What is sequestration in medical billing?

What is sequestration in medical billing
Sequestration adjustments in healthcare are nothing new, but many practices don’t fully understand the challenges they could bring. From a financial perspective, this regulation will impact your revenue, and you’ll need to explore ways to adapt.
In this post, we will give you a quick rundown of the sequestration reduction and what it means to medical practices. We will also discuss ways you can navigate sequestration reduction.

What is Sequestration in Medical Billing?

What is sequestration in medical billing
Sequestration refers to the reduction in Medicare payments that healthcare providers like you receive for services rendered to Medicare beneficiaries. It’s a result of the automatic spending cuts mandated by the Budget Control Act of 2011. Overall, these cuts were intended to reduce federal spending across various sectors, including healthcare.
Take note that the sequestration cuts specifically target Medicare payments and were implemented to achieve a certain level of savings for the government. As a result, healthcare providers receive a 2% reduction in reimbursements from Medicare claims. The sequestration cuts went into effect on April 1, 2013, and have continued to impact medical billing ever since.
So, is the sequestration reduction going away anytime soon? Unfortunately, a PAYGO sequester could be triggered by 2025, which may increase the reduction to 4%. This can happen if no legislative action will be taken before then.
With that, the sequestration reduction is here to stay. As to whether it will be increased or removed, the only thing we can do is stay updated.

Understanding Sequestration Medical Terms

To fully grasp the impact of sequestration on medical billing, it is essential to understand some key terms related to this topic:

1.  Medicare Reimbursement

In terms of medical billing processes, Medicare reimbursement refers to the payment made by the Centers for Medicare and Medicaid Services (CMS). These are for services rendered to Medicare beneficiaries. Also, these reimbursements are based on various factors such as the type of service provided, the geographic location, and so on.

2.  Sequestration Rate

The sequestration rate represents the percentage by which the government reduced Medicare payments. The sequestration rate has varied over the years but is now at 2%. This means that healthcare providers receive only 98% of their usual reimbursement amount for services provided to Medicare patients.

3.  Fee Schedule

When it comes to medical billing guidelines, a fee schedule is a list of predetermined payment rates established by CMS for specific medical services. It helps determine the amount of your reimbursement for different procedures, tests, and treatments.

4.  Medicare Part A

This part of Medicare covers inpatient hospital stays, skilled nursing facility care, and hospice care. Specific home health care services may also be covered, depending on specific factors.

5.  Medicare Part B

On the other hand, Medicare Part B covers medically necessary services and supplies. This includes doctor’s visits, outpatient care, preventive services, and durable medical equipment.

6.  Budget Control Act of 2011

This legislation introduced sequestration to implement spending cuts across various federal programs. Aside from healthcare, sequestration also affects other industries such as defense, transportation, and social services.

7.  Mandatory Spending

It refers to government spending on programs that are required by law, such as Medicare. These spending categories are not subject to annual appropriations by Congress.

8.  Spending Cut

This is what’s happening in Medicare reimbursements at the moment. It’s a reduction in the amount of money allocated for a specific program or service.

9.  Exemption

Certain healthcare providers or payment types may be exempt from sequestration. Meanwhile, others might be subject to different reduction percentages based on specific criteria defined by the federal government.

What's the impact of sequestration on billing?

If your practice relies heavily on Medicare reimbursements, you’ll definitely feel the most impact from this legislation. Here are some of the challenges your healthcare organization may face:

1.  Reduced revenue

Due to sequestration, you will experience a reduction in your Medicare payments. This reduction can be particularly challenging if you have a smaller practice. To help navigate this dilemma, you can partner with medical billing services to boost other areas of your revenue cycle.

2.  Financial strain

The reduced reimbursement rates can create financial strain for your medical practice. This strain may manifest in various ways, such as failure to acquire new equipment, the need to downsize your staff, or increased service costs.

