Due to the bandwidth and storage limitations, medical images must be compressed before transmission and storage. However, the compression will reduce the image fidelity, especially when the images are compressed at lower bit rates. The reconstructed images suffer from blocking artifacts and the image quality will be severely degraded under the circumstance of high compression ratios. In this paper, we present a strategy to increase the compression ratio with simple computational burden and excellent decoded quality. Higher compression ratio is achieved by applying different compression thresholds for the wavelet coefficients of each DWT band (LL and HH) while DCT transform is applied on (HL and LH) bands with preserving the quality of reconstructed medical image. The retained coefficients are quantized by using adaptive quantization according to the type of transformation. Finally the entropy coding (variable shift coding) is used to encode the quantization indices. The Discrete Wavelet Transform (DWT) analyzes the signal at different frequency bands with different resolutions by decomposing the signal into an approximation and detail information. Image coded by DWT do not have the problem of blocking artifacts which the DCT approach may suffer.