Medicare Worksheet S-12 adds to cost-reporting demands for hospitals

Acute care hospitals are taking steps to incorporate a required new worksheet in their Medicare cost reporting.

Effective for cost-reporting periods that end on or after Jan. 1, 2026, most hospitals paid under the Inpatient Prospective Payment System (IPPS) must fill out Worksheet S-12.

An analysis by Baker Tilly notes that the worksheet is the first addition to the S series since 2016. The sheet is designed to bridge hospital price transparency files and Medicare cost reporting, meaning the accuracy of a hospital’s machine-readable file (MRF) will affect its cost reporting.

The stated purpose of the worksheet is to provide Medicare Advantage (MA) data for CMS to use in recalibrating Medicare Severity Diagnosis Related Group (MS-DRG) relative payment weights as soon as FY29. Those weights are used to annually redistribute payments across MS-DRGs.

“This transition will effectively move the MS-DRG payment weight-setting process toward a market-based approach,” the Baker Tilly analysis states, meaning a shift from cost-based data to negotiated prices as the basis for weight setting.

Worksheet S-12 creates a new hospital reporting requirement

Maryland hospitals are exempt from the S-12 reporting requirement due to their state’s all-payer global budget model. The new worksheet also does not apply to hospitals that receive only non-negotiated payments.

Otherwise, the S-12 form requires an IPPS hospital to collect and report its weighted median negotiated MA payment rate pertaining to each MS-DRG for which the hospital had an inpatient discharge during the cost-reporting period.

“For the first time, hospitals must integrate Medicare cost reporting, price transparency data, and patient accounting information into a single filing,” according to an analysis by the accounting firm Blue & Co. “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.”

Failure to complete Worksheet S-12 as required will invalidate a hospital’s cost report.

Hospitals will need to take several steps

Completing Worksheet S-12 requires filling out roughly 940 lines of MS-DRG codes, combining price transparency data with historical internal discharge files.

“The process begins by identifying the Medicare Advantage inpatient discharges that occurred during the cost reporting period,” the Blue & Co. analysis states.

Hospitals then should cross-reference the discharges with active contract rates listed in the hospital’s up-to-date MRF as of the cost-reporting filing date.

A subsequent step is to calculate the weighted median value of negotiated MA rates per each MS-DRG, with that value entered onto the worksheet.

When an MA payer-specific negotiated charge is based on a percentage or algorithm, hospitals should use the corresponding dollar amount reported in their MRF. That guidance tracks with required changes to MRFs under 2026 price transparency regulations, with hospitals now required to encode certain percentage- or algorithm-based negotiated charges as the 10th-percentile, median and 90th-percentile allowed amounts (along with providing the number of allowed amounts used in those calculations).

CMS specifies that the information entered on Worksheet S-12 should reflect not the average or median amount paid by MA plans, but rather the payer-specific negotiated charge in the up-to-date MRF, weighted according to MA discharges that took place during the cost-reporting period. Thus, plans with larger shares of the hospital’s MA discharges will have a greater impact on the S-12 tally.

What not to include on Worksheet S-12

In extracting MA inpatient discharges that took place during the cost-reporting period, hospitals should exclude denied, unpaid or zero-reimbursement cases.

Negotiated charges that represent capitated payments also should be omitted, CMS said. Likewise, the relative weights determined by CMS will exclude inpatient discharges for which the hospital received capitated payments.

Hospitals may need to crosswalk rates to MS-DRGs

Hospitals must use Worksheet S-12 to reconcile instances when a negotiated charge in the MRF is associated with a non-MS-DRG code. CMS says hospitals should “crosswalk” that code to an MS-DRG.

If a discharge is not classified to an MS-DRG, the hospital should create such a classification on S-12 (e.g., by using the CMS MS-DRG Grouper and definitions manual).

Such considerations illustrate why the new worksheet is a major addition to the cost report.

“CMS estimates that it will take about 20 hours to complete the worksheet, but early efforts at completing the form are showing that it may take longer than expected,” the Baker Tilly analysis states.

The policy implications of the data reported on Worksheet S-12 are substantial, with MA negotiated-charge information set to affect MS-DRG relative weights and, in turn, the distribution of Medicare fee-for-service payments. Thus, CMS and other parties can be expected to take a close look at what hospitals submit.

“Hospitals should be prepared to identify and summarize the required data needed early in the cost-reporting process,” according to an analysis by Baker Newman Noyes. “It is very likely that the MAO [MA organization] payer-specific negotiated median charges will be scrutinized by many different sources such as CMS, payers and competitors.”