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Mandatory Payment Reduction of 2% Continues until Further Notice for the Medicare FFS Program - "Sequestration"

Medicare Fee-For-Service (FFS) claims with dates-of-service on or after April 1, 2013, will continue to incur a 2 percent reduction in Medicare payment until further notice. Claims for Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS), including claims under the DMEPOS Competitive Bidding Program, will continue to be reduced by 2 percent based upon whether the date-of-service, or the start date for rental equipment or multi-day supplies, is on or after April 1, 2013. The claims payment adjustment will continue to be applied to all claims after determining coinsurance, any applicable deductible, and any applicable Medicare Secondary Payment adjustments.

Though beneficiary payments for deductibles and coinsurance are not subject to the 2 percent payment reduction, Medicare's payment to beneficiaries for unassigned claims is subject to the 2 percent reduction. CMS encourages Medicare physicians, practitioners, and suppliers who bill claims on an unassigned basis to continue discussions with beneficiaries on the impact of sequestration on Medicare's reimbursement.

Questions and Answers

Question: How is the 2% payment reduction under sequestration identified on the electronic remittance advice (ERA) and the standard paper remittance (SPR)?
Answer: Claim adjustment reason code (CARC) 253 is used to report the sequestration reduction on the ERA and SPR.

Question: What is the verbiage for CARC 253?
Answer: "Sequestration – reduction in federal payment."

Question: Will the 2% reduction be reported on the remittance advice in a separate field?
Answer: For DME claims, the adjustment is reported at the line level.

Question: How will the payments be calculated on the claims?
Answer: 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, and $50.00 is applied to the deductible. A balance of $50.00 remains. We normally would pay 80% of the approved amount after the deductible is met, which is $40.00 ($50.00 × 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 × 2% = $0.80).

Question: How are unassigned claims affected by the 2% reduction under sequestration?
Answer: Though beneficiary payments toward 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 provider who bills on an unassigned 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. NOTE: The "reduced fee schedule" refers to the fact that Medicare's approved amount for claims from non-participating providers is 95% of the full fee schedule amount). This reimbursed amount to the beneficiary would be subject to the 2% sequester reduction just like payments to providers on assigned claims. Both are claims payments, just to different parties.

Question: If a Durable Medical Equipment capped rental period started before April 1, 2013, are the rental payments for months after April 1, 2013, subject to the 2% reduction?
Answer: Yes. Any claims for rental payments with a "FROM" date of service on or after April 1, 2013, will be subject to the 2% reduction, regardless of when the rental period began. For example, if a capped rental wheelchair was provided in February 2013, the monthly rental payment for May 2013 would be subject to the 2% sequestration reduction. The initial and subsequent monthly rental payments billed with a "FROM" date of service beginning on or prior to March 31, 2013 would not be affected by the 2% reduction.

Question: Are drugs excluded from the 2% reduction?
Answer: 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.

Last Updated Oct 26, 2018