Statmed Open graph 24 | The Medicare Sequestration: 5 Questions to Ask | STATMedCare Payor and Physician Enrollment and Credentialing

As most of you know by now, congress passed a mandatory Sequestration in April 2013, which forces a two (2%) percent across-the-board cut in Medicare provider payments to providers.

Located below are 5 questions that you should ask yourself about the Medicare Sequestration and what it means for your healthcare practice:

1. How long will the 2% reduction to the Medicare FFS claim payments remain in effect?

The sequestration order covers all payments for services with dates of service or dates of discharge (or a start date for rental equipment or multi-day supplies) on or after April 1, 2013, until further notice.

The Budget Control Act requires that $1.2 trillion in federal spending cuts be achieved over the course of nine years. So, unless Congress takes action to change the law, federal spending will be subject to sequestration until 2022.

2. How does this affect your practice?

All Medicare physician claims with a date of service on or after April 1, 2013 will be subject to a two (2%) percent payment cut until further notice.

Costs for physician-administered drugs included on the physician claim will also be subject to the two (2%) percent cut until further notice. There are no exemptions provided in the law for drugs or any other health care item or service provided under the fee-for-service program.

The cut will be applied to the payment itself, not the underlying “allowed charge” in the Medicare fee schedule.  As a result, beneficiary co-payments and deductibles will not change. In other words, the two (2%) percent cut is imposed only on the eighty (80%) percent of the allowed charge that a participating physician would receive directly from Medicare. The other twenty (20%) percent co-payment amount (and any deductible) that the physician collects from the patient will be based on the full allowed charge amount.

What does this mean for your managed care contracts that are based upon a percentage of Medicare?  Your contracts won’t be affected by these reductions.  The reductions apply directly to the payments themselves and not your contracted rates. 

With respect to unassigned claims for services provided by non-participating providers, the two (2%) percent cut will be applied to the Medicare payment made to the beneficiary (but not to the limiting charge amount).

3. How will Medicare payments to other providers be affected?

Hospitals, home health services, durable medical equipment suppliers, and all others who provide Medicare Credentialing services to Medicare patients will receive the same two (2%) percent payment cut for dates of discharge, rental agreements, etc., beginning on or after April 1, 2013 and until further notice.

4. Will the 2% reduction be reported on the remittance advice in a separate field?

For institutional Part A claims, the adjustment is reported on the remittance advice at the claim level.

For Part B physician/provider claims and institutional provider outpatient claims, the adjustment is reported at the line level.

5. How is the 2% payment reduction under sequestration identified on the electronic remittance advice (ERA) and the standard paper remittance (SPR)?

Claim adjustment reason code (CARC) 253 is used to report the sequestration reduction on the ERA and SPR.

What does this mean for your practice?

Unfortunately, threats of payment cuts are nothing new in physician practices and a two (2%) percent cut may seem small compared to much larger cuts threatened each year. However, under sequestration, the “trickle down” effect may have deeper ramifications due to other impacts patients may face, such as job losses and/or furloughs, hospitals having to reduce services due to payment cuts, and more. Practices should keep an eye on payments from all sources and should consider adjusting their annual budget to account for possible revenue shortfalls. Medical providers are encouraged to continue contacting their State Representatives and Senators emphasizing the impact of the Medicare program’s instability on their practices and their patients.

Use an industry expert to assist you with this process and in answering all of your questions, as well as guide you through the entire process.


For helpful credentialing-based tips and tools, please:
• Follow us on LinkedIn.
• Like us on Facebook.
• Follow us on Twitter.
• Follow us on Google+.
• Sign up for our newsletter.