Ministers have performed a U-turn over plans to axe millions in funding from the country's children's hospitals.
Sheffield Children's Hospital faced losing as much as 10 per cent of its income under Government plans to cut top-up payments it receives to cover its specialist work.
Hospital bosses from around the country were backed by unions and Labour in protesting against the proposals.
Chris Sharratt, chief executive at the Sheffield hospital, said a way forward had been agreed which meant it would not face "unfair losses" on its tariff payments.
"The Government has recognised the specialist nature of children's hospitals within the NHS and the essential services that are provided at the children's hospital in Sheffield," he said.
"We will work with the Department of Health to extend the number of procedures that will attract the top-up payment over the next financial year and undertake a joint piece of work to develop the tariff for future years.
"We can assure patients and their parents that we will continue, as always, to provide all our patients with the highest level of care."
Under the new plans, the premium payments will still be cut but not by as much as previously suggested, while the top-up payments which can be charged will be extended to cover more treatments.
The Department of Health said the original proposals were based on an independent report by academics at York University in a review ordered by the previous Government.
Officials had held discussions with the children's hospitals to ensure the plans would work on the ground.
A spokesman said: "We have talked this through with the hospitals and are proposing a smaller reduction to these types of top-up payments.
"We also intend to increase the number of treatments that are covered by these top-up payments. This will give them greater support than the original proposals."