People should be signed off for long-term sickness by an independent assessment service and not GPs, a government-backed review says.
The review also suggests tax breaks for firms which employ people who suffer from long-term conditions.
It is estimated the changes would send 20% of those off sick back to work.
A Department for Work and Pensions spokesman said: "The government is committed to supporting more people with health conditions to work."
Around 300,000 people a year are absent from work due to long-term sickness.
The review also calls for a new government backed job-brokering service, to find work for people cannot stay in their current job because of their condition.
A survey suggested 77% of GPs had signed people off sick for reasons other than their physical health, the report authors told the BBC.
The government asked Professor Carol Black and the former head of the British Chambers of Commerce David Frost to consider radical changes to deal with the human and financial cost of sickness absence in the workplace.
If the recommendations are accepted people who are signed off sick would also be put on to Job Seekers' Allowance, instead of Employment Support Allowance, for a period of three months.
They would receive less money and have to prove they were looking for work.
Tax breaks for firms which employ people who suffer from long-term conditions are also being suggested.
Prof Black said the current system was not working for anyone.
"What the GPs say is they don't have time to do an in-depth functional assessment and nor have they had any training in occupational health so we think it's providing a new unique service that both employers and GPs need."
Mr Frost said when people were away from work for periods of over four weeks it started to morph into something more.
"You start to lose the will to work and what we've got to do is to find a way of actually working with them, encouraging them and providing real, practical help. And that's what the assessment service would do," he said.
And welfare reform minister Lord Freud said: "We just don't get adequate help for people early enough when they need it and what we are creating in there is an incubator for lifelong idleness for far too many people."
BBC political correspondent Robin Brant said the new service was likely to assess people "more quickly and more stringently".
The report authors estimate the changes could save taxpayers at least £350m each year.
The deputy chair of the British Medical Association's GPs committee, Dr Richard Vautrey, said the changes could be a good thing for patients.
He said: "If what is being described is a proper health, occupational health assessment at an earlier stage in the patient's illness then that would be helpful.
"But if it turns out to be a punitive process just to try and save money without the best interests of the patient at the heart of the process then it will fail."
The DWP spokesman said: "The economy loses £15bn in lost economic output each year due to sickness absence and we cannot continue to foot this bill."