Sequestration Medicare Payment Reductions

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Noridian Administrative Services LLC

(04/25/2013)

Mandatory Payment Reductions in the Medicare FFS Program - "Sequestration"

New questions and answers have been provided by CMS.

To All Health Care Professionals, Providers, and Suppliers
The Budget Control Act of 2011 requires, among other things, mandatory across-the-board reductions in Federal spending, also known as sequestration. The American Taxpayer Relief Act of 2012 postponed sequestration for 2 months. As required by law, President Obama issued a sequestration order on March 1, 2013. The Administration continues to urge Congress to take prompt action to address the current budget uncertainty and the economic hardships imposed by sequestration.

This listserv message is directed at the Medicare FFS program (i.e., Part A and Part B). In general, Medicare FFS claims with dates-of-service or dates-of-discharge on or after April 1, 2013, will incur a 2 percent reduction in Medicare payment. Claims for durable medical equipment (DME), prosthetics, orthotics, and supplies, including claims under the DME Competitive Bidding Program, will 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 shall 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. The Centers for Medicare & Medicaid Services encourages Medicare physicians, practitioners, and suppliers who bill claims on an unassigned basis to discuss with beneficiaries the impact of sequestration on Medicare’s reimbursement.

Questions about reimbursement should be directed to your Medicare claims administration contractor. As indicated above, we are hopeful that Congress will take action to eliminate the mandatory payment reductions.

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) 223 is used to report the sequestration reduction on the ERA and SPR.

Question: What is the verbiage for CARC 223?
Answer: “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.”

Question: Will the 2% reduction be reported on the remittance advice in a separate field?
Answer: For institutional Part A claims, the adjustment is reported on the remittance advice at the claim level. For Part B physician/practitioner, supplier, and institutional provider outpatient 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 physician 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 physicians/practitioners 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 physicians on assigned claims. Both are claims payments, just to different parties. If the Limiting Charge applies to the service rendered, physicians/practitioners cannot collect more than the Limiting Charge amount from the beneficiary.

Example: A non-participating provider bills an unassigned claim for a service with a Limiting Charge of $109.25. The beneficiary remains responsible to the provider for this full amount. However, sequestration affects how much Medicare reimburses the beneficiary. The non-participating fee schedule approved amount is $95.00, and $50.00 is applied to the deductible. A balance of $45.00 remains. Medicare normally would reimburse the beneficiary for 80% of the approved amount after the deductible is met, which is $36.00 ($45.00 × 80% = $36.00). However, due to the sequestration reduction, 2% of the $36.00 calculated payment amount is not paid to the beneficiary, resulting in a payment of $35.28 instead of $36.00 ($36.00 × 2% = $0.72).

We encourage physicians, practitioners, and suppliers who bill unassigned claims to discuss with their Medicare patients the impact of the sequestration reductions to Medicare payments.

Question: Is this reduction based on the date of service or date of receipt?
Answer: In general, Medicare FFS claims with dates-of-service or dates-of-discharge on or after April 1, 2013, will incur a 2 percent reduction in Medicare payment. Claims for durable medical equipment (DME), prosthetics, orthotics, and supplies, including claims under the DME Competitive Bidding Program, will 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.

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: 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: How long is the 2% reduction to Medicare fee-for-service claim payments in effect?
Answer: The law specifies that the 2% reduction to Medicare fee-for-service payments resulting from the sequestration order that the President was required to issue on March 1, 2013, applies to all payments for services furnished in the one-year period after the reductions begin. For Medicare, the reductions begin on the first day of the first month after the order is issued, meaning they began on April 1, 2013. Accordingly, this sequestration order covers all payments for services with dates of service or dates of discharge (or a start date for rental equipment or multi-day supplies) April 1, 2013, through March 31, 2014.

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.

Posted: 4/25/2013

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