Patricia Hewitt believes that treating patients, particularly the elderly or the vulnerable, within the community would help to improve the delivery of NHS services.
Speaking before the launch of new health and social care proposals, the health secretary outlined the benefits of increasing community services and therefore freeing up hospital beds.
Ms Hewitt acknowledged that some areas of the UK were in need of better facilities, suggesting that more private companies could fund and provide health services.
"We could do far more outpatient appointments for instance, and x-rays and diagnostic scans in health centres or smaller community hospitals," she told BBC Radio Four's Westminster Hour.
"That is much more convenient for patients and it also gives you better value for money. That is why we have been encouraging hospital consultants to work with the GPs and with the local NHS to reorganise services in that way."
New developments in medical technology have increased levels of care within the community, Ms Hewitt added, while a growing number of older people can now be treated with home care and independent care providers.