In the 2026 Outpatient Prospective Payment System (OPPS) rule, CMS finalized a requirement that hospitals report their median Medicare Advantage (MA) payor-specific negotiated charge (PSNC), by MS-DRG, on their Medicare cost reports for reporting periods ending on or after January 1, 2026. CMS intends to use the information to set MS-DRG weights beginning in fiscal year (FY) 2029, replacing the cost-based weights.
Because the Inpatient Prospective Payment System (IPPS) is budget-neutral, this policy will not change overall spending by Medicare for inpatient services but will likely redistribute payments across MS-DRGs. However, CMS is not currently able to approximate the redistributive impact of this policy, as the agency does not have the data required to calculate MS-DRG weights using median MA payment rates for inpatient services.
The new policy is similar to one finalized in the FY 2021 IPPS rule and subsequently rescinded in the FY 2022 IPPS rule. In this article, we share key takeaways for providers, including which hospitals the requirement applies to, what they specifically need to report, and implications for hospital reimbursement, revenue cycle/integrity, and finance functions.
Which Hospitals Are Affected by the New Reporting Requirement?
The requirement applies to general acute care hospitals subject to the IPPS (“subsection (d) hospitals”) in the 50 states, the District of Columbia,1 and Puerto Rico2 for cost reporting periods ending on or after January 1, 2026. Therefore, hospitals with fiscal years that end January 31 will be subject to this requirement for their cost report due June 30, 2026. Hospitals that do not negotiate payment rates and only receive non-negotiated payments, e.g., Indian Health Service Hospitals, and hospitals paid under the Maryland Total Cost of Care Model during its performance period are not required to report the median PSNC by MS-DRG. The requirement also does not apply to critical access hospitals.
What Are the Reporting Requirements?
CMS requires hospitals to report the median MA PSNC for each MS-DRG the hospital has included in the most recent version of its hospital price transparency machine readable file (MRF). This information will be reported on a new cost report form, a draft of which is available here.
Hospitals that reported a dollar amount as the PSNC for an MS-DRG in the MRF should use that amount to calculate the median PSNC for the Medicare cost report. Hospitals that reported PSNC as a percentage or algorithm in the MRF should instead use the “median allowed amount” in the median charge calculation for the cost report, as finalized in a separate section of the 2026 OPPS rule. This section states that hospitals must use electronic data interchange (EDI) 835 electronic remittance advice (ERA) transaction data (or an alternative equivalent source of remittance data) to calculate and encode the median allowed amount in the MRF. For PSNCs that are not paid based on the MS-DRG system, CMS requires hospitals to “crosswalk” these discharges to MS-DRGs using the CMS grouper. Hospitals will need to account for this time- and labor-intensive effort in their work plans.
The final rule and draft cost report form outline a step-by-step process for hospitals to calculate the discharge weighted median PSNC to be reported on the Medicare cost report for each MS-DRG. These steps include:
- Step 1: Use the hospital’s most recent MRF to identify each MA plan PSNC for inpatient services, along with the associated code. If charges are expressed as percentages or algorithms, hospitals should substitute the “median allowed amount.” Capitated payments should be excluded.
- Step 2: For the cost reporting period, total the number of inpatient discharges for each MA plan by MS-DRG, excluding capitated discharges. In the 2026 OPPS final rule commentary, CMS clarifies that hospitals should only use discharges paid at the inpatient rate by the MA plan in the calculation of the weight for each payor used to determine the median for each MS-DRG.
- Step 3: For each MS-DRG, replicate each MA plan negotiated charge as many times as there were discharges for that plan.
- Step 4: Order the list of charges from lowest to highest and compute the median. If the list has an odd number of values, the median is the middle charge; if the list has an even number of values, the median is the average of the middle two charges. This result represents the weighted median negotiated charge for that MS-DRG.
What Are the Implications for Hospital Reimbursement & Finance Functions?
The implications for hospitals are significant, as this requirement is part of the cost report and is covered under the certification statement signed by a facility executive. In addition to the compliance implications, the submitted data will be used to establish MS-DRG weights that determine Medicare inpatient payments beginning in FY 2029. Many commercial and MA plans also rely on Medicare fee-for-service (FFS) MS-DRG weights to price inpatient claims. Consequently, inaccurate data submissions could result in substantial shifts in base and outlier reimbursement, leading to financial losses.
To mitigate this risk, hospitals must coordinate across finance functions to operationalize a near-term response. In the longer term, the availability of this data will provide hospitals with valuable insights into how they are reimbursed by MA plans compared to peers in their market.
Operationalizing a Response
As with any change in cost reporting requirements, hospital reimbursement teams should:
- Develop a thorough understanding of both the final rule and the new cost reporting form.
- Allocate sufficient time and resources to complete the form. While the 2026 OPPS final rule estimates an average of 20 hours for compliance, our experience with price transparency requirements suggests CMS has likely underestimated the effort required to analyze the data and complete the form accurately.
- Collaborate with the revenue cycle or revenue integrity team responsible for creating the hospital’s price transparency MRF.
Collaborating to Obtain MRF Data
The first step is to educate revenue cycle/revenue integrity staff who manage the MRF, as well as the managed care team responsible for negotiating rates, about the new requirement. Involving the managed care team is critical, since ongoing or recently concluded negotiations may affect file accuracy. Once incorporated into HCRIS, this information will also help managed care teams evaluate current MA contracts and prepare for future negotiations.
Once they understand the new requirement, the MRF team should:
- Confirm the MRF includes negotiated rates for all MA plans by reconciling the plan list with the facility’s insurance dictionary.
- Validate the accuracy of allowed amounts in the MRF.
Because MRFs and Medicare cost reports are often prepared by third parties, hospitals should schedule working sessions with these advisors to adjust processes based on the new requirement and test the accuracy of externally created files.
New Insights on MA Rates
While the new CMS requirement may contribute to administrative burden, it also presents a strategic opportunity. Within 24 months, the PSNC data will be included in Medicare HCRIS files and widely accessible. Hospitals will be able to benchmark their median MA rates by MS-DRG against peers and competitors. Although MA contracted rates often range from 103% to 110% of FFS rates, denials, downcoding, and claims edits can reduce actual reimbursement to as low as 85% of Medicare FFS rates. Comparing your facility’s median MA rates to market benchmarks can serve as a critical first step in identifying whether your organization is being underpaid relative to peers for similar services.
How Forvis Mazars Can Help
As federal healthcare policies continue to evolve, Forvis Mazars is committed to helping hospitals and health systems maintain regulatory excellence. We have extensive experience supporting hospitals with cost reporting, price transparency compliance, revenue cycle/revenue integrity, and managed care contracting. If you have questions about the MA negotiated rate reporting requirement and how to navigate the impact, please reach out to our professionals.