This paper presents a new approach for compression of medical images with MFHWT (Modified Fast Haar Wavelet Transform) and SPIHT (Set Partitioning In Hierarchical Trees). It provide high compression ratio with high picture quality. The Modified Fast Haar Wavelet Transform is used to decompose the image at different frequency levels. It has high multi-resolution characteristics. The CR (compression ratio) of proposed method is better than existing method (SPIHT). Medical images have a number of regions where intensity is changing slowly or even have a constant value. Such regions are compressed with higher compression ratio. In medical applications image distortion is not acceptable. So the quality of the images is also improved in proposed method in terms of PSNR (Peak Signal to Noise Ratio).