Ahead of talks at Brown's Downing Street office in London, the pair said "urgent action" was needed to tackle diseases like HIV/AIDS and cut child and maternal mortality rates in developing countries.
Tackling disease and reducing child and maternal mortality rates are among the eight UN Millennium Development Goals (MDGs) agreed by the international community in 2000 which aim to reduce world poverty by 2015.
But a mid-term report on the goals has assessed that progress is "off-track" with those on health the least likely to be met.
An international health partnership to ensure that overseas aid is better targeted at the main health needs of impoverished countries will be officially launched on September 5, they said in a joint statement.
The partnership will involve Britain, Germany, Canada and Norway, as well as the World Bank and the World Health Organisation and aims to improve access to health services in poorer nations as well improve their effectiveness.
Brown and Merkel said that although overseas aid had increased in recent years, funding had targeted specific areas only and not built strong, sustainable healthcare systems vital for combating ill health.
International assistance was "over-complex" and "fragmented", they added, while a lack of health workers, clinics, supplies of essential medicines and financing were hindering more rapid progress in improving the situation.
To address the problem, they said countries, international health agencies and other bodies will work with "country-owned" plans linking donor support to national plans and co-ordinate their efforts on the ground.
In doing so, they hope to create "sustainable health systems which deliver improved outcomes", the leaders said in a statement released to the media before the talks began.
"We see this as a critical step in our call for an international mobilisation of effort to achieve the MDGs that will build year on year until 2015," they added.
"Our efforts must bring together the private sectors, NGOs, faith groups, international agencies and governments in a new partnership to reduce poverty, improve health and provide opportunities for the poor across the world."
The announcement follows a pledge by the Group of Eight richest nations in Germany in June to provide 60 billion dollars to fight HIV/AIDS and malaria in Africa as well uphold an earlier promise to boost development aid.
Brown flagged up the international health partnership plan in a speech to the United Nations last month when he called for countries to uphold their MDG commitments.
"There is no greater cause than that every child in the world should be able to benefit from the best medicine and healthcare," he said.
Downing Street said earlier the idea behind the plan was to make aid more effective, ensuring different sources of funding work together to produce "results that are more than the sum of its parts".
Merkel's visit is her first to London since Brown took over from Tony Blair on June 27. The pair are also due to attend the football friendly between England and Germany at Wembley stadium Wednesday night.
It also coincides with mounting calls from Britain's main opposition Conservative Party to hold a referendum on the new European Union treaty, on which Merkel spearheaded negotiations.
Brown stood firm against those calls, despite threats from trade unions to break ranks and call for a public vote, saying he was confident the unions would back the government's position of passing the treaty through parliament when they stage their annual Trades Union Congress (TUC) next month.