The inquiry was announced on Thursday by state health minister Ryan Park, who described it as a "once-in-a-generation" look at the troubled system.
"The purpose of the inquiry is to help us determine what steps we need to take to move forward and how we can continue to deliver the essential health services our community deserves," Mr Park said.
The state's public health system has struggled with staff shortages and blown-out wait times at emergency rooms, which some have blamed on difficulty of patients in accessing GP services.
Australian Medical Association NSW branch president Dr Michael Bonning slammed the inquiry as being too focused on cuts to hospital care.
"As a GP, I agree the health system needs to recognise the crisis in general practice," Dr Bonning said.
"However, the primary responsibility of the NSW government is to fund our public hospital services.
"Suggesting cuts to those services is dangerous and will harm patient care."
He noted similar inquiries in the past have done little to improve the state's health system, and in many cases outcomes have been ignored by government.
Mr Park said the inquiry is crucial to improving services by identifying areas of wastage and how financial management can be improved.
"Our government is committed to making the right policy and investment decisions," he said.
"To do that, we need to understand the complex issues and challenges faced by essential services and workers."
Senior barrister Richard Beasley, SC, will head the inquiry, having previously served as senior counsel for a probe into the Ruby Princess, as well as commissioner for two local government inquiries.
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