Ms Ley announced the $86 million cut to the Prostheses List, which sets down how much funds pay for the devices used in hip replacements, pacemakers and the like, as a "down payment" for future reform.

Over the next six years, costs will be wound back by $500 million, with Ms Ley saying she believed the move would immediately flow down to customers of health funds, through lower premium increases next year.

She could not say by how much fees would be reduced, or if premium holders would be guaranteed their health fund had passed on any savings.

"I expect if insurers take $86 million out of the cost that they will have to pay private hospitals for procedures done in those hospitals, that that will immediately transfer to lower premium increases for patients and consumers," she said.

"And I have every, every confidence that that will happen.

"And remember, that this is just the start. This is not a once-only exercise.

"Our new prosthesis listing progress has begun. This is a downpayment, if you like, for future reform. That future reform will continue this process to introduce better transparency in the costing of medical devices."

Earlier this year, Private Healthcare Australia, the private health fund's peak representative body, welcomed the government's move to reform the Prostheses List, but believed $800 million could be saved, if it had been done fully, a figure disputed by the Australian Private Hospital Association as "based on spurious assumptions".

Andrea Kunca , of the Medical Technology Association of Australia, which represents those who make the devices, said she was "disappointed" in the government's decision, and would not necessarily bring the premium increase reductions the government had aimed for.

"We've been, and remain, fully supportive of the government's efforts to achieve lasting and meaningful-fact based reform of medical device benefits," she said.

"But 70 per cent of our members with products on the [Prostheses List] are Australian small-to-medium size companies and a cut of this size will mean job losses, reduced R&D and loss of manufacturing to overseas.

"It will also mean an increase to patient out-of-pocket costs and cost shifting to other parts of the private health sector, neither of which will benefit privately insured patients.

With her department facing its annual Senate estimates hearing, Ms Ley also announced the government was pushing ahead with its plans to overhaul the health and aged care payments system, which has been in place since the late 1980s.

But, still smarting over the "Mediscare" campaign, which derailed the Coalition election's message, Ms Ley was at pains to stress no aspect of the new system will be outsourced, with the government "continuing to own, operate and deliver" Medicare, PBS, aged care and related veterans' payments.

Consultation will continue until January, with a decision to follow soon after.

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