Over the past several years, the PSRO hospital review system has evolved to such an extent as to merit re-examination of its objectives, accomplishments and potential, as well as the obstacles to success that still remain. The combination of review experience, political and funding pressures has reshaped the hospital review system. There is still controversy concerning the relative emphasis of the program on quality or costs, but there is no longer any question about the priority goal of the program for the remainder of this decade—to reduce the excessive use of hospital care and services that exists throughout the country. There is widespread and growing evidence of significant variation in hospital practice patterns from region to region and hospital to hospital. Elimination of much of the variation would benefit the quality of patient care and help to contain costs. Improvements in PSRO hospital review, particularly profile analysis and medical care evaluation studies, make possible the exposure of apparent local problems in hospital quality and utilization and the precise definitions of their causes. Many PSROs have made substantial progress in the application and refinement of these techniques. The current state of the art is described in detail. Still to be determined over the next several years is the extent to which PSROs will be able to succeed in correcting these problems and whether the support and cooperation PSROs need form sister agencies and the political process will be adequate.