Summaryobjective To investigate the availability and cost of essential medicines in health centres in rural Ethiopia, and to explore if the fee waiver system protects patients from having to pay for medicines.methods The study took place in five health centres in rural Ethiopia. Availability and price of selected key essential medicines was established in the budget and special pharmacy of the health centre, as well as private outlets. Information on availability and cost of prescribed drugs was obtained through patient exit-interviews.results Availability based of essential drugs at facility level was 91% based on a list of selected drugs vs. 84% based on prescriptions filled. However, less than half the prescribed drugs were obtained from the budget pharmacy, and one in six patients was forced to purchase drugs in the private sector, where drugs are roughly twice as expensive. The waiver system did not safeguard against having to pay for medicines.conclusion A revolving drug fund system in Ethiopia seems to improve availability of medicines, and can improve affordability by protecting people from purchasing drugs in the private sector. However, it may result in a parallel system, whereby the poor cannot access drugs if these are not available in the budget pharmacy. Equity is a concern in the absence of an adequate mechanism to protect the poor from catastrophic health expenditure.keywords revolving drug fund, fee-waiver system, essential medicines, health care reform