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This paper aims at applying H.264 in medical video compression applications and improving the H.264 rate control algorithm with better perceptual quality. First, H.264 is briefly reviewed and introduced to the area of medical video compression. Second, a new motion complexity (MC) measure is defined to express the complexity of motion contents in a video frame, and a new H.264 rate control scheme with the MC measure and perceptual bit allocation is proposed for medical video compression. Third, two sets of experiments are conducted: the comparison between MPEG-4 and H.264, and the comparison between JVT-H014 , which is the H.264 adopted rate control algorithm, and our proposed rate control scheme. The first set of experiments shows that compared with MPEG-4, H.264 can achieve a significant average peak signal-to-noise ratio (PSNR) gain of up to 4.35 dB for the test medical video sequences, and thus is much more effective when applied in medical video compression. The second set of experiments shows that compared with H014, the proposed rate control scheme can achieve better perceptual video quality, with an average PSNR gain of up to 0.19 dB for the test medical video sequences.