Andrew B. Wachler, Esq.
Jessica C. Forster, Esq.
In March 2013, the Centers for Medicare & Medicaid Services (“CMS”) released a memorandum announcing that beginning April 1, 2013, payments made to Medicare Advantage Organizations (“MAOs”), Part D sponsors and other programs were reduced by two percent due to the Balanced Budget and Emergency Deficit Control Act of 1985 (“Balanced Budget Act”). The payment reduction, referred to as sequestration, is applied to the Net Capitation Payment (NCP) made to the plans, including MAOs. Therefore, Medicare rates and fee schedules remain unaffected by sequestration.
Following the implementation of sequestration, hospitals nationwide noticed MAOs reducing hospital reimbursem*nt by two percent; essentially passing the payment cut onto the hospitals. Many hospitals with contracts with MAOs that based reimbursem*nt on Medicare rates disputed the MAOs actions because sequestration left Medicare rates unaffected. In August 2013, the American Hospital Association (“AHA”) wrote a public letter to Marilyn Tavenner, the Administrator of CMS at that time. AHA sought clarification from CMS on how sequestration affects hospital with contracts with MAOs. AHA specifically stated that it was concerned that many MAOs were erroneously passing the two percent reduction to hospitals without regard to the terms of the contracts with those hospitals. AHA requested CMS to provide additional guidance to MAOs to explain that Medicare rates have not been altered and, thus, if a contract with a hospital bases reimbursem*nt on Medicare rates, then the two percent reimbursem*nt cut should not be passed onto the Medicare providers.
CMS responded to AHA’s letter in April 2014. CMS stated that they agreed that sequestration did not change the rates or fee schedules in the Medicare Fee for Service program. CMS included the following frequently asked question in its response to AHA:
Question: Does the two percent payment reduction under sequestration apply to the payment rates reflected in Medicare FFS fee schedules or does it only apply to the final payment amounts?
Answer: Payment adjustments required under sequestration are applied to all claims after determining the Medicare payment, including application of the current fee schedule, coinsurance, any applicable deductible, and any applicable Medicare Secondary Payment adjustments. All fee schedules, pricers, etc., are unchanged by sequestration. Only the final amount is reduced.
However, CMS also stated that it is prohibited from interfering in the payments arrangements between MAOs and hospitals. CMS reiterated that the impact of sequestration on hospital reimbursem*nt is governed by the contract between the hospital and an MAO. Therefore, if a hospital’s reimbursem*nt has been cut by two percent by an MAO, the hospital should review its contract with the MAO to determine the appropriateness of the payment reduction and the necessary steps to take to address the payment reduction.
Upon review of contracts with MAOs, it is important that hospitals review the entire contractual document (including any amendments and appendices). This is because while the portion of the contract that governs reimbursem*nt may set reimbursem*nt on Medicare rates and/or fee schedules, other portions of the contract may in some way limit the hospitals ability to challenge the MAO’s actions with regard to sequestrations. For instance, the contract may set a limited timeframe for the hospital to raise an issue with payment methodology or the contract may include a broad clause that allows the MAO to pass payment cuts from CMS onto the hospital.
Following a review of the contractual language regarding the MAO’s actions, the hospital should review the contract with the MAO for instructions regarding dispute resolution. Many contracts will require the hospital to engage in an internal dispute resolution process before either requesting binding arbitration or filing an action in state court. A “binding arbitration” clause of a contract may provide that if the parties cannot resolve or settle a dispute by mutual agreement, then the dispute will be resolved by binding arbitration. In these cases, if the hospital disagrees with the MAO’s actions regarding sequestration, then the hospital should reach out to the MAO to attempt to resolve the issue through mutual agreement. If that process fails, then binding arbitration would be the next step. However, it is essential that the hospital very carefully review its contract with the MAO in order to accurately determine the hospital’s contractual rights and the appropriate steps to effectuate those rights.
It is important that hospitals evaluate and analyze the contractual language and the steps prescribed to resolving a contractual dispute. A careful review of the MAO contract and the appeals process available to hospitals will help an individual hospital determine if it is entitled to retain full reimbursem*nt from MAOs.
FAQs
The payment reduction, referred to as sequestration, is applied to the Net Capitation Payment (NCP) made to the plans, including MAOs. Therefore, Medicare rates and fee schedules remain unaffected by sequestration.
