The Impact of Sequestration on Your Business

Sequestration_0Sequestration was never supposed to happen. It was written into law as a mandatory, across the board reduction in federal spending so distasteful to both democrats and republicans that it would be never allowed to occur. Think back to when you were a child and your mother threatened to punish you for a month if you didn’t eat your dinner. The punishment was so extreme that it made it worth it to choke down those last few bites of mashed potatoes. Lawmakers believed the same thing about sequestration right up until neither side blinked and sequestration became reality in March of 2013.

Lawmakers have somewhat come to their senses in that many of the spending cuts implemented with sequestration have been reversed through subsequent legislation, especially those related to defense spending and veteran’s benefits. Sequestration remains in full effect for Medicare payments however and was recently extended through 2024 when Congress passed legislation that reversed potential cuts to veteran pension benefits.

The direct result of sequestration in the Medicare program is a 2% reduction in all Medicare reimbursements to providers. This means that once the Medicare payment for a claim is calculated, it is reduced by 2%. For example, if a Medicare allowable is calculated at $100 and the Medicare payment after the 20% patient coinsurance is $80, the actual Medicare payment to the provider will be $78.40. It is important to note that sequestration reductions do not apply to patient coinsurance and deductibles which may continue to be collected from patients at their full value. In addition, it is important to note that sequestration reductions are not applied to the Medicare fee schedule but to the actual reimbursement sent to the provider. This is important because it means that the 2% sequestration reduction is not cumulative year after year. The Medicare O&P fee schedule continues to be updated annually based on the increase in the Consumer Pricing Index for Urban areas (CPI-U) and the annual productivity adjustment.

AOPA’s take on sequestration is that, for the moment, it is an unfortunate reality. In order for sequestration to end, Congress will have to pass new legislation that reverses the sequestration provisions that went into effect in 2013. While that is not likely given the current environment on Capitol Hill, AOPA continues to work with members of Congress and our industry partners to find a solution to the challenges of sequestration.

While nobody likes to have their Medicare payments reduced, at least sequestration reductions are a known entity for which adjustments can be made. AOPA will continue to fight for fair treatment of O&P providers and the valuable services they provide.

AOPA’s Take. Where you go…..when you need to know!