3.  Increased patient responsibility

To compensate for the reduced reimbursements, some healthcare providers may pass on the financial burden to their patients. This can be through increased copayments, deductibles, or out-of-pocket expenses.

4.  Impact on access to care

The financial strain caused by sequestration can also impact access to care for Medicare beneficiaries. Healthcare providers may be forced to limit the number of Medicare patients they can accept. In some cases, they may reduce availability for certain services, potentially leading to longer wait times or limited appointment slots.

How Can Your Practice Adapt?

What is sequestration in medical billing
While sequestration poses challenges for your practice, there are steps you can take to adapt and minimize the impact. Here are some strategies to consider:

1.  Review and optimize documentation

Ensure that your documentation accurately reflects the services provided and supports appropriate reimbursement. Accurate documentation can help maximize your reimbursements and reduce the risk of claims denials.
You can also partner with medical billing and coding services to enhance your documentation processes.

2.  Evaluate coding practices

Also, make sure that you review your coding practices to ensure compliance with CMS guidelines. Aside from that, you should stay up-to-date with any changes or updates. It’s because proper coding ensures accurate billing and helps prevent potential audit issues.
Specifically, you want to revisit your medical coding processes. This is where a major number of errors occur, which can easily lead to denials or delayed payments.

3.  Monitor fee schedules

You should also stay informed about changes in fee schedules. Make it a habit to regularly review them to ensure your practice is charging appropriately for the services you provide. This can help mitigate revenue losses resulting from sequestration.
Overall, your goal here is to close any ‘revenue leaks’ that might cause you further losses. This way, you can minimize the impact of sequestration and streamline your medical billing and coding process.

4.  Diversify revenue streams

Consider diversifying your practice’s revenue streams by exploring alternative payment models. You can also consider participating in value-based care programs.
Aside from that, you should also expand your payer network. This way, you’re not relying mainly on Medicare payments to keep your practice afloat. On top of that, a wider payer network also means you can cater to more patients, thus more income for your practice.
And if you need credentialing and payer enrollment, our medical billing company is here to help.

5.  Optimize operational efficiency

You can also streamline your practice’s operations by implementing efficient workflows. Your organization can also utilize technology solutions such as electronic health records (EHR) systems and medical billing software.
This way, you can improve your operational efficiency to reduce costs and maximize revenue. Also, don’t hesitate to partner with the best medical billing companies if this task is too technical for your staff.

6.  Communicate with patients

It’s also crucial to openly communicate with your patients about any changes in their financial responsibility due to sequestration. Transparency regarding increased copayments or out-of-pocket expenses can help manage patient expectations. It will also prevent misunderstandings and protect your relationship with your patients.
Overall, you should explain the terms to your patients as clearly as possible. Mention that such reductions were government-mandated and you have no control over them.

7.  Bring experts to your team

Revenue cycle management alone is already overwhelming for many practices. And with the sequestration in effect, the billing process can be more overwhelming to handle.
This is why many practices have already outsourced medical billing services. By freeing up their staff with the burden of billing, they can focus on finding more ways to compensate for the 2% Medicare payment reduction.
This can also be a good strategy for your medical practice. The good news is that there are many affordable medical billing services that you can explore to see which one matches your needs.

Let our medical billing experts help you navigate sequestration reduction

Are you having trouble navigating sequestration reduction? Or maybe you want to boost your cash flow with effective medical billing solutions? If so, Med Financial Solutions is the company to call.
Through our professional medical billing service, we can help you improve your claims submission to reduce denials. At the same time, we offer medical collection services, so you no longer have to chase payments from patients and payers.
This will give you more time to focus on improving your medical services to gain more revenue.
So, if you’re searching for “medical billing companies near me”, look no further than Med Financial Solutions. We have 20+ years of experience in medical billing and have helped countless practices improve their cash flow.
Once you’re ready to boost your revenue, streamline your claim submission, and reduce your aging A/Rs, schedule a consultation with us right away!
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