The recent sequester of federal spending triggered automatic, across the board cuts in the federal budget. Included in these cuts is a 2% reduction in Medicare reimbursement to providers. The cuts went into effect on April 1, 2013.
In the aftermath of sequestration, many private health insurance companies have attempted to reduce their reimbursement to providers for services provided to non-Medicare patients by the same 2% amount. These insurers argue that the reimbursement rates in their contracts with providers are based on Medicare payment methodologies; therefore, they are entitled to implement the 2% cuts. The truth is a bit more complicated.
According to Medicaid Administrative Contractors like Noridian the 2% payment reduction under sequestration is applied to claims only after determining the final Medicare payment. All fee schedules, prices, etc., are unchanged by sequestration – it is only the final payment amount that is reduced.
Therefore, if an insurer’s contract with a provider states that the insurer’s reimbursement is based on Medicare fee schedules, the insurer may have a difficult time arguing that it has a contractual right to reduce reimbursement by 2% based on sequestration.
Additionally, in a memo dated May 1, 2013, the Centers for Medicare and Medicaid Services addressed the impact of the sequestration cuts on Medicare Advantage Organizations (“MAOs”) and Medicare Part D sponsors. According to CMS, the 2% cuts apply to reimbursement received by MAOs and Part D Sponsors, but such organizations can not pass on the cuts to contracted providers. One exception to this rule is if the contract between the provider and the MAO or Part D sponsor has a specific provision that allows the organization to pass on sequestration cuts to providers.
Providers should carefully track their reimbursement rates to determine if private insurers are improperly taking advantage of sequestration’s Medicare cuts to lower their contractually required payments to providers. If you would like assistance in protesting any private payor sequester related cuts please contact Casey Moriarty or Don Black.