Responding to a recent consultation on the plans, the body said drugs given a value-based price may still represent poor value for money when compared with other treatments.
For instance, early detection or surgery can be more effective investments than many high-cost cancer drugs that provide late-stage respite for patients at the end of their lives, it argued.
The DoH believes the policy will give patients and clinicians greater access to medicines, based on an assessment of the outcomes that they can achieve.
Nigel Edwards, acting chief executive of the NHS Confederation, said: 'The current process is not perfect and pricing based on value is good in principle. But this is a case of a good idea that has turned into poor policy.
'We simply don't see that the process suggested will achieve what the government wants.'
The scheme aims to reward pharmaceutical companies for innovating and creating breakthrough drugs. But the NHS Confederation claimed that the amount of money the NHS spends on drugs is not 'of a sufficient scale to affect the behaviour of a sector populated by multinational organisations with annual turnovers of tens of billions of dollars'.
Instead, NICE should be allowed to develop a more rigorous method for assessing value-based pricing, it said.