Based on the information you have provided I would do this:

SELECT

SCH.SystemID,

SCH.ProgramID,

SS.SystemName,

CASE WHEN SCH.ProgramName = 'M' THEN 'L'

ELSE SCH.ProgramName

END AS 'ProgramName',

SCH.AdjustmentsSequenceNo,

SUM(SCH.Paid) AS Paid,

SUM(SCH.Free) AS Free,

SUM(SCH.Reduced) AS Reduced,

SUM(SCH.paidamount),

SUM(SCH.freeamount),

SUM(SCH.reducedamount),

SUM(SCH.paidamount) + SUM(freeamount) + SUM(reducedamount) AS dollars

FROM

[dbo].[vForAllSystemsForOneMonth] SCH JOIN

[dbo].[vSystemSchool] AS SS ON SCH.SystemID = SS.SystemID

WHERE

SCH.FiscalYear = @FiscalYear AND

SCH.ClaimMonth = @ClaimMonth AND

SCH.AdjustmentsSequenceNo >= 0

GROUP BY

SCH.systemID,

SS.SystemName,

SCH.programID,

SCH.ProgramName,

SCH.AdjustmentsSequenceNo

ORDER BY

SCH.AdjustmentsSequenceNo;

Then I would let SSRS do the higher level grouping based only on SystemID, ProgramID, and ProgramName. I may be misunderstanding why queries 2 and 3 in your example are needed, but I think you can bring the data across at the granularity that you need (SystemID, ProgramID, ProgramName, AdjustmentSequenceNo) and then handle the rest using SSRS grouping and filtering.