The city of Altoona, an enclave of 57,000 people in central Pennsylvania, is a textbook example of America's obsession with expensive medical technology.

In July 1985, officials at Mercy Hospital spent $1.5 million for a magnetic resonance imaging device, a fancy diagnostic tool that provides high-resolution images of the brain, spinal cord, heart and joints. By providing sharper pictures than X-rays, some doctors say MRI helps them make better diagnoses.

Within three years, radiologists at the 183-bed community hospital were doing more MRI scans -- 9,593, at prices ranging from $471 to $914 per procedure -- than any other hospital in the state, records show.

All that activity apparently caught the eye of other radiologists in Altoona. Two years ago, a private group of physicians opened a competing MRI center -- Blair Imaging Associates -- with a larger, more expensive machine.

In theory, having three MRI devices within such proximity might be expected to cut into Mercy Hospital's business. But in 1988, Mercy's doctors performed the equivalent of one scan for every 13.8 residents of Blair County, including Altoona. By comparison, the seven hospitals in Philadelphia County that owned MRIs performed one for each 112 residents.

Altoona's experience is not an isolated example. The costly imaging technology, which uses magnetic fields to make detailed pictures, is cropping up everywhere -- in hospitals, in physician-owned clinics, even on trucks that lug the devices from health facility to health facility.

The growth of MRI illustrates just how enamored American culture is of expensive, high-tech diagnostic and clinical tools, researchers say. According to a 1989 study by Dale Rublee, an American Medical Association researcher, the U.S. has 900 MRIs, compared with 12 in Canada and 57 in West Germany.

"It is unlikely that differences in the disease/demographic profile of the United States compared to Germany and Canada account for much of the variability," Rublee concluded.

Despite increased competition, Mercy Hospital's MRI is continuing to hold its own, according to Bill Polito, the hospital's vice president for planning and marketing. "We're still seeing strong demand," he said.

Nationwide, average fees for the scans vary from about $750 to $1,350, although centers often accept less from insurers. Despite recent signs of a possible industry shake-out, the business continues to grow.

All of which is a concern to government officials and others worried about the spiraling medical costs and the overuse of expensive technologies.

Proliferation of medical technology such as MRI is related to the social values of the nation and the regulatory role government plays, Rublee found. Canada, for example, allows MRIs only in hospitals. In the U.S., government has little, if any, control over the issue.

"I will concede that MRI is not a good example of a successful regulatory effort to limit proliferation of expensive technology. I think everybody is in agreement on that," said John Gontarski, chief of planning for the New Jersey Department of Health.

New Jersey is a good example of how expensive medical technologies proliferate. To date, its Department of Health has approved 23 MRIs under its stringent planning requirements. The majority are based in hospitals. Yet doctor-owned MRIs, which fall outside the state's planning requirements, have sprung up everywhere.

"Apparently, there are about 95 non-approved MRIs around the state. Those are primarily private doctor arrangements, not subject to Certificate of Need requirements," said Diana Stager, director of planning for the New Jersey Hospital Association. "Obviously, I don't think this is what the state had in mind."

Pennsylvania health planners face similar problems. Total figures on physician-owned, outpatient MRI facilities were not available. However, in the five-county Philadelphia area alone, there were more than 35 MRIs operating last year, according to Swapan Sen, vice president of MRI Diagnostics Inc., which owns two MRIs in the region. Most of these devices fall outside of state planning regulations.

"This whole area is crowded," says Sen. "Next to Los Angeles and San Francisco, the Philadelphia area has more (MRIs) than anywhere else."

Earl P. Steinberg, an expert in medical technology at the Johns Hopkins Medical Institutions, said regulators face the dilemma of balancing the need to analyze the effectiveness of new technology against "unduly" restraining the spread of that technology.

In the case of MRI, Steinberg said, the technology proliferated before studies of its effectiveness had been completed. Some researchers say it may not always be worth its cost in terms of providing more information than other diagnostic tools.

MRI was introduced in the early 1980s. In 1985, the American Hospital Association boldly predicted that the new imaging technology would eventually replace up to 30 percent of the CAT -- computerized axial tomography -- scans being done because of its superior clarity and detail. CAT scanners, which use X-ray technology, provide three-dimensional images of the body.

Advocates of MRI say that its images are indeed superior to those produced by CAT scans and other diagnostic technologies; moreover, they say, as MRI use is broadened to include more parts of the body, it will eliminate a growing number of invasive procedures, saving costs.

But even MRI's strongest backers would be hard pressed to show that it has replaced CAT scans as the diagnostic tool of choice -- and certainly not 30 percent of CAT scans. If anything, researchers say, physicians are using both diagnostic tools, in some cases, on the same patient.

Data compiled by the Pennsylvania Department of Health shows that between fiscal 1985 and fiscal 1988, the number of CAT scans grew dramatically in counties where both CAT scanners and MRIs were present. In Philadelphia, for example, 109,192 CAT scan procedures were performed in hospitals in 1985; in 1988, hospitals performed 152,225 CAT scans -- a 39 percent increase. And those are only the ones performed in hospitals.

Mercy Hospital in Altoona actually purchased its MRI first, then added a CAT scanner. "It was pretty much brought on board at physician request," said Polito.

"CAT volume certainly has increased, not decreased, since MRI has come on board," said Steinberg. The Johns Hopkins researcher attributes that to increased demand, new uses and the possibility that CAT is being used in conjunction with MRI.

Ownership of the two technologies is very different. Whereas the vast majority of CAT scanners are in hospitals, about two thirds of all MRIs are outside hospitals in free-standing centers. And often those centers are owned by doctors and entrepreneurs, who thought they could make more money by locating their MRIs outside hospitals.

Sen estimated that fees for a single MRI scan in the Philadelphia region varied from $850 to $1,100. A spokesman for the Hospital of the University of Pennsylvania said charges there ranged from $1,133 to $1,348, depending on whether a contrast agent is used.

According to Sen, few insurers actually pay full charges. "We collect on average only $560," he said. Medicare, the federal health plan for the elderly, pays $538 per scan, and Medicaid, the state health plan for the poor, pays even less, he said.

That's not to say MRI is not profitble. "No question, there still is a margin. It's a pretty volume-dependent technology," Sen said.

Sen estimated that a center can break even by doing seven to eight MRI scans a day. If it does 10 to 15 scans, it will be profitable, he said.

Researchers and health economists differ on ways to slow the spread of expensive medical technologies. Some, such as Steinberg, have suggested that there should be a federal agency to review technologies for their usefulness before they are introduced.

Others say such reviews would be futile unless society is prepared to limit the use of some technologies.

"We can't solve the problem with these (review) techniques," said William B. Schwartz, a Tufts University physician and health economist. "Every new technology yields some benefit . . . with some patients benefiting more than others. The question if you are the reviewer is: Where do you decide to cut it off?"