Medicare Advantage Sequestration


As a result of sequestration, a mandatory 2% payment reduction in the Medicare fee-for-service (FFS) program became effective April 1, 2013.

In the March 8, 2013, Medicare FFS Provider e-News, the Centers for Medicare and Medicaid Services (CMS) clarified that the 2% reduction is applied after determining coinsurance, applicable deductible, and Medicare secondary payment adjustments. Beneficiary payments for deductibles and coinsurance are not subject to the 2% payment reduction, but Medicare's payment to beneficiaries for unassigned claims is subject to it.

In a subsequent memo issued May 1 to several Medicare payment plan groups, including Medicare Advantage organizations (MAOs), CMS stated that the 2% reduction applies to Medicare Advantage (MA) payments with enrollment periods beginning on or after April 1, 2013.

In addition, the memo noted that "Whether and how sequestration might affect an MAO's payments to its contracted providers are governed by the terms of the contract between the MAO and the provider." It also advised that "MAOs must follow prompt pay provisions established in their contracts with providers and pay providers under the terms of those contracts (see CFR sections 422.520(b)(1) and (2))."

For noncontract (out-of-network) providers, CMS instructed MAOs to calculate the net owed to a provider by subtracting the member’s out-of-network cost-sharing from the total Medicare approved amount under FFS for that particular service (net). The minimum amount due to a noncontract provider is net minus (0.02 * net). Prompt pay requirements also apply to noncontract providers.

How long will this last?

An end date is not known. The MA plans have indicated that their sequestration reductions will continue as long as CMS continues to implement sequestration reductions.

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CSM 2016