OBJECTIVES: To determine the effects of implementing essential medicines list on rational use of medicines and medicine cost savings in the public sector of West Bank, Palestine. METHODS: The effect of EML on medicine expenditure was divided into two separate components: the effect of EML on quantities used, and the effect on medicine prices. The quantities of 76 medicine groups were used as the dependent variable with real GDP per capita, EML dummy, hospital dummy, time, and percent of insured population, as independent variables. Another set of regressions were defined with real medicine price per defined daily dose as dependent variable and real GDP per capita, EML, and percent insured as independent variables. A sample of prescriptions was also analyzed to measure the indices of rational medicine use. The indicators of rational use of medicines were assumed to be a function of EML, and 16 health center dummy variables. RESULTS: Expenditures on medicines declined due to negative impact of EML on quantities of medicines utilized per capita as well as on real prices. The quantities declined on average by 1.7 DDDs per capita per year. The medicine price reduced on average by about US $ 0.0013 per defined daily dose. The real cost saved for the years 2000 to 2003 was about US $ 5.9 million. The EML was effective in shifting all prescribing indicators towards the standard values. CONCLUSIONS: The PMOH should allocate more resources for pharmaceutical budget in the future. The EML was successful in containing medicine cost, and careful review and update of EML should further increase the savings. The development and implementation of antibiotic medicine policy is an urgent need. Introduction of treatment protocols for the most common diseases, and continuous education on rational medicine use for medical staff is required.