Health funds would pay incentive payments to doctors who kept patients out of hospital under a plan insurers say could save the health system billions of dollars.
Private Healthcare Australia, which represents funds, will present its blueprint for reform to Health Minister Peter Dutton within weeks as the Abbott Government grapples with reining in spending.
The industry lobby group has already put to the Government's Commission of Audit a proposal to cut the price of prostheses.
It argues Australian funds - and indirectly the Government, which covers 30 per cent of the cost through the insurance rebate - are being charged by private hospitals up to five times more for the same brand and type of prostheses compared with other countries.
One brand of pacemaker costs $5884 in Belgium but $11,780 here. Two different parts for hip replacements can cost $1361 and $287 in Belgium, yet Australian health funds are charged $4700 and $1160 respectively.
PHA believes aligning the prices to international benchmarks would save the Government $266 million this year, rising to $422 million a year by 2020.
But there could be bigger savings in expanding the role of GPs and reducing the need for costly hospital treatment.
Health funds are banned from paying for doctors to treat patients outside of hospitals but Mr Dutton has shown an interest in letting funds expand their role.
Under PHA's plan, health funds would pay doctors and medical practices to improve the health of their members, such as ensuring they were engaged in getting advice on diet and exercise.
Doctors might also get payments for ensuring they treat patients in accordance with clinical guidelines, amid suggestions they are not often followed.
PHA chief executive Michael Armitage said often the first-time insurers knew a member had a serious condition was when they were presented with a big private hospital bill.
"We've had a body of work done looking unashamedly at producing higher quality health care and lower costs," he said.