Northeast Health Wangaratta is spending "exorbitant amounts of money" to cover a shortage of midwives.
Indi MP Helen Haines revealed the problem in Parliament this week, speaking about the importance of midwives for women when they give birth.
It comes after a decision from Yarrawonga Health to cancel birthing services after January 2020.
"The reason for that is they have no midwives - that means that the GPs in that town have no midwives to support them either," Dr Haines said.
"With the loss of maternity services in Yarrawonga comes pressure on my home town of Wangaratta, a regional health service which itself is experiencing an extreme shortage of midwives.
"Right now they're paying exorbitant amounts of money to bring in agency midwives from Melbourne to staff the maternity wards."
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She was speaking in support of the federal government's bill to provide stronger support for medical indemnity insurance.
Some privately practising midwives had not been able to access indemnity insurance, but the reforms will mean they are covered in the same way as other allied health professionals.
The bill passed the House of Representatives with bipartisan support.
"This bill helps us to undertake the work that is required to remove what was a systemic barrier for midwives," Dr Haines said.
"This is really important because what we need are models of care in our maternity system that allow choice for women.
"When we have choice for women, we give women control of their immediate circumstances.
"When we have choice for women, we allow them to see practitioners in addition to the traditional model of medical care that has largely been available in our health system."
The MP, who worked as a midwife for 20 years, said the bill could go one step further and provide support for homebirth services that are backed by the Australian College of Midwives.
The bill had been introduced to Parliament by Health Minister Greg Hunt, who said closing the gap in the legislation was "a deeply important reform".
"It acknowledges the role of our midwives, it values the role of our midwives and it protects mothers and families who are making a choice of seeking support during their birthing process and their pregnancy from and through the work of midwives," he said.