The Turnbull government has committed to setting up a Murray Darling medical school network to train and retain more doctors in the bush.
Deputy Prime Minister Michael McCormack has been lobbying for a regional medical school, arguing it would be a way to lure students to the bush and keep them there.
The Australian Medical Association (AMA) had been against the proposal for a school and said the network was a better approach.
Some $95.4 million has been set aside in the budget to create the Murray Darling Medical Schools Network comprising the University of NSW in Wagga Wagga; the University of Sydney in Dubbo; CSU/Western Sydney University in Orange; Monash University in Bendigo and Melbourne University/La Trobe in Bendigo, Wodonga and Shepparton.
But there'll be no new Commonwealth supported places for medical students.
"This is a fundamental change in the teaching and supply of rural and regional doctors and will transform rural training schools," Health Minister Greg Hunt said in a statement on Tuesday.
"(It will enable) students to undertake most of their education and training in rural areas to provide a continuum for doctors to learn, train and work in the regions."
AMA president Michael Gannon said the commitment not to increase Commonwealth-supported medical school places was welcome but the government had taken the unnecessary step of compensating medical schools with additional overseas full-fee paying places.
"This will not address community need, and instead simply waste precious resources," he said.
Charles Sturt University and Western Sydney University welcomed the network announcement.
"This is a critical investment in the future of Australia's medical workforce," CSU Vice-Chancellor Professor Andrew Vann said.
"This is an important step in addressing the shortage of doctors in our rural and regional communities."
The budget also includes extra incentives for GPs to practice in rural areas and a new junior doctor training program.
There's also $84 million for the Royal Flying Doctor Service, to help provide more dental care and mental health services.
Australian Associated Press