Policy decisions taken by the US Congress in the 1980s to restrain health care costs included the designation of diagnostic-related groups, the creation of scales of relative value and legislation to introduce free-for-service payment to physicians in 1992; discrepancies in the system are to be corrected by 1996. Under federal contract a system of resource-based relative-value scales was created for all medical disciplines except radiology, which by special legislation prepared its own experience-based relative-value scale. The scales are based on magnitude estimation of the work of physicians and analyses of actual costs. Codes for medical services have been published, which include a weighting for each service in relation to all others. Multiplication by a conversion factor establishes the fee to be paid by the carriers acting for the Health Care Financing Administration. The relative values will be updated every 5 years. Publication of this information for US Medicare patients (the disabled, the elderly and those with end-stage renal disease) will likely have a profound effect on the physician payment system in Canada. Under the reformed system the lifetime earnings of all physicians will become more similar. Four problem areas are discussed in the paper: self-referral, administrative complexity, malpractice and the plight of those without medical coverage. Resolution of these problems is being actively sought.