Federal sequestration payment reductions

Payment reduction applies to final payment amount

Payment adjustments required under sequestration are applied to all claims after determining the Medicare payment including application of the current fee schedule, coinsurance, any applicable deductible, and any applicable Medicare secondary payment adjustments. All fee schedules, pricers, etc., are unchanged by sequestration; it’s only the final payment amount that is reduced.

Payment reduction reason code for ERA and SPR

The 2% payment reduction under sequestration is identified on the electronic remittance advice (ERA) and the standard paper remittance (SPR) using claim adjustment reason code (CARC) 253 - Sequestration-reduction in federal payment.

Payment reduction reporting on remittance advice

For institutional Part A claims, the adjustment is reported on the remittance advice at the claim level. For Part B physician/practitioner, supplier, and institutional provider outpatient claims, the adjustment is reported at the line level.

Payment reductions calculated on the claims

The reduction is taken from the calculated payment amount, after the approved amount is determined and the deductible and coinsurance are applied.

Example: A provider bills a service with an approved amount of $100, and $50 is applied to the deductible. A balance of $50 remains. We normally would pay 80% of the approved amount after the deductible is met, which is $40 ($50 x 80% = $40). 

The patient is responsible for the remaining 20% coinsurance amount of $10 ($50 - $40 = $10). However, due to the sequestration reduction, 2% of the $40 calculated payment amount is not paid, resulting in a payment of $39.20 instead of $40 ($40 x .02 = $.80).

Unassigned claims processing under sequestration

Though beneficiary payments toward deductibles and coinsurance are not subject to the 2% payment reduction, Medicare’s payment to beneficiaries for unassigned claims is subject to the 2% reduction. The non-participating physician who bills on an unassigned basis collects his/her full payment from the beneficiary, and Medicare reimburses the beneficiary the Medicare portion (e.g., 80% of the reduced fee schedule amount). 

Note: The “reduced fee schedule” refers to the fact that Medicare’s approved amount for claims from non-participating physicians/practitioners is 95% of the full fee schedule amount). This reimbursed amount to the beneficiary would be subject to the 2% sequester reduction just like payments to physicians on assigned claims. Both are claims payments, but to different parties. If the limiting charge applies to the service rendered, providers cannot collect more than the limiting charge amount from the beneficiary.

Example: A non-participating provider bills an unassigned claim for a service with a limiting charge of $109.25. The beneficiary remains responsible to the provider for this full amount. However, sequestration affects how much Medicare reimburses the beneficiary. The non-participating fee schedule approved amount is $95, and $50 is applied to the deductible. A balance of $45 remains. Medicare normally would reimburse the beneficiary for 80% of the approved amount after the deductible is met, which is $36 ($45 x 80% = $36). However, due to the sequestration reduction, 2% of the $36 calculated payment amount is not paid to the beneficiary, resulting in a payment of $35.28 instead of $36 ($36 x .02 = $.72). 

We encourage physicians, practitioners, and suppliers who bill unassigned claims to discuss with their Medicare patients the impact of the sequestration reductions to Medicare payments.

Reduction based on the date of service or date of discharge

In general, Medicare FFS claims with dates-of-service or dates-of-discharge on or after April 1, 2013, will incur a 2% reduction in Medicare payment. Claims for durable medical equipment (DME), prosthetics, orthotics, and supplies, including claims under the DME competitive bidding program, will be reduced by 2% based upon whether the date-of-service, or the start date for rental equipment or multi-day supplies, is on or after April 1, 2013.

DME capped rental period payments

Any claims for rental payments with a "FROM" date of service on or after April 1, 2013, will be subject to the 2% reduction, regardless of when the rental period began. For example, if a capped rental wheelchair was provided in February 2013, the monthly rental payment for May 2013 would be subject to the 2% sequestration reduction. The initial and subsequent monthly rental payments billed with a "FROM" date of service beginning on or prior to March 31, 2013, would not be affected by the 2% reduction.

Effective date for the 2% reduction to Medicare fee-for-service claim payments

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. 

Drugs are not excluded from the 2% reduction

All fee-for-service Medicare claim payments are subject to the 2% reduction. 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.