This study shows that, in an unregulated fee‐setting environment, specialist physicians practise price discrimination on the basis of their patients' income status. Our results are consistent with profit maximisation behaviour by specialists. These findings are based on a large population survey that is linked to administrative medical claims records. We find that, for an initial consultation, specialist physicians charge their high‐income patients AU$26 more than their low‐income patients. While this gap equates to a 19% lower fees for the poorest patients (bottom 25% of the household income distribution), it is unlikely to remove the substantial financial barriers they face in accessing specialist care. There are large variations across specialties, with neurologists exhibiting the largest fee gap between the high‐income and low‐income patients. Several possible channels for deducing the patient's income are examined. We find that patient characteristics such as age, health concession card status and private health insurance status are all used by specialists as proxies for income status. These characteristics are particularly important to further practise price discrimination among the low‐income patients but are less relevant for the high‐income patients. Copyright © 2016 John Wiley & Sons, Ltd.