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Objectives: To determine whether exempting people (with high health needs and living in areas of high deprivation) from a $5 prescription charge reduces hospital use. Design: Two-group parallel prospective randomised controlled trial. Setting: People living in the community in various regions of New Zealand. Participants: One thousand sixty one people who lived in areas of high socioeconomic deprivation, and either took medicines for diabetes, took antipsychotic medicines, or had chronic obstructive pulmonary disease (COPD). Of the 1053 who completed the study, just under half (49%) were Māori. Interventions: Participants were individually randomized (1–1 ratio) to either be exempted from the standard $5 charge per prescription item for one year (2020-2021) (n = 591) or usual care (n = 469). Those in the intervention group did not pay the standard NZ$5 charge, and pharmacies billed the study for these. Participants continued to pay any other costs for prescription medicines. Those in the control group continued to pay all prescription charges for the year although they may have received one-off assistance from other agencies. Main outcome measures: The primary outcome was length of stay (hospital bed-days). Secondary outcomes presented in this paper included: all-cause hospitalisations, hospitalisations for diabetes/mental health problems/COPD, deaths, and emergency department visits. Results: The trial was under-powered because the recruitment target was not met. There was no statistically significant reduction in the primary outcome, hospital bed-days (IRR = 0.68, CI: 0.54 to 1.05). Participants in the intervention group were significantly less likely to be hospitalised during the study year than those in the control group (OR = 0.70, CI: 0.54 to 0.90). There were statistically significant reductions in the number of hospital admissions for mental health problems (IRR = 0.39, CI: 0.17 to 0.92), the number of admissions for COPD (IRR = 0.37, CI: 0.16 to 0.85), and length of stay for COPD (IRR 0.20, CI: 0.07 to 0.60). Apart from all-cause mortality and diabetes length of stay, all measures were better for the intervention group than the control group. Conclusions: Eliminating a small co-payment appears to have had a substantial effect on patients' risk of being hospitalised. Given the small amount of revenue gathered from the charges, and the comparative large costs of hospitalisations, the results suggest that these charges are likely to increase the overall cost of healthcare, as well as exacerbate ethnic inequalities. Trial registration: Australian New Zealand Clinical Trials Registry (ANZCTR): ACTRN12618001486213 registered on 04/09/2018. [ABSTRACT FROM AUTHOR]