What are Medicare sequestration cuts? ›
Medicare claims with dates-of-service or dates-of-discharge on or after April 1, 2013, incur a 2% reduction in Medicare payment. These are known as Medicare Sequestration Payment Reductions.
Does sequestration apply to all Medicare claims? ›
Payment adjustments required under sequestration apply to all claims after determining the Medicare payment including application of the current fee schedule, coinsurance, any applicable deductible, and any applicable Medicare secondary payment adjustments.
What is the Medicare sequestration rate for 2024? ›
However, it's important to note that the CF includes a 1.25% increase required by Congress to help mitigate the 2024 payment cuts. Medicare providers face other Medicare cuts known as sequestration (2% reduction) and statutory "Pay-As-You-Go", or PAYGO (4% reduction).
Does Medicare sequestration apply to critical access hospitals? ›
CAH status includes the following benefits: Cost-based reimbursem*nt from Medicare. As of January 1, 2004, CAHs are eligible for allowable cost plus 1% reimbursem*nt. However, as of April 1, 2013, CAH reimbursem*nt is subject to a 2% reduction due to sequestration.
What is the disadvantage of an advantage Medicare plan? ›
Medicare Advantage offers many benefits to original Medicare, including convenient coverage, multiple plan options, and long-term savings. There are some disadvantages as well, including provider limitations, additional costs, and lack of coverage while traveling.
Who is exempt from sequestration? ›
Most mandatory programs – including Social Security, Medicaid, food stamps, and veterans' benefits – are exempt from sequestration. (A full list of exempt programs is available here.) Under sequestration, defense spending is cut by about 10% annually and most non-exempt non-defense spending by about 7%.
What is the SR payment reduction due to the Medicare sequestration? ›
Sequestration cuts will now revert to 2% — the rate in effect prior to the PHE — for services rendered on or after July 1. Sequestration does not affect Medicare allowances nor the corresponding beneficiary cost-sharing. The 2% reduction only applies to what Medicare pays you, the billing clinician.
How does sequestration work? ›
Sequestration refers to automatic spending cuts that occur through the withdrawal of funding for certain (but not all) government programs.
What elements affect Medicare reimbursem*nt? ›
Average reimbursem*nts per beneficiary enrolled in the program depend upon the percentage of enrolled persons who exceed the deductible and receive reimbursem*nts, the average allowed charge per service, and the number of services used.
Important Reminder: Medicare FFS Claims Payment Adjustment (Sequestration) Resumes. Providers are reminded the Payment Adjustment (Sequestration) will be reinstated beginning April 1, 2022.
What is the sequestration policy for CMS? ›
Beginning in January 2024, CMS' RDS Center will implement an update to the sequestration policy, whereby the mandatory two percent (2%) payment reduction will be applied at each interim payment request rather than applying the reduction only to the final payment.
Why is Medicare cutting payments? ›
Earlier this month, Congress implemented a 1.68% cut to Medicare physician payments as a part of the funding bill to keep the government open. The cuts went into effect March 9, and are not applied retroactively.
What are the 2024 Medicare cuts? ›
The legislation offset 1.72 percentage points, or just over half of the 3.4% cut which the Centers for Medicare & Medicaid Services (CMS) implemented with dates of service on or after Jan. 1, 2024.
Is sequestration still in effect in 2024? ›
Likewise, the President has exempted funding for service members' pay from sequestration in fiscal year 2024. 5 Despite that, base discretionary funding for those activities is considered in the determination of whether total base funding complies with the caps.
Why do agents push Medicare Advantage plans? ›
A given carrier may pay slightly more commission to the agent (although there's a cap set by Medicare) and they may "sweeten" the plans to make them sound too good to be true. This is usually in the form of smaller benefits and add-ons at the expense of the important aspect of Advantage plans....the out-of-pocket max!
Why do they keep pushing Medicare Advantage plans? ›
Brokers have a financial incentive to encourage enrollment in Medicare Advantage plans because commissions are higher for Medicare Advantage than for Medigap and Part D plans that are purchased to complement traditional Medicare.
Can I be denied Medicare Advantage plan? ›
Generally, if you're eligible for Original Medicare (Part A and Part B), you can't be denied enrollment into a Medicare Advantage plan. If a Medicare Advantage plan gave you prior approval for a medical service, it can't deny you coverage later due to lack of medical necessity.
Do Advantage plans have to follow Medicare guidelines? ›
Medicare Advantage Plans, sometimes called “Part C” or “MA” Plans, are offered by Medicare-approved private companies that must follow rules set by Medicare.
