Beginning with cost reporting periods ending on or after January 1, 2026, many acute care hospitals will face a new Medicare cost reporting requirement: Worksheet S-12.
For the first time, hospitals must integrate Medicare cost reporting, price transparency data, and patient accounting information into a single filing. Organizations that wait until closer to the cost report filing to begin preparation may face challenges in gathering data from multiple systems and reconciling discrepancies.
Preparing Medicare Cost Report Worksheet S-12
At a high level, Worksheet S-12 requires hospitals to report the median negotiated Medicare Advantage payment rate for each MS-DRG. The process begins by identifying the Medicare Advantage inpatient discharges that occurred during the cost reporting period. Hospitals then match those discharges to the negotiated payment rates published in their MRF, calculate the median negotiated rate for each MS-DRG, and report the required information.
Hospitals can refer to the CMS Provider Reimbursement Manual for the official instructions for the new requirement.
Why is Centers for Medicare and Medicaid Services (CMS) Requiring Worksheet S-12?
Historically, Medicare has relied on hospital charges and cost-to-charge ratios to help establish the relative weights used in the Inpatient Prospective Payment System (IPPS).
CMS is now moving toward a more market-based approach.
Beginning in FY 2029, CMS intends to use the weighted median of Medicare Advantage negotiated rates reported on Worksheet S-12 as part of its methodology for recalibrating MS-DRG relative weights.
While an individual hospital’s S-12 will not directly determine its own future reimbursement, the aggregate data submitted nationwide will influence national Medicare payment weights.
Who Must File Worksheet S-12?
Worksheet S-12 applies to Subsection (d) hospitals paid under the Medicare IPPS. Failure to complete the worksheet will result in the cost report being rejected.
Hospitals exempt from reporting include:
• Critical Access Hospitals
• Hospitals participating in the Maryland Total Cost of Care Model
• Certain federal facilities and hospitals that do not negotiate payment rates
How is Worksheet S-12 Different from Other Cost Reporting Worksheets?
Unlike many Medicare cost report schedules that rely primarily on general ledger or statistical data, Worksheet S-12 requires hospitals to integrate information from multiple sources:
• The hospital’s Machine Readable File (MRF) published under the Hospital Price Transparency Rule
• Patient accounting or claims systems
• Medicare Advantage contract information
• MS-DRG assignment data
These systems are often maintained by different departments and may not align without significant preparation.
Common Challenges When Preparing Worksheet S-12
Hospitals preparing Worksheet S-12 are likely to encounter questions such as:
• Which version of the Machine Readable File should be used?
• How should contracts that use non-MS-DRG reimbursement methodologies be addressed?
• How can patient accounting payer codes be mapped to the correct Medicare Advantage plans published in the MRF?
• Which discharges should be excluded from the calculation?
Successfully answering these questions requires more than simply extracting data—it requires an understanding of both Medicare reimbursement and hospital price transparency.
Although CMS has not yet issued detailed audit procedures, hospitals should be prepared to support the data and methodologies used to prepare this worksheet.
What Hospitals Can Do Now to Prepare for the New Requirement
Hospitals should begin early preparation by:
• Identifying the departments responsible for the required data sources
• Evaluating the completeness and consistency of Medicare Advantage payer information
• Understanding how negotiated rates are represented in the hospital’s MRF
• Assessing how to capture the patient accounting systems information needed for reporting
• Establishing a process for documenting assumptions and methodologies
How Blue & Co., LLC Can Help You Prepare
Blue & Co.’s professionals are working with hospitals to evaluate readiness, identify potential data gaps, MRF review, develop reporting methodologies, and prepare compliant Worksheet S-12 filings.
Whether your organization is just beginning to assess the new requirements or is looking for assistance with compilation, our team can help you prepare with confidence.
Contact our Healthcare Consulting team to discuss how this new requirement may affect your organization.
Contact an expert today to discuss next steps or schedule a planning session.
Becca Meredith, CPA, FHFMA, Senior Manager – Reimbursement
bmeredith@blueandco.com
