The creation of local networks is a key component of former prime minister Kevin Rudd's overhaul of the national health system.
The state government on Thursday released details of plans to break up eight NSW area health services into 17 local hospital networks.
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The government wants to create eight networks in the greater Sydney metropolitan area - which includes the Central Coast, the Illawarra and Blue Mountains - and seven regional networks.
Two statewide specialist networks for Children's Health and Forensic Mental Health have also been proposed.
The new networks would be administered by a chief executive and a governing council of between nine and 13 members, which will include local clinicians and people with business and finance backgrounds.
NSW Health Minister Carmel Tebbutt defended the area health services, frequently maligned for being too bureaucratic.
Ms Tebbutt said the new networks would create better local involvement and better patient care.
"There is no doubt that the amalgamation of our area health services back in 2005 delivered some huge benefits to our health system - we were able to reduce administrative staff and plough those savings back into frontline services (and) we were also able to develop clinical networks of care," she told reporters at Sydney's Royal Prince Alfred Hospital.
"We recognise that one of the issues that our large area health services struggled to do was to get the level of clinical engagement, the level of community engagement. So we're addressing that."
The Australian Medical Association (AMA) supported the changes because they gave local doctors a role in the running of hospitals.
"The important thing is to get the governing fundamentals right," AMA NSW branch president Michael Steiner said.
"It is especially important that the doctors who serve on the governing bodies of the local hospital networks are nominated by their colleagues rather than appointed by bureaucrats."
NSW Opposition Leader Barry O'Farrell accused the government of stealing coalition policy to set up district hospital boards.
"Patients have suffered while Labor defended their failed area health services," Mr O'Farrell said.
"This is a change that could and should have happened years ago and it's only happening now because Labor desperately wants to get re-elected."
Premier Kristina Keneally has meanwhile criticised federal Opposition Leader Tony Abbott's multibillion dollar health and hospitals policy, saying it would undo the COAG reforms.
Mr Abbott on Thursday unveiled his $3.1 billion hospitals plan, which will help pay for an extra 2800 hospital beds over four years.
"What Mr Abbott is proposing is a one-off injection of funds," Ms Keneally said.
"It does nothing to address the structural challenges that exist in the health and hospital system, does nothing to address the challenges of an ageing population."
