Scrapping the national agreement on terms and conditions in a bid to save money and jobs is the "wrong solution" to the challenges trusts are facing, the union said.
The RCN issued the warning after 20 trusts in south- west England joined a consortium that is considering a regional approach to cut costs.
Similar warnings have been issued by unions in Scotland, which has a high proportion of public sector workers.
The RCN said the move would exacerbate inequalities and harm patient care, be bureaucratic and expensive to implement, and result in a skills drain.
The RCN also argued the approach lacked economies of scale, which would take money away from patient care.
Dr Peter Carter, RCN general secretary, said: "NHS organisations need to stop labouring under the illusion that regional pay is a panacea to their financial troubles. It is not.
"This would be a fool's economy. It is the wrong solution to the challenges these trusts are facing."
The consortium said a more "fit for purpose" system of pay and conditions, which includes longer working hours and cuts to annual leave, sick pay and on-call payments, could save more than 6000 jobs.