Purpose: Patient cost-sharing usually reduces overall health resource utilization. However, under the Canadian medicare system, where all health services except prescription drugs are free, the converse may be true. To test this hypothesis, we investigate the impact of changing cost sharing policies for prescription drugs on overall health resource use among seniors with rheumatoid arthritis (RA) in British Columbia (BC), Canada. Methods: Medication, physician and hospital visit data between 2001/01/01 and 2002/12/31 for seniors (Plan A) and patients on social assistance (Plan C) were selected from a population-based RA cohort. Under the BC drug insurance program, prior to 2002, seniors (treatment group) paid 100% of their dispensing fee costs to an annual maximum of $200 after which drugs became free of charge. Starting in 2002, they paid a maximum of $25 per prescription to an annual maximum of $275. On the other hand, Plan C patients, who received full funding from the BC drug insurance program, were exempted from the increase, therefore being treated as a control group in this study. We employed Difference-in-Difference (DID) estimation method to evaluate the true effect of policy change on the number of prescriptions filled, the number of physician visits, the frequency of hospitalizations, and the number of hospitalizations among those being admitted at least once, after controlling for time trend effect and group specific effect. Results: A total of 6557 Plan A and 1616 Plan C patients were included in the study. Our DID estimates showed that compared to the control group, the number of prescriptions filled for the treatment group decreased by 25% (P < 0.001); the number of physician visits increased by 29% (P < 0.001). In addition, among those who were admitted to the hospital at least once, the number of hospitalization was doubled (P < 0.001). Conclusions: In a predominantly publicly funded health care system, the introduction of market driven cost containment concepts such a patient cost-sharing might have the unintended impact of increasing overall utilization.