Sequestration: Top 10 things to Know

Definition:  se·ques·tra·tion [ˌsikwəˈstrāSH(ə)n, ˌsekwəˈstrāSH(ə)n]

NOUN

“The action of taking legal possession of assets until a debt has been paid or other claims have been met:

• “If such court injunctions are ignored, sequestration of trade union assets will follow.”
• Synonyms:  Separation, setting apart, keeping apart, sorting out, isolation.
  
  
  • The action of taking forcible possession of something; confiscation:
    “They demanded the sequestration of the incriminating correspondence.”
  • An act of declaring someone bankrupt:
    “In Scotland there were 1,908 sequestrations of individuals.”

The action of sequestering a substance:

• “Carbon sequestration.”

Sequestration refers to automatic spending cuts that occur through the withdrawal of funding for certain (but not all) government programs. The goal of a sequestration is to mitigate debt; however, a sequestration financially impacts healthcare providers. The purpose of a Medicare Sequestration is to:

• Reduces government spending to meet budgetary goals via paying all healthcare providers who contract with Medicare less than the fee rate. 

The Congressional Budget Office (CBO) provides estimates of the statutory caps on discretionary funding and an assessment of whether sequestration might be necessary under current budgetary rules, but the Administration’s Office of Management and Budget (OMB) makes the ultimate determination of whether a sequestration is necessary and, if so, how big it should be.

Medicare Sequestration TimeLine:

Per the Budget Control Act of 2011, a $1.2 trillion reduction in federal spending means paying plans and providers less over a 10-year period. Due to the public health crises Congress postponed the Medicare sequester until the end of 2021.

April 1, 2013

• Medicare Sequestration implemented in the U.S.

April 2020

• Congress suspended the Medicare Sequestration effective April of 2020 through December 31, 2021.

December 10, 2021

• Protecting Medicare and American Farmers from Sequester Cuts Act passed and impacts payment for all Medicare Fee-for-Service (FFS) claims:
  
  
  • No payment adjustment through March 31, 2022.
  • 1% payment adjustment April 1 – June 30, 2022.
  • 2% payment adjustment beginning July 1, 2022.

Top 10 Things to know about Medicare Sequestration:

1) The Medicare Sequestration cuts Medicare payments up to 2% annually. This is an automatic reduction in Medicare Fee-For-Service claim reimbursements required by the 2011 Budget Control Act to curtail federal spending.

2) Protecting Medicare and American Farmers from Sequester Cuts Act passed and impacts payment for all Medicare Fee-for-Service (FFS) claims:

• No payment adjustment through March 31, 2022.
• 1% payment adjustment April 1 – June 30, 2022.
• 2% payment adjustment beginning July 1, 2022.

3) The 1% payment reduction (sequestration) will be:

• Applied to all Medicare FFS claims with a date of service and or “through” date of service on or after April 1, 2022.
• Calculated after the approved amount is determined and the deductible and coinsurance applied.
• For claims with Dates of Service (DOS) that span April 1, 2022 (e.g., 031522 – 041522), the approved amount is determined based on the entire claim (not DOS on or after April 1 only).
• Reported with claim adjustment reason code (CARC) 253 (Sequestration – reduction in federal payment) on the remittance advice.

4) The reduction in payment applies to the payment itself not the “allowed charge” published by Medicare as part of their fee schedule.

5) Medicare beneficiaries do not pay any additional dollars. 

6) Healthcare providers bear the fiscal responsibility.

7) Medicare reimburses for any drugs administered as part of the claim with the same 2 percent cut.

8) HHI recommends that CFO’s, Accounting Departments and Business Office Mangers be sure to account for the reduction in the financial reporting system as well as the billing system. 

9) HHI recommends that organizations alert leaders of these reductions so they can make decisions based upon accurate financial statements. 

10) Call HHI if you have any questions at 617.595.6032.

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