A health bill setting out proposals to pilot personal budgets for patients has been published today by the Department of Health.
Under measures laid out in the bill, payments would for the first time be handed directly to patients to give them greater control over their care.
The bill also includes proposals to:
place a duty on all NHS bodies and private sector and third sector providers of NHS services to have regard to the NHS constitution;
create "quality accounts" to help improve the quality of health services;
introduce prizes to encourage innovation in the NHS;
increase powers of suspension for those who fail to meet the requirements of public office;
establish a regime for unsustainable NHS providers;
strengthen tobacco control;
reform pharmacy services to ensure pharmacies are providing high-quality services based on local needs.
Health secretary Alan Johnson said: "The Health Bill will strengthen the NHS - it will provide a legal framework for the vital reforms of the last few years, and especially those outlined in High Quality Care for All.
"People rightly have high expectations of the care the NHS offers, and they want more control over their own health - which is why the bill will give more power to patients and drive up the quality of care."
Health minister Lord Darzi said: "The measures in this bill, such as quality accounts and innovation prizes, will help to ensure that the NHS is providing the highest possible quality of care to everyone."
The legislation will proceed through the House of Lords over the next few months.
The bill coincides with an NHS Confederation report claiming that direct payments could "revolutionise" patient care.
Personal Health Budgets: the shape of things to come? argues that giving patients control over healthcare funding could provide enhanced outcomes and change the nature of the patient-professional relationship.
NHS Confederation acting chief executive Steve Barnett said: "In our view, putting money in the hands of patients could improve care planning and have a profound impact in areas such as end of life care, mental health or maternity services."
He warned there were significant barriers that needed to be overcome before the policy was rolled out nationally.
These included deciding whether patients should be allowed to spend their personal budgets on less cost-effective treatments, whether people should be able to top up their care and whether personal budgets could be invested and spent at a later date.
He said: "Any pilots should consider these issues in more detail. Personal health budgets could revolutionise the way in which care is delivered, but they are not without risks."