The cancellation of drug price markup and the elimination of "relying on drugs to support medicine" are key parts of the reform of public hospitals in China. Analyzing the implementation effect of the zero markup policy on drugs in urban public hospitals provides a unique perspective for studying physician's induced demand. Based on the data of medical insurance reimbursement in five cities from 2013 to 2017, this paper uses the multi-time difference-in-difference model to study the impact of the drug zero markup policy on outpatient medical expenditure in district and county public hospitals, and to study the effect differences in medical insurance types and hospital levels. The results indicate that: After the implementation of this policy, outpatient drug costs, non-drug costs, and total costs are all significantly increased; Although the cost of Western medicine has decreased, the significant increase in the cost of traditional Chinese patent medicines has brought about an increase in drug costs; The significant increase in non-drug costs is caused by the increase in diagnostic and treatment service costs; The increase in total outpatient costs is more prominent for urban employee medical insurance, female, non-elderly, and tertiary hospital patients.