The government is negotiating a £500m discount on an electronic patient record system that Computer Sciences Corp (CSC) is supplying to the National Health Service (NHS).
A review of the programme revealed that local trusts expect to spend up to £500m less than previously planned on IT systems.
In addition to a discount of £100m from BT, this will reduce the total bill for the NHS's flagship IT system, the National Programme for IT (NPfIT) by £1.3bn, from £12.7bn to £11.4bn.
Director general for Informatics at the department of health Christine Connelly, said the Lorenzo patient record system to be supplied by CSC was late and incomplete.
She stressed that negotiations with CSC were still in progress. "However, we will use all remedies available to us under the contract," she said.
Connelly said that the government was committed to the contracts it had signed with CSC and BT for hospital-based IT systems.
The previous government announced a £600m cut in the cost of the NPfIT in December 2009. This was made up of £100m from BT, £300m from CSC and £200m in internal savings.
The government yesterday announced a further £700m saving, consisting of a further £200m from CSC and £500m from local trusts.
Connelly was speaking following the government's announcement that it was changing the way it managed the NHS IT from a centralised system to allowing local health trusts more autonomy in their purchases.
She said the government had committed to buying a certain number of patient record systems, but did not give details.
Connelly said the government was still deciding how to manage the NHS's IT in future, but that local trusts would have more responsibility.
BT referred comment to Connecting for Health, the NPfIT's delivery arm. CSC did not respond to requests for comment.