What Is Sequestration Adjustment in Medical Billing?
Navigate federal payment reductions in medical billing. Learn how sequestration adjustments impact Medicare reimbursements for healthcare providers.
Sequestration adjustment in medical billing represents a government-mandated reduction in payments, primarily impacting Medicare claims. This financial adjustment serves as a budgetary measure to control federal spending.
What Sequestration Adjustment Means
Sequestration adjustment is a mandatory, across-the-board reduction in federal spending. This mechanism originated from the Budget Control Act of 2011, a legislative effort to reduce the national deficit. Since its implementation in April 2013, this act has imposed a uniform 2% reduction on Medicare reimbursements. This reduction applies to the amount Medicare would otherwise pay, serving as a tool for the government to manage healthcare costs.
Programs Affected by Sequestration
The sequestration adjustment primarily impacts various components of the Medicare program. This includes payments for services covered under Medicare Part A, which relates to hospital services, and Medicare Part B, which covers medical services. Additionally, contractual payments made to Medicare Advantage Plans (Part C) and Medicare Prescription Drug Plans (Part D) are also subject to this reduction. The 2% reduction applies to all Medicare Fee-for-Service (FFS) claims. Certain programs and activities within Medicare are exempt from sequestration, such as Part D low-income subsidies and Qualified Individual premiums.
How Sequestration Adjustments are Applied
The 2% sequestration reduction is applied to the final payment amount after all other deductions have been calculated by Medicare. This means the reduction occurs after applying the current fee schedule, coinsurance, and any applicable deductibles or Medicare secondary payment adjustments. For example, if Medicare approves a service for $100 and the patient’s deductible and coinsurance reduce the Medicare-responsible portion to $80, the 2% sequestration will be applied to that $80. This results in a $1.60 reduction, leading to a Medicare payment of $78.40 instead of the expected $80. Patient cost-sharing amounts, such as deductibles and coinsurance, are not directly impacted by the sequestration reduction.
Recording Sequestration in Medical Billing Systems
Medical billers must accurately record sequestration adjustments within their billing and accounting systems. These adjustments typically appear on the Electronic Remittance Advice (ERA) or Standard Paper Remittance (SPR). The specific Claim Adjustment Reason Code (CARC) used to identify this reduction is CO 253, which stands for “Sequestration – reduction in federal payment.” The “CO” prefix indicates a contractual obligation, meaning the provider agrees to accept this adjustment and cannot bill the patient for the reduced amount. Posting these adjustments correctly ensures that accounts receivable accurately reflect the actual payments received, preventing discrepancies in financial records.