct the excessive diagnosis and treatment behavior of TCM medical institutions and curb the waste of medical resources; however, it is still necessary to fully explore the appropriate technology and dominant diseases of TCM, give play to the unique advantages of TCM, and realize the complementary advantages between Chinese and Western medicine.