The amount the NHS spends on medicines may be reduced after the government announced it is to renegotiate the arrangement which is currently in place with drug companies.
Health Secretary Alan Johnson said he plans to discuss the five-year agreement, which is not due to expire until 2010, with the major manufacturers.
The announcement comes after an Office of Fair Trading report in February said the NHS is paying hundreds of millions of pounds too much for some drugs.
Liberal Democrat health spokesman John Pugh praised the decision to reopen talks with the industry.
He said: "The relationship between the pharmaceutical industry and the British government has been far too cosy for too long. This renegotiation is a very welcome development.
"British taxpayers are paying some of the highest prices in the world for branded medicine. The current scheme is confusingly complex, but has historically suited the pharmaceutical industry.
"The government's ability to secure value for money spent on medicines will be a key test of Alan Johnson's ability to ensure efficiency in the NHS."
The Association of the British Pharmaceutical Industry (ABPI) confirmed the government has notified it of its intention to open negotiations.
In a statement, it said: "The pharmaceutical industry recognises the government's need to gain best value for money from all aspects of NHS services, including medicines.
"The NHS already benefits from one of the most cost-effective medicines policies in Europe. The ABPI believes that a stable, voluntary agreement is crucial to retain the industry's major research and development investments - the UK's largest."
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