An optimized medical image compression algorithm based on wavelet transform and improved vector quantization is introduced. The goal of the proposed method is to maintain the diagnostic-related information of the medical image at a high compression ratio. Wavelet transformation was first applied to the image. For the lowest-frequency subband of wavelet coefficients, a lossless compression method was exploited; for each of the high-frequency subbands, an optimized vector quantization with variable block size was implemented. In the novel vector quantization method, local fractal dimension (LFD) was used to analyze the local complexity of each wavelet coefficients, subband. Then an optimal quadtree method was employed to partition each wavelet coefficients, subband into several sizes of subblocks. After that, a modified K-means approach which is based on energy function was used in the codebook training phase. At last, vector quantization coding was implemented in different types of sub-blocks. In order to verify the effectiveness of the proposed algorithm, JPEG, JPEG2000, and fractal coding approach were chosen as contrast algorithms. Experimental results show that the proposed method can improve the compression performance and can achieve a balance between the compression ratio and the image visual quality. 1. Introduction With the rapid development of modern medical industry, medical images play an important role in accurate diagnosis by physicians. However, the large amount of images put forward a high demand on the capacity of the storage devices. Besides, telemedicine is a development trend of medical industry, while narrow transmission bandwidth limits the development of this project. To solve the problems mentioned above, a large number of researches have been carried out into medical image compression. Medical image compression approaches can simply be divided into two kinds: lossless compression and lossy compression. Lossless compression can reconstruct the original image completely identical. Lossy compression takes advantage of the human weak psychovisual effects to optimize compression results but loses certain image information . Lossless coding method like them Huffman coding , LZW , arithmetic coding , and some other improved methods  can code an image and decode it with perfect result. However, such methods can only obtain a low compression ratio around 1 to 4; a higher compression ratio is hard to obtain. Although physicians and scientists prefer to work with uncorrupted data, the modest compression offered by lossless
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