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What is Medicare sequestration?

What is Medicare sequestration? - Frequently Asked Questions

Just the Essentials...

  • Overall, Medicare sequestration reduces government spending to meet budgetary goals.

  • Essentially, sequestration reduces what Medicare pays its providers for health services by two percent.

  • However, Medicare beneficiaries bear no responsibility for the cost difference.

  • While aimed to prevent further debt, it imposes financially on hospitals, physicians, and other healthcare providers.

When it comes to Medicare sequestration, defining a sequester and how it applies to Medicare should come first.

According to the Congressional Research Service, sequestration is a reduction in federal spending by a certain percentage. As this applies to Medicare, the reduction in federal spending means providers receive less payment for services, specifically by two percent.

Important to note is that beneficiaries do not pay this extra two percent Medicare sequester.

Rather, the healthcare providers themselves bear the added financial burden.

Sequestration officially began in the US on April 1, 2013. However, Congress more recently suspended the Medicare sequester starting April of 2020 through December 31, 2021.

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How Medicare Sequestration Affects Physicians

What is Medicare sequestration?

As a medical fee-for-service program, Medicare pays its providers specific rates for specific services. However, payments to physicians reduce by 2 percent.

Under these budget cuts, any claim for medical services received by Medicare after April 1, 2013 got a 2 percent payment cut. Additionally, Medicare reimburses for any drugs administered as part of the claim with the same 2 percent cut.

The reduction in payment applies to the payment itself as opposed to modifying the “allowed charge” published by Medicare as part of their fee schedule.

How Medicare Sequestration Affects Hospitals, Home Health Services, and Medical Equipment Suppliers

The reduction in payment to physicians also applies to hospitals, home health services, and durable medical equipment companies. Essentially, this includes any provider contracted with Medicare.

This applies to medical equipment rentals, prosthetics, and similar services. However, the decrease only applies if use of the item or service began on or after April 1, 2013.

Additionally, physician-administered drugs such as chemotherapy receive the 2 percent reduction.

How Medicare Sequestration Affects Beneficiaries

What is Medicare sequestration?

Despite the effects on providers, the reduction in payments doesn’t affect what patients pay for Medicare coverage. No changes in deductible amounts or cost-sharing occurred.

Beneficiaries themselves have no responsibility for paying additional costs due to the Medicare sequester.

Some analyst believe Medicare sequestration has caused a trickledown effect in healthcare.

How Medicare Sequestration Affects Non-Medical Entities

What is Medicare sequestration?

Despite financial effects on providers, many non-medical entities face cost restrictions. The Budget Control Act required half of the budget savings to come from defense spending cuts.

Providers were limited to a 2 percent reduction in reimbursement. This meant that most money needed to meet budget needs had to be obtained through domestic discretionary programs.

In total, the 2013 Medicare Sequestration saved $85.4 billion. The savings were acquired by doing the following:

  • 7.9 percent cuts to defense spending; a $43 billion savings
  • 5.3 percent reduction in domestic discretionary spending; a savings of $29 billion
  • 2 percent cut in Medicare provide payments; a $10 billion savings
  • 5.8 percent cut to defense and nondefense mandatory programs; a $4 billion savings

Some government programs are exempt from Medicare Sequestration. Examples of payments that can’t be affected by these cuts include:

  • Military salaries
  • Medicaid programs

How Long will Medicare Sequestration Last?

What is Medicare sequestration?

Per the Budget Control Act of 2011, a $1.2 trillion reduction in federal spending means paying plans and providers less over a 10 year period.

However, because of recent public health crises, and the accompanying pressures mounted on healthcare providers, Congress postponed the Medicare sequester until the end of 2021.

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