The probe will be led by health economist and former senior public servant Pradeep Philip.Â
Dr Philip will examine fraud, inappropriate billing and over-servicing within Medicare and put an estimated dollar figure on the non-compliance.
A national audit in 2020 estimated the non-compliance to cost between $366 million and $2.2 billion a year.
Dr Philip will provide interim findings by the end of January and submit a final report the following month.
Health Minister Mark Butler said Australians were rightly proud of Medicare and knew the overwhelming majority of doctors and health professionals were honest and hard working.
"But they also understand that, after nine years of cuts and neglect, every dollar in Medicare is precious and must be spent directly on patient care," he said.
Dr Margaret Faux, who has a PhD in Medicare, estimates the leakage to be worth $8 billion a year.
Mr Butler said his department had provided a report on existing compliance measures and a rundown on various estimates of the scale of the problem.
He said the report found no evidence of the $8 billion in Medicare fraud and inappropriate billing estimated by Dr Faux.
"I've asked Dr Philip to measure and report on the true extent of non-compliance in Medicare and identify fixes to protect the integrity of the system for all who use it," the minister said.
"All governments must apply strict compliance standards to any publicly funded system - including Medicare - to ensure that the small minority that do the wrong thing are picked up quickly and dealt with."
The federal government spends $32 billion on Medicare each year.
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