BackgroundIn 2018, an innovative case-based payment scheme called Diagnosis-Intervention Packet (DIP) was piloted in a large developed city in southern China. This study aimed to investigate the impact of the new payment method on total medical expenditure per case, length of stay (LOS), and in-hospital mortality rate across different hospitals.MethodsWe used the de-identified patient-level discharge data of hospitalized patients from 2016 to 2019 in our study city. The interrupted time series model was used to examine the impact of the DIP payment reform on inflation-adjusted total expenditure per case, LOS, and in-hospital mortality rate across different hospitals, which were stratified into different hospital ownerships (public and private) and hospital levels (tertiary, secondary, and primary).ResultsWe included 2.08 million and 2.98 million discharge cases of insured patients before and after the DIP payment reform, respectively. The DIP payment reform resulted in a significant increase of the monthly trend of adjusted total expenditure per case in public (1.1%,P= 0.000), tertiary (0.6%,P= 0.000), secondary (0.4%,P= 0.047) and primary hospitals (0.9%,P= 0.039). The monthly trend of LOS increased significantly in public (0.022 days,P= 0.041) and primary (0.235 days,P= 0.032) hospitals. The monthly trend of in-hospital mortality rate decreased significantly in private (0.083 percentage points,P= 0.002) and secondary (0.037 percentage points,P= 0.002) hospitals.ConclusionsWe conclude that implementing the DIP payment reform yields inconsistent consequences across different hospitals. DIP reform encouraged public hospitals and high-level hospitals to treat patients with higher illness severities and requiring high treatment intensity, resulting in a significant increase in total expenditure per case. The inconsistencies between public and private hospitals may be attributed to their different baseline levels prior to the reform and their different responses to the incentives created by the reform.Supplementary InformationThe online version contains supplementary material available at 10.1186/s12913-023-09553-x.