The federal government has ended a plan to cap allied health care for veterans at $5,000 a year.
Minister for Veterans' Affairs Matt Keogh said he would continue to engage with veterans to create a fairer system.
The proposal would have imposed an "annual monetary limit" on services such as physiotherapy and dentistry, with veterans able to access more funding if they "demonstrated clinical need".
The May budget showed the measure would have saved the government about $750 million over three years but was rubbished by both the Coalition and advocacy groups for making health services harder to access.
Minister for Veterans' Affairs Matt Keogh released a statement today confirming the threshold measure was "off the table".
Mr Keogh had at first been under pressure after the Coalition accused him of declining to meet with veterans or properly understand their needs.
Independent senator Jacqui Lambie made a speech in the Senate last month about healthcare access following recent surgery for vaginal prolapse.
Today, she said scrapping the cap was a win that belonged to "every veteran".
Opposition Leader Angus Taylor said the government had taken "too long" to drop the policy and called on Mr Keogh to step down.
"This is what happens when a government listens to veterans," spokesperson John Armfield, a former navy clearance diver, said.
A Senate estimates hearing in June heard examples of overcharging, including one case where a single patient was charged $101,000 in a single year by a dietitian, equivalent to 19 appointments a week.