The government's proposals, which are being put out to consultation until the end of January, were put forward following a four-month review of top-up fees by cancer tsar Professor Mike Richards.
The review was announced after an outcry from patients over what was considered a hard-line stance and mounting evidence of an inconsistent approach by individual NHS trusts.
Ministers accepted all 14 of Professor Richards' recommendations.
It means top-ups will be allowed, but only under strictly regulated conditions if the proposals are agreed to.
The package of measures has been designed to ensure everything from treating the side effects to carrying out extra tests relating to the top-up treatment is paid for by the individual.
This could run to tens of thousands of pounds depending on the treatment.
And patients paying for their own treatment will also have to have it done away from NHS wards - either in private centres or private wings of NHS hospitals.
Ministers said this separation would avoid the creation of a two-tier NHS whereby patients lying next to each other were getting different levels of treatment.
They are also issuing guidance to local NHS managers about how to handle applications for funding in what are termed "exceptional cases".
Patients can apply - and 26,000 do each year - to have treatments funded that would not normally be.
Part of the anger about the issue in the first place was that there was a wide variation in how the NHS treated such cases with some trusts approving all of the applications, while others rejected each one.
PROPOSALS: AT A GLANCE
Patients get right to pay for top-ups without losing their basic NHS package of care
But those paying for extra drugs will also have to cover the cost of any staff time, tests and scans associated with that treatment
Top-up care must be carried out away from NHS ward to avoid patients in beds next to each other getting different quality care
Arrangements do not apply to implants used during operations such as cataract, knee and hip surgery
NHS aiming to ensure more drugs available on NHS by raising the threshold it is willing to pay for treatments for rare terminal illnesses
Ministers seeking to get better deal from drug firms through the use of risk-sharing pricing such as refunds when the drug does not work
But the proposals also suggested the top-up ban should remain in place for implants used during surgical procedures such as eye, knee and hip operations as these cannot be separated like the administering of drugs.
For example, the NHS only pays for single focus lens during cataract operations, which means patients may still have to use glasses for activities such as reading.
However, there are multi-focal versions available and if a patient wanted these to be used they would have to pay for both the lens and operation under the plans - rather than having the NHS pay for the operation and the individual covering the cost of the better lens.
The proposals also hinge on the NHS making more drugs available.
Ministers are seeking to agree more flexible pricing strategies with drug firms.
Talks are on-going but these could involve so-called risk-sharing models such as refunds if the drugs do not work on an individual or a sliding-scale of cost whereby the NHS pays more if the drug continues to be effective over time.
At the same time, the NHS drugs advisory body, the National Institute for Health and Clinical Excellence, is to carry out a five-week consultation on raising the threshold it is willing to pay for life-prolonging treatments for rare terminal illnesses.
The proposal would strengthen the right of NICE officials to go above the current limit in exceptional cases where it there were no other treatments available.
This could affect a batch of kidney cancer drugs that were rejected earlier this year.
Health Secretary Alan Johnson said these measures along with the steps to speed up the drug appraisal process which are currently being rolled out would ensure that only a "small number" of patients would be in a position where they wanted to pay for drugs themselves.
But he added where people did still want to fund their own treatment it would be wrong to deny them the NHS package of care.
But he added: "In reality this whole debate is part of a much wider one about the future of healthcare provision.
"As new, expensive drugs become available, and the population ages, it is increasingly important that society recognises that there are very real limits to what the NHS can and cannot do."
But shadow health secretary Andrew Lansley accused the government of going against the founding values of the health service.
"We have consistently argued that it is morally wrong for patients to have their NHS care taken away from them if they choose to pay for part of their treatment."
But he added: "They've gone from letting patients lose their NHS care to creating a two-tier NHS, where some patients will get better care simply because they can pay for it. And they're trying to dress it up by calling it 'separate' care."
He suggested the most important step was to make more drugs available on the NHS, but this was far from certain under the proposals.
The devolved administrations across the rest of the UK are monitoring what the Department of Health is doing with Wales and Scotland already carrying out their own reviews.
And Karen Jennings, of Unison, which represents a range of health workers from nurses to hospital porters, said allowing top-ups would "shake the very foundations of the NHS".
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