Prime Minister Tony Blair has rejected Tory claims that he is "presiding over the biggest administrative chaos in the NHS' history".
Staff are not being overpaid, says Mr Blair
David Cameron used his first Commons exchanges with Mr Blair after the Easter break to claim government mis-management was costing NHS jobs.
Mr Blair dismissed his complaints as "ridiculous nonsense".
And he denied that too much of the extra investment in the health service had been spent on staff pay rises.
The clash at prime minister's questions comes after NHS trusts announced the loss of nearly 7,000 jobs in recent weeks. One report predicted 100,000 could go.
The Conservative leader said the heads of four children's hospitals, including Great Ormond Street, had warned that specialist services were at risk because of the payment by results system.
The hospitals believe they suffer from this system as their operations are more complicated.
Mr Cameron said: "They have been battling to get this message through to the Department of Health for 18 months.
"Why do you think this has happened?"
Mr Blair replied: "There is a negotiation over the tariff, because there is going to be a single tariff by the payment by results system throughout the NHS. That is a necessary part of the reform.
"All these four hospitals have actually received a very substantial increase in funding over the past few years - extra numbers of nurses, extra numbers of consultants.
"But it's important that they, like everyone else within the NHS, live within their means."
The BBC has learnt that specialist accounts are set to show that some family doctors are earning up to £250,000 after expenses.
Mr Cameron said: "The contracts for GPs and consultants have turned out to be much more expensive than the NHS expected.
"Who is to blame for this piece of mis-management?"
But Mr Blair insisted Labour's NHS investments had been "money well spent" and doctors and nurses were not being overpaid.
"It's nonsense that lots of GPs are earning £250,000 a year, the average is under £100,000," he said.
"It's true our GPs are now the best paid in Europe. I think that is good.
"It is true we have put up nurses' pay. I think that is also good.
"It's also true, as a result of the dedication of nurses and doctors, that we are reducing waiting times in the health service, reducing waiting lists, improving cancer and cardiac services.
"Overall, the proportion of money going on pay in the NHS has not risen over the past eight years but fallen."