What is Sequestration in Medical Billing

Fee-For-Service (FFS) refers to a payment system in which providers are paid separately for each service rendered. Each service is assigned a fixed amount of fee that is listed by the Centers for Medicare and Medicaid Services (CMS) in a fee schedule. So, what is a fee schedule and how is it associated with sequestration?

The Centers for Medicare and Medicaid Services defines fee schedule as a “complete listing of fees used by Medicare to pay doctors or other providers/suppliers.  This comprehensive listing of fee maximums is used to reimburse a physician and/or other providers on a fee-for-service basis.”  CMS has developed “fee schedules for physicians, ambulance services, clinical laboratory services, and durable medical equipment, prosthetics, orthotics, and supplies.”

Under FFS a set percentage of payment is reduced while making payment to the provider(s). This is where the term sequestration comes in.

Definition of Sequestration

On March 1, 2013, President Obama issued a sequestration order to cancel budgetary resources across the Federal Government. This resulted in Medicare Fee-For-Service claims “with dates of service or dates of discharge on or after April 1, 2013, incur a two percent reduction in Medicare payment.”

In medical billing, the term sequestration stands for “mandatory payment reductions in the Medicare Fee-for-Service (FFS) program” as per the Budget Control Act of 2011.

The Centers for Medicare and Medicaid Services outlines that “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.”

Furthermore, CMS clarifies that “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.”

Updated CARC for Sequestration

The term CARC stands for Claim Adjustment Reason Code (CARC). Maintained by the Claim Adjustment Status and Reason Code Maintenance Committee, a CARC code is “used on the Medicare electronic and paper remittance advice, and Coordination of Benefit (COB) claim transaction.”

At the time of its implementation in 2013, sequestration was assigned a code. CARC 223 (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) was the claim adjustment reason code for sequestration that was previously assigned by CMS to explain the adjustment in payment. However, effective on June 3, 2013, a new CARC was created to replace CARC 223 on all applicable claims. The new code for sequestration is CARC 253—Reduction in Federal Spending. Moreover, Medicare contractors are not allowed to perform any action on claims processed before the implementation of CR8378.