Image compression using various techniques is always evolving concept. Modifying various techniques to best fit different needs is what derives innovation in the field. One such modification is combining two lossy algorithms, Discrete Wavelet Transform and Vector-Quantization to process medicinal images. The question is to see how this algorithm performs universally for image compression. The effect of both Discrete Wavelet Transform (DWT) and Vector-Quantization (VQ) are discussed and how they merge into one algorithm is shown. Different preprocessing techniques can be added as per the applications of the algorithm.