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.

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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.)

Participating Providers

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.

Non-participating 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.

Sources:

Mandatory Payment Reductions in the Medicare Fee-for-Service (FFS) Program – “Sequestration”

Federal Sequestration Payment Reductions

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