Some described the atmosphere in the government as tending toward  "anarchy" because the "command and control" mode by the Prime Minister's office had been shown to be politically hamfisted, prompting leaks from the cabinet, among other problems.

The higher education reforms now face an uncertain future with any savings evaporating and key Senate crossbenchers saying they remain opposed to the deregulation of university fees even if the Abbott government scraps a planned 20 per cent cut to university funding.

This follows the axing of a planned $20 cut to the Medicare payment to doctors for short consultations just days before it was due to come into effect.

Several MPs, including frontbenchers, contacted by Fairfax Media expressed dismay at the confusion over university funding cuts and deregulation plans after Treasurer Joe Hockey was reported on Tuesday as ruling out further compromises to achieve passage through the Senate, before Education Minister Christopher Pyne confirmed on Wednesday that the package was up for negotiation.

Speaking on condition of anonymity, one senior Liberal said the Prime Minister had "lost the respect" of some colleagues, and another said he had "just months" to turn things around or his position was terminal.

Independent senator Nick Xenophon said on Wednesday that the government's package was in "a whole lot of trouble" while the Palmer United Party's Glenn Lazarus called on the government to abandon its policies and "move on".

"You can polish a turd  for as long as you want, it's always going to be a turd," said Senator Lazarus.

The government's higher education package was originally designed to save the budget $4 billion over four years, but if the 20 per cent cut is scrapped it would instead cost an estimated $1.3 billion over the same period.

Universities have strongly opposed the 20 per cent cut and said that it would be a key driver of increased fees under a deregulated system.

Mr Pyne on Wednesday said that the government was open to reducing the funding cut if necessary to win Senate support for fee deregulation.

"We haven't said that we will necessarily not go ahead with the savings measures in higher education but they are part of our negotiations with the crossbenchers because deregulation is vitally important," Mr Pyne told ABC radio in Adelaide.

"We will do whatever needs to be done to ensure our universities are the best they can be and that our students have the best opportunities they can have to go to university."

The $4 billion saving figure for the reforms – which also includes new spending on student places at private colleges and TAFEs – was reduced to $640 million in December following concessions to Senate crossbenchers. Scrapping the funding cut altogether would reduce the savings by a further $1.9 billion over four years.

Mr Abbott said on Tuesday that the government would put higher education "front and centre" of the government's agenda when Parliament resumes in February.

When asked about the prospect of the government reaching a compromise deal, Clive Palmer told Fairfax Media: "I think it's over."

"We won't support the deregulation of fees," Mr Palmer said. "We support the idea of them not cutting funding by 20 per cent but we don't support deregulation."

Senator Xenophon said: "The government, I think, needs to step back, have a considered approach to this because right now their package is in a whole lot of trouble.

"Getting rid of the cuts might seem attractive in the short term but in the long term if you have deregulation there will be a spike in fees. I am just worried about what's on the table now. These are radical changes that need to be thought through."

Palmer United Party senator Zhenya Wang supports fee deregulation but has said he would not vote for it and vote with his colleagues, Senator Lazarus and Clive Palmer, who oppose it.

The government needs the support of six of the eight Senate crossbenchers to pass its reforms.

Vicki Thomson, chief executive of the Group of Eight universities, welcomed the government's willingness to scale back the planned funding cut and urged the Palmer United Party to continue negotiations

Deputy chief executive of Universities Australia Anne-Marie Lansdown said: "If the negotiations can scale back the $1.9 billion cut, it would be a very positive step, one that goes directly to the issue of addressing fairness and affordability for students and parents."

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