The Department of Health in England is scrapping its controversial data-sharing project - known as Care.data.
The programme, which was due to launch in 2014, faced widespread criticism - including fears the public had been left in the dark about it.
The announcement comes as Dame Fiona Caldicott and the Care Quality Commission published two reviews on data security in English healthcare.
Their reports put forward a series of proposals to safeguard data in the NHS.
They call for stronger government sanctions for malicious or intentional data breaches, together with tougher criminal sanctions against those who use any anonymised data to re-identify individuals.
Meanwhile, out-of-date computer software and hardware should be replaced urgently, they say.
The reviews recommend an opt-out system so patients can say no to confidential or personal health data being used for anything beyond their direct care.
But this could be overridden for mandatory requirements such as fraud investigations or situations of public interest such as epidemics, they suggest.
And patients could give explicit consent for specific research studies, even if they had opted-out.
Responding in a written statement to Parliament, the Department of Health said it has launched a public consultation on the option of opt-outs, alongside 10 security standards that Dame Fiona suggests NHS organisations must meet.
Officials also say they support stronger criminal sanctions for misuse of anonymised data and are working with suppliers to ensure IT systems are up-to-date.
Meanwhile, the Department of Health said though it had taken the decision to close the Care.data programme it was "committed to realising the benefits of sharing information".
The Care.data project, led NHS England, together with the Health and Social Care Information Centre, was designed to bring health and social care information from different settings together to see what was working well and what could be done better.
It was due to launch two years ago, but was paused after concerns a public information campaign explaining its use was not clear enough and did not reach everyone.