Cuts to Medicare due to Sequestration
Congress and the Obama Administration have been unable to agree on the level of budget cuts, tax increases, or a combination of both. A result of this gridlock is that The Budget Control Act of 2011 was signed into law in January, 2013. As required by law, President Obama signed the sequestration order on March 1, 2013.
Sequestration will go into effect April 1, 2013
Sequestration is across-the-board cuts to government agencies including both domestic discretionary spending and defense. It is important to note that some programs are exempt from sequestration including Medicaid, Social Security, the Children’s Health Insurance Program (CHIP), and some veterans programs.
If you are a Medicare-contracted provider, a 2% reduction is anticipated on April 1, 2013 and will impact Medicare Parts A and B, contractual payments to Medicare Advantage Plans (Part C), and Medicare Prescription Drug Plans (Part D). In general, payment for Medicare fee-for-service claims with a date of service or date of discharge on or after April 1, 2013 will be reduced by 2%. This claims payment reduction will be calculated after determining any co-insurance, deductible, and any applicable Medicare Secondary Payment adjustments.
CMS indicates how the 2% adjustments will appear
Very recently, CMS indicated that the remittance would appear the same with the addition of a separate adjustment which would be reflected by the CAR (Claim Adjustment Reason) Code 223 - Adjustment code for mandated federal, state or local law/regulation that is not already covered by another code and is mandated before a new code can be created to reflect the 2% reduction. For Part B providers this would be reflected as a line level adjustment. Part A institutional claims would reflect this adjustment at the claim level. CMS also confirmed that this is a CMS business requirement and that all MAC's have been given this directive.
As a reminder, CMS will not allow providers to pass the 2% reduction to the patient.
As the law is currently written, sequestration is scheduled to last through Fiscal Year 2021. However, it is possible that Congress and the Administration could reach a budget agreement that will end or modify the sequestration provisions. Until the sequestration provisions are modified or eliminated, health care providers should prepare for a 2% reduction for Medicare-covered services and prepare for additional guidance on Medicare and how this reduction will be implemented.