Background: This paper aims to investigate the development trend of traditional Chinese medicine (TCM) hospitals in China and explore their medical service innovations, with special reference to the changing co-existence with western medicine (WM) at TCM hospitals. Methods: Quantitative data at macro level was collected from official databases of China Health Statistical Yearbook and Extracts of Traditional Chinese Medicine Statistics. Qualitative data at micro level was gathered through interviews and second-hand material collection at two of the top-level TCM hospitals. Results: In both outpatient and inpatient sectors of TCM hospitals, drug fees accounted for the biggest part of hospital revenue. Application of WM medical exanimation increased in both outpatient and inpatient services. Even though the demand for WM drugs was much higher in inpatient care, TCM drugs was the winner in the outpatient. Also qualitative evidence showed that TCM dominated the outpatient hospital service with WM incorporated in the assisting role. However, it was in the inpatient medical care that WM prevailed over TCM which was mostly applied to the rehabilitation of patients. Conclusion: By drawing on WM while keeping it active in supporting and strengthening the TCM operation in the TCM hospital, the current system accommodates the overriding objective which is for TCM to evolve into a fully informed and more viable medical field.