RESUMEN
BACKGROUND: Traditional medicine has been widely used to address relatively common illnesses. In this regard, Chinese government has been continually topping up its investments on public Traditional Chinese Medicine hospitals (PTHs) in recent years. This study aimed to assess the optimal scales and structure of the investments in Henan province by analyzing the contribution of Government Financial Investment (GFI) to the efficiency and revenue growth of PTHs as well as recommending proper investment strategies for implementation to policy-makers. METHODS: This study was a panel data study, conducted in Henan Province, China. By collecting 143 PTHs' operational data from the year 2005 to 2017, Barro Economic Growth (BEG) model, Stochastic Frontier Analysis (SFA) and Vector Autoregressive (VAR) model were used to assess the efficiency and PTHs revenue. RESULTS: The study observed the positive contribution of GFI to PTHs' revenue growth (average MPG = 2.84), indicating that the GFI had not reached the required optimal level of "Barro Law". In order to maximize the input-output efficiency, the scales of GFI on Grade III, Grade II A, Grade II B PTHs need to be increased by - 5.96, 4.88 and 11.51%, respectively. The third year following the first investment may be a more essential period for conducting an effective GFI evaluation in Henan Province. CONCLUSIONS: GFI on PTHs usually has a long-term impact on PTHs. Governments can adjust its GFI policy so as to maximize the input-output efficiency.