In medical billing, understanding the concept of sequestration is crucial for healthcare providers and billing professionals alike. Sequestration refers to the automatic spending cuts mandated by the Balanced Budget and Emergency Deficit Control Act of 1985.
These cuts impact Medicare payments to healthcare providers, reducing reimbursements by a fixed percentage. The specific code associated with sequestration in medical billing is often referred to as the “2% sequester reduction.”
Healthcare providers need to grasp this concept because it directly affects their revenue streams and financial planning. By comprehending sequestration and its implications, providers can better navigate the complexities of medical billing and ensure optimal financial health for their practices.
What Does Sequestration Mean?
Sequestration in medical billing, denoted by the code CO 253 on the Remittance Advice (RA), signifies a 2 percent reduction in federal payments. For Medicare Fee-for-Service (FFS) program claims dated April 1, 2013, and onwards, this reduction persists until further notice.
This reduction affects various healthcare services, including durable medical equipment (DME), prosthetics, orthotics, and supplies. Understanding the implications of sequestration is vital for healthcare providers as it directly impacts their revenue.
Example:
Imagine a provider submits a service bill with an approved amount of $100. After applying $50 to the deductible, a balance of $50 remains. Typically, the provider would receive 80% of the approved amount post-deductible, which equals $40.
The patient is then responsible for the remaining 20% coinsurance, amounting to $10. However, due to the sequestration reduction, 2% of the calculated payment amount ($40) isn’t paid, resulting in a payment of $39.20 instead of the expected $40.
What is Sequestration Reduction in Medical Billing?
Sequestration reduction in medical billing refers to the automatic spending cuts mandated by the government, impacting federal payments for healthcare services. Here are some key points to understand about sequestration reduction in medical billing:
- The sequestration order affects all payments for services with dates of service or dates of discharge (or start date for rental equipment or multi-day supplies) on or after April 1, 2013, until further notice.
- Claim adjustment reason code (CARC) 253 is used to report the sequestration reduction on the Electronic Remittance Advice (ERA) and Standard Paper Remittance (SPR).
- The reduction is subtracted from the calculated payment amount after determining the approved amount and applying the deductible and coinsurance.
- All fee-for-service Medicare claim payments are subject to a 2% reduction, with no exemptions provided in the law for drugs or any other healthcare item or service provided under the fee-for-service program.
What is Sequestration Adjustment in Medical Billing?
Sequestration adjustment in medical billing refers to the modification made to Medicare payments due to sequestration. The sequestration adjustment involves reducing the payment amount by a predetermined percentage, known as the sequestration amount.
This adjustment is applied to Medicare claims as mandated by federal law. Healthcare providers need to be aware of sequestration adjustments as they directly impact their reimbursement rates and overall revenue.
Understanding how sequestration adjustments affect billing and reimbursement processes is crucial for maintaining financial stability within healthcare practices.
Does Sequestration Apply to Medicare Advantage?
While the effects of sequestration may not be immediately apparent, it’s crucial to understand its implications, particularly concerning Medicare Advantage. The Centers for Medicare and Medicaid Services announced that if Congress fails to act before April 1, payments for all Medicare services provided on or after that date will be subject to a 2 percent reduction.
However, it’s important to note that Medicare provider cuts are handled differently under this law compared to typical changes to the physician fee schedule conversion factor. According to the Congressional Research Service, percentage payment reductions made under Medicare Parts A and B affect individual payments to providers for services rather than fee schedule allowable charges.
This means that for Part B services provided under assignment, the reduced Medicare payment is considered payment in full to the physician, resulting in a 2 percent reduction in the physician’s payment while the patient’s cost-sharing amount remains unchanged.
How is Medicare Sequestration Calculated?
Medicare sequestration represents a mandatory reduction in Medicare payments mandated by the Budget Control Act of 2011. Understanding how this reduction is calculated is vital for healthcare providers navigating billing processes. The calculation involves subtracting the sequestration amount from the calculated payment amount after applying the deductible and coinsurance.
For instance, if a non-contract provider bills a Medicare Advantage Organization (MAO) for a service with a $100 approved amount, and the member has a 20% coinsurance obligation, the MAO would typically pay the provider $80.
However, with a 2% sequestration reduction, the $80 payment would be reduced by $1.60, resulting in a payment of $78.40.
Closing Note
Sequestration in medical billing refers to the mandatory reduction in Medicare payments mandated by the Budget Control Act of 2011. This reduction, denoted by claim adjustment reason code (CARC) 253, affects payments for services with dates of service on or after April 1, 2013. Healthcare providers must grasp the implications of sequestration as it directly impacts their revenue streams and financial planning.
Understanding how sequestration adjustments are calculated and applied is essential for navigating the complexities of medical billing and ensuring optimal financial health for healthcare practices.
