New reporting requirements for Medicare Advantage Organizations

By Marc Levy April 15, 2026

The Federal Fiscal Year (FFY) 2026 Outpatient Prospective Payment System (OPPS) final rule included a new requirement for Inpatient Prospective Payment System (IPPS) hospitals. The new rule requires that a hospital’s cost report must include the weighted median negotiated charges for each Medicare Advantage Organization (MAO) and by Medicare Severity Diagnosis Related Group (MS-DRG) for a fiscal year ending on or after January 1, 2026.   

CMS intends to use this information to establish MAO DRG weights that are similar to IPPS DRGs beginning in FFY 2029 (discharges from 10/1/28 to 9/30/29). Note that the following IPPS hospitals are exempted from this requirement: 

• Hospitals that do not negotiate payment rates and only receive non-negotiated payments. For example, hospitals operated by an Indian Health Program as defined in Section 4(12) of the Indian Health Care Improvement Act or federally owned and operated facilities.   

• Hospitals paid under the Maryland Total Cost of Care Model during the performance period of that model.   

This rule does not impact Critical Access Hospitals, Inpatient Psychiatric Hospitals, Inpatient Rehabilitation Hospitals, Children’s Hospitals, and Cancer Hospitals. These hospitals can include this information, but it’s not required. 

Notable changes on the cost report 

The cost report now includes Worksheet S-12, which has over 900 lines, for hospitals to report the weighted median MAO payer-specific negotiated charge for each MS-DRG with discharges. 

To calculate the weighted median for each MS-DRG with discharges during the cost reporting period, CMS posted the following steps: 

Step 1 

Using its most recent Machine Readable File (MRF), as of the cost report filing date, the hospital identifies the following:   

• For each MAO payer-specific negotiated charge, based on a percentage or algorithm, the hospital must identify and substitute the dollar amount in the MRF required under 45 CFR 180.50(b)(2)(ii)(C) for the percentage or algorithm. Exclude any payer-specific negotiated charges that represent a capitated payment.   
• The code under 45 CFR 180.50(b)(2)(iv)(A) for each payer-specific negotiated charge.   

Step 2 

For the cost reporting period, sum the number of inpatient discharges for each MAO by MS-DRG. Exclude inpatient discharges where the hospital received payment on a capitated basis.   

Step 3 

For each MS-DRG, list each MAO payer-specific negotiated charge (from Step 1) once for each inpatient discharge that occurred during the cost reporting period for that MAO (from Step 2).   

Step 4 

For each MS-DRG, compute the median of the MAO payer-specific negotiated charges in the list from Step 3 by first ordering the list from the lowest to the highest MAO payer-specific negotiated charge. The hospital then finds the median by identifying the middle value when the list contains an odd number of charges, or by calculating the mean of the two middle values when the list contains an even number of charges.  

Specific cases & examples 

In addition, CMS stated that some hospitals negotiate MAO payer-specific charge based on a non-MS-DRG system. When a hospital identifies non-MS-DRG codes (in Step 1(b) above), or discharges not classified to MS-DRGs (in Step 2 above), the hospital must crosswalk those codes or classify those discharges to MS-DRGs.  

Hospitals can utilize the CMS Grouper and the associated definitions manual for this purpose. Hospitals can utilize the publicly available version of the CMS Grouper used to group ICD-10 diagnosis and procedure codes to MS-DRGs. The hospital can use this software and accompanying definition manual to crosswalk the code in the MRF or classify the discharge to an MS-DRG code.   

CMS further gave the following example of the calculation: 

Example:  

Who: A hospital with a cost reporting period ending on September 30, 2026 and MAO payer-specific negotiated charges for MS-DRG 123 for five MAOs (MA1, MA2, MA3, MA4, and MA5) during that cost reporting period.  

When: The hospital filed its cost report on February 28, 2027.  

What: The hospital made its price transparency MRF available to the public on January 1, 2027. This MRF did not contain MAO payer-specific negotiated charges for MA5 because the hospital stopped contracting with MA5 and began contracting with a new MAO, MA6.  

Step 1: The hospital identified the following MAO payer-specific negotiated charge information for MS-DRG 123 from its January 1, 2027 MRF:  

• MA1: $7,400  

• MA2: $7,200  

• MA3: $7,500  

• MA4: $7,300 (algorithm-based)  

• MA6: $7,400  

As the MAO payer-specific negotiated charge for MA4 was based on an algorithm, the hospital substituted the dollar amount in the MRF required under 45 CFR 180.50(b)(2)(ii)(C) for the algorithm.  

Step 2: The hospital summed the number of inpatient discharges that occurred during the cost report period ending September 30, 2026, for each MAO for MS-DRG 123.  

• MA1: 2 discharges  

• MA2: 1 discharge  

• MA3: 1 discharge  

• MA4: 3 discharges  

• MA5: 2 discharges  

Step 3: The hospital listed each MAO payer-specific negotiated charge (from Step 1) the number of times as inpatient discharges that occurred during the cost reporting period for that MAO (from Step 2).  

• MA1: $7,400, $7,400  

• MA2: $7,200  

• MA3: $7,500  

• MA4: $7,300, $7,300, $7,300  

The hospital listed the MRF charge of $7,400 for MA1 twice because two MA1 discharges for MS-DRG 123 occurred during the cost report period ending September 30, 2026. The hospital listed the MRF charge of $7,200 for MA2 once because one MA2 discharge for MS-DRG 123 occurred during the cost report period ending September 30, 2026. The hospital listed the MRF charge of $7,500 for MA3 once because one MA3 discharge for MS-DRG 123 occurred during the cost report period ending September 30, 2026. The hospital listed the MRF charge of $7,300 for MA4 three times because three MA4 discharges for MS-DRG 123 occurred during the cost report period ending September 30, 2026. 

The hospital listed no MRF charge for MA5 as the hospital no longer contracted with MA5 and the hospital excluded the MRF charge of $7,400 for MA6 as no MA6 discharges occurred during the cost reporting period.  

Step 4: The hospital listed the seven amounts from Step 3 in order from the lowest to the highest MAO payer-specific negotiated charge. The median value is $7,300 (as there is an odd number of items in the list, the median is the middle number in the list).  

• $7,200 – MA2  

• $7,300 – MA4  

• $7,300 – MA4  

• $7,300 – MA4  

• $7,400 – MA1  

• $7,400 – MA1  

• $7,500 – MA3  

The hospital reported the weighted median MAO payer-specific negotiated charge of $7,300 for MS-DRG 123 on the Weighted Median MAO Payer-Specific Negotiated Charge Data Worksheet (S-12).  

Hospitals should be prepared to identify and summarize the required data needed early in the cost reporting process. It is very likely that the MAO payer-specific negotiated median charges will be scrutinized by many different sources such as CMS, payors, and competitors. 

If you have questions or would like to discuss these matters further, please contact Marc Levy or  Evan Look. 

Want to learn more? 

BNN’s Healthcare Advisory  team specializes in cost report and Medicare/Medicaid reimbursement across the continuum of care and can support your hospital through complex MAO and MS-DRG calculations. If your healthcare organization is experiencing challenges with reimbursement, accounting practices, or you are interested in learning more about improving your processes, technology, and strategy, get in touch with our healthcare industry specialists today! 

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