Background: Districts hospitals in India play a pivotal role in delivering health care services in the public sector and are empanelled under India's national health insurance scheme i.e. Ayushman Bharat Pradhan Mantri Jan Aarogya Yojana (PMJAY). In this paper, we evaluate the extent to which the PMJAY impacts the district hospitals from a financing perspective. Methods: We used cost data from India's nationally representative costing study—‘Costing of Health Services in India’ (CHSI) to determine the incremental cost of treating PMJAY patients, after adjusting for resources that are paid through supply-side government financing route. Second, we used data on number and claim value paid to public district and sub-district hospitals during 2019, to determine the additional revenue generated through PMJAY. The annual net financial gain per district hospital was estimated as the difference between payments under PMJAY, and the incremental cost of delivering the services. Findings: At current levels of utilisation, the district hospitals in India gain a net annual financial benefit of $ 26.1 (₹ 1839.3) million, which can potentially increase up to $ 41.8 (₹ 2942.9) million with an increase in the share of patient volume. For an average district hospital, we estimate net annual financial gain of $ 169,607 (₹ 11.9 million), increasing up to $ 271,372 (₹ 19.1 million) per hospital with increased utilisation. Interpretation: Demand-side financing mechanisms can be used to strengthen the public sector. Increasing utilisation of district hospitals, by either gatekeeping or improving availability of services will enhance financial gains for district hospitals and strengthen public sector. Funding: Department of Health Research, Ministry of Health & Family Welfare, Government of India.