Regional health leaders are drawing up plans to abandon payment by results based on national tariffs and move to a cost and risk based contract for acute providers, along with an STP-level control total.
The changes, backed by NHS England, are part of the Humber, Coast and Vale sustainability and transformation plan and are scheduled to be in place by April.
A “control total” for the STP area will be issued for 2017-18 to incentivise organisations to manage activity levels and reduce costs.
It is planned that payments will reflect the cost of services, adjusted to make allowances for volume and financial risks on acute providers from the change.
CQUIN payments and performance fines will also end under the planned new system.
The STP, which has a £3bn budget across all services, intends to invest the savings from reducing bureaucracy involved in policing and servicing payment by results contracts in areas with specific additional needs, such as those due to rurality or deprivation.
Acute services in the patch are delivered by York Teaching Hospital Foundation Trust, Hull and East Yorkshire Hospitals Trust, and Northern Lincolnshire and Goole FT.
Finance teams will monitor the impact of the new payment system on organisations once it goes live and manage risks when they occur.
Officials hope to put similar plans in place in shadow form for other areas of NHS spending, including mental health and community services, by April. Payments to providers outside the STP area will continue as normal.
Emma Sayner, finance lead for the STP and chief finance officer at Hull Clinical Commissioning Group, said the approach would move money around the system to reflect where costs are incurred.
Humber, Coast and Vale STP must save £420m by 2021 and is putting emphasis on moving care out of hospitals into the community.
Ms Sayner added: “The STP has big ideas about investing much more heavily in out of hospital services and we are going to have to come up with alternative ways of flowing money into the out of hospital environment.”
She said although the approach only covered NHS spending, it had the potential to be deployed in social care.