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.


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

Federal Sequestration Payment Reductions


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