Protecting the Bottom Line from Medicare Sequestration Cuts

Marcuis Galvan

Nearly four years after the two percent Medicare Sequestration Reduction took effect, health plans and provider groups continue to grapple with the financial effects. Some health plans and delegated medical groups initially absorbed the cut, but are now looking to pass it along to their contracted providers. Before describing possible pitfalls, let’s first review how this situation came to be.

Budget background

Sequestration is the term for across-the-board cuts in federal spending that resulted from the Budget Control Act of 2011. That law allowed the U.S. government debt limit to increase only if Congress trimmed the federal budget. Members of Congress failed to agree on selective cuts, so reductions were made across the board – including a cut in payments from the Centers for Medicare & Medicaid Services (CMS).

The cuts took effect April 1, 2013 and apply to healthcare services for Medicare Advantage, Medicare FFS and DME Competitive Bidding Programs provided to Medicare patients.

For the most part, larger health plans passed along the cuts to providers early on. But many smaller organizations continued to pay providers in full. Some are now ready to pass along the reduction rather than continue to absorb it.

Check your contracts

Passing sequestration rate cuts through to providers makes good sense for the bottom line. But your contracts with providers may not allow for reimbursement changes in mid-term, even to reflect changes in federal rules. Some health plans have been sued by contracted provider groups for wrongfully applying the Sequestration reduction.

Best advice is to check with your Legal Department before reducing provider payments to reflect the Sequestration cut. To avoid problems in the future, make sure new contractual agreements allow for adjustments to reflect changes in government programs that happen outside contract renewal periods.

Have you run into obstacles related to the Medicare Sequestration Reduction? Post a comment to share lessons learned.


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