Medicare FFS claims: 2% payment adjustment (sequestration) changes
The Protecting Medicare and American Farmers from Sequester Cuts Act impacts payments for all Medicare fee-for-service claims:
2% payment adjustment beginning July 1, 2022, and continues until further notice
The Budget Control Act of 2011 required mandatory across-the-board reductions in federal spending, also known as sequestration. The American Taxpayer Relief Act of 2012 postponed sequestration for two months. As required by law, President Obama issued a sequestration order on March 1, 2013. For additional information, please refer to the Mandatory Payment Reductions in the Medicare Fee-for-Service (FFS) Program – “Sequestration”.
1. How long is the 2% reduction to Medicare fee-for-service claim payments in effect?
The sequestration order covers all payments for services with dates of service or dates of discharge on or after July 1, 2022, will continue until further notice.
2. Are drugs excluded from the 2% reduction?
No, 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.
3. Does the 2% payment reduction under sequestration apply to the payment rates reflected in Medicare fee-for-service fee schedules or does it only apply to the final payment amounts?
Payment adjustments required under sequestration apply 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; only the final payment amount that is reduced.
4. How will the 2% payment reduction be identified on the electronic remittance advice (ERA) and standard paper remittance (SPR)?
Claim adjustment reason code 253 (Sequestration – Reduction in federal payment) will appear on the ERA and SPR to report the sequestration reduction.
5. Will the 2% reduction be reported on the remittance advice in a separate field?
For institutional Part A claims, the adjustment is reported at the claim level on the remittance advice. For Part B physician/practitioner, supplier, and institutional provider outpatient claims, the adjustment is reported at the line level.
6. How will the payments be calculated?
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 $100.00 with $50.00 applied to the deductible. A balance of $50.00 remains. We normally pay 80% of the approved amount after the deductible is met, which is $40.00 ($50.00 x 80% = $40.00). The patient is responsible for the remaining 20% coinsurance amount of $10.00 ($50.00 - $40.00 = $10.00). However, due to the sequestration reduction, 2% of the $40.00 calculated payment amount is not paid, resulting in a payment of $39.20 instead of $40.00 ($40.00 x 2% = $0.80).
7. How are non-assigned claims affected by the 2% reduction under sequestration?
Although beneficiary payments for 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 a non-assigned 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. 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 is subject to the 2% reduction, just like payments to physicians on assigned claims. If the limiting charge applies to the service rendered, physicians/practitioners cannot collect more than the limiting charge amount from the beneficiary.
Example: A non-participating provider bills a non-assigned 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 $95.00 with $50.00 applied to the deductible. A balance of $45.00 remains. Medicare normally reimburses the beneficiary 80% of the approved amount after the deductible is met, which is $36.00 ($45.00 x 80% = $36.00). However, due to the sequestration reduction, 2% of the $36.00 calculated payment amount is not paid to the beneficiary, resulting in a payment of $35.28 instead of $36.00 ($36.00 x 2% = $0.72).
We encourage physicians, practitioners, and suppliers who bill non-assigned claims to discuss with their Medicare patients the impact of the sequestration reductions to Medicare payments.
8. Does the 2% sequestration reduction apply to Medicare incentive payments?
Yes, the 2% sequestration reduction applies to electronic health records and physician quality reporting system incentive payments for a reporting period that ended on or after April 1, 2013.
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