Lasers have a whole host of applications in medicine. Usually a wavelength is chosen based upon the absorption and scattering properties of the target (hemoglobin (SP?) in the blood absorbs red the most, as might have been guessed!), and the power is chosen based on what process you want to achieve. For example, the process called photoablation is the rapid and localised vaporization of tissue, whereas other processes might be far more general and slower acting. Also some of the properties of the beam itself come into it, such as the coherence having a say in how small a spot size once focused will be etc.
Personally, I find the photochemical reactions used in treating tumors really interesting, where a light sensitive chemical is absorbed by the tumor, and light of a certain wavelength is aimed at it. the combination of chemical and energy from the light produces pure oxygen which is highly toxic and kills the tumor. Incredible stuff!
Lasers can indeed be used in Lithotripsy, where high energy pulses rapidly heat a small area causing thermal expansion, which in turn causes a shock wave to travel through the stone, breaking it up into small pieces.
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