Background: Efficiency evaluation is an integral part of new medical reform and is necessary to solve the problem of limited and unbalanced medical resources. This study evaluated the efficiency of municipal-level Traditional Chinese Medicine hospitals by Data Envelopment Analysis application after a hierarchical medical treatment policy was implemented. We propose solutions to the problems existing in hospital operations and promote the utilization efficiency of medical resources in those hospitals. Methods: The sample included all municipal-level TCM hospitals in Gansu province from 2017 to 2019. The DEA-BCC model was employed to evaluate the relative efficiency of hospital operations, and the Manny-Whitney test was used to compare the input and output variables of technical efficiency efficient and inefficient hospitals. Results: From 2017 to 2019, the growth in the number of staff in secondary hospitals (25.88%) was lower than that in tertiary hospitals (31.98%). However, the increase in the number of beds (16.52%) in secondary hospitals was higher than that in tertiary hospitals (−0.30%). 5 (38.46%) achieved DEA efficient in secondary hospitals and 2 (40.00%) in tertiary hospitals. The means of technical efficiency, pure technical efficiency, and scale efficiency in secondary hospitals were 0.812, 0.887, and 0.908, respectively. The means in tertiary hospitals were 0.868, 0.926, and 0.935, respectively. The hospital areas were statistically different between the TE efficient and inefficient hospitals ( P<0.05) in secondary hospitals. However, the number of outpatients between the two groups was statistically different ( P<0.05) in tertiary hospitals. Conclusion: In this study, the medical and health services of municipal TCM hospitals in Gansu Province have made great progress. Due to the backward economy of Gansu Province, the classification of diagnosis and treatment of diseases was still based on Western medicine, resulting in the slow medical development of some municipal TCM hospitals. TCM hospitals should improve management efficiency, optimize hospital operation scale, improve the utilization efficiency of medical resources and promote efficient hospital development.