(FORTUNE Magazine) – TECHNOLOGY, often cited as a cause of runaway health costs, may yet help slow the rate at which hospital bills are rising. An innovation called PACS, for picture archival communications system, promises to cut X-ray storage and retrieval costs and to speed up diagnoses by letting specialists scattered around a big hospital complex look simultaneously at an X-ray or a CT scan on special video consoles. The system can also display a patient's medical history. Treating an accident victim, for example, the doctor in charge could call on a bone specialist, a neurologist, and a surgeon to confirm a diagnosis. A dozen or so companies, including AT&T and General Electric in the U.S., Philips in the Netherlands, and Siemens in Germany, are working to develop PACS. AT&T's CommView, to be announced in July, typically consists of about five computer work stations connected to a central image-processing system that stores and retrieves images from X-rays and scanning machines that are digitized -- reduced to bits of information that can be handled by a computer. A radiologist can move the image around, heighten contrast to make the image more vivid, or zoom in on a section for close-up study. At least one competitor thinks AT&T has a good chance to lead the pack. Besides its long experience with moving information through a vast network, AT&T has other advantages. Its Bell Labs helped refine the technology of fiber optics, which can carry a thousand times more messages than much thicker copper cable. Components for CommView's display and storage systems can easily be updated or replaced as new technology emerges. And AT&T has studied the market: the medical ventures group, directed by Harry L. Bosco, 39, has solicited advice from scores of radiologists, engineers, and hospital administrators, and adopted many of their suggestions -- including one to raise the consoles so radiologists can read images standing up, if they wish. AT&T has signed up two teaching hospitals, Middlesex General-University in New Brunswick, New Jersey, and the Duke University Medical Center in Durham, North Carolina, to work with it on CommView. Middlesex expects to have a dozen work stations on line by fall. Says Senior Vice President Thomas G. Fox: ''We envision a day when physicians outside the hospital will be wired into such a system.'' Bosco of AT&T sees as potential customers some 5,000 medical facilities, including hospitals that have at least 300 beds and large private clinics. He thinks savings from eliminating film storage and simplifying image retrieval could help justify the system's price, about $1 million. AT&T estimates that CommView could halve the costs associated with film, which account for some 30% of radiology expenses. Robert G. Winfree, assistant vice president at Duke, says the system should reduce the need to add clerical employees, even if hospitals admit more patients. Hospitals won't be throwing out their X-rays in a hurry, however. No digitizer can yet reproduce economically the fine-grain resolution of X-ray film, though AT&T is working on the problem. But X-rays are only one window into the body; doctors increasingly rely on CT scanners and nuclear magnetic resonance machines, which store signals digitally and therefore could produce clear images on PACS.