The Turnbull government has been urged to make more spending cuts to pathology in a report accusing the industry of using patients as pawns for profits.

Claims women could be forced to fork out $30 for pap smears have been slammed by a scathing report which accuses the pathology industry of using patients as pawns to keep shareholders happy.

The Grattan Institute report handed to Health Minister Sussan Ley last week says proposed funding cuts to pathology services outlined in the government's mid-year budget update do not go far enough.

Report author Stephen Duckett, the institute's health program director and a former federal health department boss, has called for a major shake-up of the industry to protect patients from co-payments and stop government paying too much for pathology.

The government wants to scrap bulk-billing incentive payments for pathology services (worth between $1.40 and $3.40) which, along with changes to bulk-billing incentives for diagnostic imaging, would save $650 million over four years.

Pathologists say it's unlikely they'll be able to absorb the cuts, forcing patients to pay for tests, and Labor has vowed to do whatever it can to block the changes in the Senate.
But the health minister says the Grattan report confirms there are no justifiable grounds for a co-payment.

"It is further proof this is nothing but a tacky scare campaign by stock exchange-listed pathology companies aimed at protecting their profits by unfairly playing on the fears of some of our most anxious and vulnerable patients," Ms Ley said in a statement.

Dr Duckett says the government pays too much for pathology - $2.5 billion in 2014/15 - and has outlined a plan to save around $340 million each year "from narrowing the margins of profitable corporations, not from cutting services to the ill and vulnerable".

Access to Medicare rebates should be limited to providers that bulk-bill out-of-hospital pathology services, abolishing the need for any bulk-billing incentive payment and removing the risk of patients being slugged.

"What was wrong with MYEFO is it allowed the companies to use the consumers as bargaining chips," he told AAP.

Two publicly-listed companies, Sonic Healthcare and Primary Healthcare, control 78 per cent of the market.

And while the number of tests being conducted in Australia increases, the rebate paid for those tests remains fixed.

Greater volumes are amounting to greater profits for the companies, but taxpayers are failing to reap any of those benefits, Dr Duckett says.

He's proposing a five per cent volume discount for large providers.

"We pay as if testing was still done by thousands of small providers manually processing tests, and not by two industry giants with automated services.

"Medicare is not meant to provide guaranteed revenue for corporations. But pathology companies don't seem to agree."

He's also calling for a tender process where companies would compete for contracts to provide pathology services.

Pathology Australia chief executive Liesel Wett said Dr Duckett's conclusions were incorrect, insisting removal of the incentive payment will force providers to charge patients for critical tests.