Algorithms & Percentile Amounts

The Hospital Price Transparency (HPT) regulations require hospitals to publish payer-specific negotiated charges as dollar amounts in the machine-readable file.

However, not all negotiated rates can be expressed as a single, fixed dollar amount in advance. Some rates depend on future, variable, or unknowable factors (length of stay, supplier invoice cost, government payment methodologies, or claim-level conditions).

In its most recent regulation, CMS clarified that when charges cannot be expressed as a dollar amount or are not knowable in advance, hospitals must include in the MRF all necessary information available to allow the public to derive the dollar amount. These scenarios are commonly referred to as algorithms.

Algorithms are negotiated rates that cannot be calculated as a single dollar amount at the item or service level at the time of publishing, because they depend on variable or external inputs.

Common algorithm categories include:

• Items to be paid at invoice cost, when cost documentation is provided alongside the claim
• Medicare-exempt PPS methodologies that lack a consistent base rate, due to the presence of many factors that influence payment (IPF, IRF, SNF)
• Multi-phase transplant case rates that rely on unknowable factors such as pre- and post-transplant windows
• Case rates that are modified depending on the length of stay of a specific visit (e.g., maternity case rates that cover the first 3 or 5 days, with per diem rates for additional days)
• Percent of charge rates tied to a specific item or service (e.g., ER) that apply to all charges on the claim, not just to the specific item or service listed
• Service-level lesser of provisions (lesser of rate vs percent of line-item charges, or lesser of rate vs percent of Medicare)
• Individual Letter of Agreement

For services where algorithms determine the payment rates, it is essential to include detailed descriptions of these algorithms in the MRF. This ensures that the calculated rates are transparent and understandable for stakeholders. The algorithm field in the MRF should capture all relevant details, providing a clear explanation of how the rates are derived.

Estimated Allowed Amount

From 1/1/25 through 12/31/2025 there was an additional requirement to calculate an estimated allowed amount whenever the negotiated rate could not be reflected as a dollar amount. The estimated allowed amount was not based on contracted rates but rather on historical average reimbursement amounts for the service and payer, using historical claims payment information.

This requirement was replaced by the Percentile Amount fields effective 1/1/2026.

Percentile Allowed Amounts

Beginning 1/1/2026, CMS replaced the Estimated Allowed Amount requirement with Percentile Allowed Amounts for negotiated rates that cannot be expressed as a single, fixed dollar amount in advance (i.e., algorithmic or percentage-based rates).

Instead of reporting a single estimated value, hospitals must use historical paid claims/remittance data to show a more detailed distribution of what they actually received for a given payer and service. Specifically, hospitals must include in the MRF:

• 10th percentile allowed amount (dollar amount)
• Median allowed amount (dollar amount)
• 90th percentile allowed amount (dollar amount)
• Count of allowed amounts used to calculate those figures

These percentile values must be calculated using a historical lookback period of 12–15 months and should be based on remittance-derived allowed amounts (or an equivalent remittance data source). This change is intended to make estimated amounts more transparent by showing a payment range rather than a single average.

Note: Non-Algorithmic Rates

In contrast to the above, most negotiated rates can be expressed as a dollar amount in the MRF, even if they are described differently in contract language. These rates do not require algorithmic treatment.

Common non-algorithmic negotiated rates include:

• Flat DRG Case Rate ("MS-DRG 470 is paid at $14,000 per admission")
• DRG Case Rate expressed as a % of Medicare ("Inpatient DRGs are paid at 200% of the Medicare IPPS Federal Operating and Capital Federal specific portion")
• Level of Care Per Diems ("Med/Surg days are paid at $1,400 per day, ICU days are paid at $3,000 per day")
• Outpatient surgery case rate by CPT ("CPT 47562 paid at $8,000 per case")
• Percentage of a fee schedule ("Imaging is paid at 130% of the payer fee schedule amount")
• Basic percent of charge ("all OP services paid at 80% of charges" or "High Cost Drugs are paid at 50% of charges")
• Per Unit ("each instance of an MRI on a claim is paid at $400")
• Outpatient % of Medicare ("All OP services are paid at 140% of the OPPS rate")

Although these rates may involve percentages or references to benchmarks, they are fully calculable as dollar amounts at the item or service level and therefore should be reported as standard negotiated charges, not algorithms.