Know the Impact of Sequestration on Provider Reimbursement
By Delly Parham, CPC
As of April 1, the deficit control measure known as sequestration mandated a 2 percent decrease on payments to fee-for-service healthcare providers for services to Medicare Part A and B beneficiaries. Although hardly good news, cuts to the Medicare program are lower than cuts made to other federal programs. Here is what you should know about how the 2 percent decrease affects your reimbursement.
Under sequestration, be aware that:
- The current allowed fees remain unchanged
- The 2 percent reduction will not apply to the deductible or coinsurance owed by the patient
- The 2 percent is calculated only on the amount actually paid to the provider or patient, and not to the amount allowed
- The effects of sequestration apply differently for participating and non-participating providers
The 2 percent reduction began with dates of service and dates of discharge after April 1, 2013 (The mandate is divided into two parts: Part one of this two-part mandate covers only the period through 12/31/13. Part two covers the period 2014 through 2021, but there could be many changes by 2014.)
If you are a participating provider with Medicare (this means enrolled in the Medicare program for Part A or Part B beneficiaries), Medicare will apply the 2 percent reduction only to the amount paid to you. In other words, the 2 percent will be taken from only the calculated payment amount after the deductible is met, and it does not include the co-insurance. For example:
|Medicare approved amount||$100.00||Medicare allowable before deductible and coinsurance|
|Deductible||$50.00||Patient pays this amount|
|Amount after deductible||$50.00||Medicare will pay 80 percent of this amount|
|Patient 20 percent coinsurance||$10.00||Patient pays this amount|
|Medicare payment to provider||$40.00||Before 2 percent reduction|
|$00.80||2 percent reduction|
|Paid to provider after reduction||$39.20||Provider is paid this amount|
The claim adjustment reason code 223 will be displayed next to the line item on the electronic or paper remittance advice for Part B providers, and at the end of the claim for Part A providers.
If you are a non-participating provider (not enrolled in the Medicare program), and you see Medicare Part A and Part B patients, you will not be affected by this reduction; however, you must take the following actions:
- You must notify Medicare patients of this mandate.
- Your Medicare patients will be liable for the full limiting charge (115 percent of Medicare allowable). For example, if the total limiting charge is $109.25, you may collect this amount from the patient.
- Medicare will apply the 2 percent reduction to the actual amount paid to your patients, for example:
|Medicare approved amount||$95.00||Medicare allowable before deductible and coinsurance|
|Deductible||$50.00||Patient is responsible for this (not reduced)|
|Amount after deductible||$45.00||Medicare pays 80 percent of this amount|
|Amount to patient before 2 percent reduction||$36.00||Apply 2 percent reduction|
|$00.72||2 percent reduction|
|Reduced Payment||$35.28||Patient will receive this amount|
If you have any questions specific to your practice, contact your Medicare carrier or Medicare Administrative Contractor (MAC) in your region.
Mandatory Payment Reductions in the Medicare Fee-for-Service (FFS) Program – “Sequestration”
Federal Sequestration Payment Reductions