It was found that the sexual services costing 60 dollars were billed as a massage or as acupuncture, and attracted a health fund rebate of 40 dollars.
Health fund investigators who posed as customers were offered sexual services during a raunchy massage in four Chinese massage and acupuncture centres, including one in Ryde and another in Paramatta.
The authorities nailed the perpetrators after chasing up Chinese community newspaper advertisements that offered to provide "young attractive masseuse with a health fund rebate".
Others were identified when investigators spotted that their clients were males aged 36-72, and were charged for acupuncture treatments over consecutive days.
Australian Health Insurance Association chief Michael Armitage said that such fraudulent acts were ripping off health fund members and forcing up premiums.
According to estimates, fraudulent health fund claims may add about two per cent to the cost of the health insurance business every year.
"We work hard on providing premiums at the lowest price possible price and every time someone commits a fraud that means overall premiums go up for legitimate members so we're very angry about it," the Daily Telegraph quoted him as saying.