The NHS is wasting at least £640m a year by overpaying the major pharmaceutical companies for drugs, the Office of Fair Trading said yesterday.

The finding came in a report which urged an overhaul in the way that drug companies charge the NHS for treatments. In some cases the OFT found branded drugs such as statins being prescribed that were 10 times more expensive than generic alternatives that delivered essentially the same benefits to patients.

Switching to a generic instead of the Pfizer cholesterol treatment Lipitor could have saved the NHS £350m in 2005 alone, the report said.

It could have saved £28m by switching to a generic instead of paying for the AstraZeneca drug Crestor and a further £11m if it had bought a generic instead of Pfizer's high blood pressure treatment Cardura XL. Between 2000 and 2005 the NHS drugs bill grew at an average annual rate of 7.3%. The report identified at least £575m in possible savings where generic alternatives existed to branded drugs in certain categories.

The Association of the British Pharmaceutical Industry rejected the claim that the NHS was paying too much. The organisation said prices had fallen by 21% in real terms over the past decade and represented "excellent value for money".