Updated on: September 23, 2013

Billy’s World: What does ‘Sequester’ Really Mean?

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Original story posted on: April 8, 2013

Yes, yes, I know: this is supposed to be an ICD-10 article, and yet the term “sequester” is in the headline. But it will be. Just wait.

It’s April, and unless Congress and the Obama administration did something miraculous in the last three working days of March, the dreaded sequester is upon us.

You know the sequester: it’s what happens when our elected representatives lack the maturity and/or insight to pass sensible budget legislation, so multiple, arbitrary across-the-board cuts are enacted instead. President Obama signed the sequester legislation in March, so by law it was to go into effect on April 1, unless, as noted above, the good citizens of Washington, D.C. fixed it. Yeah, right…

So what is the sequester, as far as healthcare is concerned?

First, the sequester applies to all Medicare “fee-for-service” payments. That’s a key phrase: “fee for service” means “not Medicare Advantage.” Traditional Medicare now is paying less to all Medicare providers than was paid for the same services in March, but those payment reductions don’t extend to managed Medicare, or Medicare Advantage Plans (MAPs.)

Actually, the MAPs suffered their own cut: a 2 percent reduction of their PMPM (per member, per month) payment from the Centers for Medicare & Medicaid Services (CMS). Does this mean that they’ll want to implement reductions in what they pay to providers? Of course, but the sequester package doesn’t mandate those cuts; it all will be negotiated as contracts renew (although some MAPs will try to renegotiate before the renewal dates, of course).

On the fee-for-service side, what are the reductions?

The media will tell anyone who will listen that it’s “a 2 percent reduction to all Medicare payments, much to the detriment of the elderly and disabled, and all the fault of Congress.”  Actually, and typically, that’s not exactly true.

The 2 percent reduction is applied only to the payment responsibility retained by Medicare. Patient deductibles and copays are not reduced (never give a break to the little guy, right?) Furthermore, it doesn’t apply to third-party insurance when Medicare is secondary (as in an employer group health plan when the employee also has Medicare).

And to add insult to injury, if you are a “non-par” physician – meaning you don’t contract with Medicare – the 2 percent reduction does apply to your entire payment, meaning the Medicare beneficiary will receive 2 percent less reimbursement than they would have in March.

Let’s be honest, here: it’s actually the fault of the right-wing Congress, the left-wing Congress and the administration.

So, what does this have to do with ICD-10?

Not a lot, really, but I assured you at the beginning of this article that ICD-10 would be mentioned. OK, it’s not an ICD-10 article, but it still is relevant to what you’re experiencing.

If you work for a provider, it now is receiving 1.5-2 percent less from Medicare than in March and prior. If you work for a hospital, this is on top of the Readmission Reduction Program (RRP), which takes up to 1 percent of approximately 75 percent of the entire short-stay acute Medicare payment for around 65 percent of hospitals, and the Value-Based Purchasing program (VBP, which takes 2 percent from every acute-care hospital and gives it back to approximately 25 percent of hospitals that have “superior outcomes”).

If your hospital is adrift in the “perfect storm” – that is, you have the maximum RRP reduction and no VBP payment – then your Medicare reimbursement is down roughly 4 percent. If you are 50 percent Medicare and have an average bottom line (2 percent), you now have no bottom line. And you wonder why the administration is reluctant to fund your ICD-10 training.

What’s the bottom line?  Just this:

It’s good to have friends in high places, but regrettably, it appears that the American healthcare community has only high friends in places. You know who they are…

About the Author

Billy K. Richburg, M.S., FHFMA is HFMA-Certified in Accounting and Finance, Patient Accounting and Managed Care. Bill graduated from the U. of Alaska, Anchorage and earned his M.S. in Health Care Administration from Trinity University, San Antonio, TX. Over a career spanning more than 40 years, Bill has held positions including CEO, COO, CFO, and CIO in hospitals ranging from 75 beds to over 300 beds, and in home health agencies, DME stores, and a home infusion company. Bill is a Board Member of the Lone Star Chapter, HFMA, and is Director of Government Programs for the Revenue Cycle Technologies business segment of MedAssets, Inc. His office is in Plano, Texas.

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Disclaimer: Every reasonable effort was made to ensure the accuracy of this information at the time it was published. However, due to the nature of industry changes over time we cannot guarantee its validity after the year it was published.
Billy Richburg, M.S., FHFMA

Billy K. Richburg, MS, FHFMA is HFMA-Certified in Accounting and Finance, Patient Accounting and Managed Care. Bill graduated from the University of Alaska, Anchorage and earned his MS in Health Care Administration from Trinity University, San Antonio, Tex. Over a career spanning more than 40 years, Bill has held positions including CEO, COO, CFO, and CIO in hospitals ranging from 75 beds to over 300 beds, and in home health agencies, DME stores, and a home infusion company. Bill is a Board Member of the Lone Star Chapter, HFMA, and is Senior Director of Government Programs for the Revenue Cycle Technologies business segment of MedAssets, Inc. His office is in Plano, Texas.