Chief Medical Officer and incoming Department of Health boss Brendan Murphy says Australia has a surplus of doctors, despite shortages of general practitioners in regional areas.
"We believe that we probably have too many doctors in Australia at the moment but they're in the wrong spot," Professor Murphy told Senate estimates on Wednesday.
The federal government last year introduced a new distribution priority area policy to address shortfalls of doctors in the bush.
It replaced the districts of workforce shortage assessment areas for GPs and bonded doctors, which used a GP-to-population ratio to determine areas of need.
Overseas doctors could get a Medicare provider number if they worked in these areas.
The new system now factors in the gender, age and socioeconomic status of patients living in GP catchments.
It also automatically deems the Northern Territory and very remote regions as priority areas, while automatically excluding inner-metropolitan areas.
Acting first assistant secretary of the health workforce division Fay Holden said 230 locations lost access to the scheme as a result of the changes, while 106 areas were added.
But the change meant there were GP practices that had lost doctors and were unable to replace them, the inquiry heard.
Clinics in Gladstone, Ipswich, Tumut, Morwell, Traralgan, Churchill, Port Augusta and Mandurah had complained to the department about the new system, Ms Holden said.
But Professor Murphy said the previous model had shortcomings as well.
"What we were seeing in the previous model is the previous statistical aberrations would lead to some overseas trained doctors being able to come and work in metropolitan areas in sometimes areas that were well overdoctored," Professor Murphy said.
"Some people had developed business models dependent on overseas doctors. Our view is that overseas trained doctors should be only permitted to come to areas that are that have a material and demonstrated deficiency of GP services.
"Whilst we're still trying to get Australian doctors to go into those areas, we don't see the reason to allow overseas trained doctors to go to areas that have what we believe is an adequacy of the provision of GP services."
