Staff concerns about patient and child safety are being covered up by confidentiality clauses, MPs have found.
A report from the Commons' public accounts committee found "shocking examples" of compromise agreements and special severance payments being used to silence individuals who had dared to speak out.
Committee chair Margaret Hodge said it was "simply outrageous" that the deals were being made in order to cover up failure.
"It is vital that people feel free to speak out to help prevent terrible tragedies or even deaths, and protecting the reputation of an organization, such as the NHS, at the expense of public safety is unacceptable," she said.
"A confidentiality clause in a compromise agreement is not meant to prevent legitimate whistleblowing – but people who have been offered, or accepted compromise agreements have clearly felt gagged.
"There is simply no way of knowing how many of these special severance payments have been made across the public sector – or whether the compromise agreements have been used to 'gag' employees. To date neither the Treasury nor individual departments have monitored this adequately."
In the three years to March 2013 the Treasury approved over 1,000 special severance payments totalling over £28 million.
It is not clear how many of these involving confidentiality clauses, but MPs warned the total number was likely to be higher because the Treasury does not approve payouts for local government, police, the BBC or private sector providers.
A recent National Audit Office report found 88% of compromise agreements sampled contained a confidentiality clause.
MPs recommended that the government changes the rules so that any special severance payments and associated compromise agreements where they relate to whistleblowing cases.
"Under new proposals, the Cabinet Office will be responsible for looking at whether there are trends across the civil service which need to be addressed," Hodge added.
"We welcome the progress made by the Treasury and the Cabinet Office, but believe the Treasury must now take a more robust approach to the use of compromise agreements not only by the wider public sector but also by private contractors receiving public funding."