What is Sequestration Reduction in Medical Billing?

What is Sequestration Reduction in Medical Billing?
The healthcare industry is ever-changing, so it’s important for medical practitioners like you to keep up with the latest updates. Recently, healthcare sequestration reduction has been the talk of many as it’s been resumed in the second quarter of 2022. 
If you’re a practitioner who is accepting Medicare payments for the first time, this topic might be a bit confusing. Still, it’s important for you to understand how it works since it will directly impact your profits.

What is sequestration reduction?

Sequestration reduction is an across-the-board and automatic cut on the amount healthcare practices will receive from payments for their services. This is implemented under the Budget Control Act of 2011 to help reduce the federal deficit.
Overall, the sequestration affects many industries and not just health practitioners like you. But in terms of medical billing, you will feel the impact of this legislation on Medicare reimbursements.
Under the sequestration reduction, your Medicare payments will be slashed by 2% as of 2022 when it resumed. Initially, this reduction started at 1% when the law resumed in the second quarter of 2022. But come July 2022, the standard 2% reduction was applied.
So what does this mean for you? For healthcare practices, this means that for every dollar billed to Medicare, you’ll get 98 cents. On a larger scale, a $1,000 Medicare bill will only be paid with $980.


What’s the impact of sequestration on medical billing?

When it comes to medical billing, healthcare providers like you may start to feel the impact on your cash flow. This is especially true if a large chunk of your accounts receivables are from Medicare claims.
In the long run, the 2% reduction in Medicare payments can easily add up. It will significantly impact your operations, so it’s important to diversify your payor portfolio.
Aside from that, some practices may experience disruption in their cash flow with the resumption of the Medicare sequestration reduction. In turn, practitioners like you may delay the expansion or acquisition of new infrastructure or technology. In some cases, practices may look for more affordable supplies to
Not just that, delayed payments from government payors like Medicare will add up to the financial strain. In this case, many practices opt for medical factoring instead. Although they will pay a fee and there’s a 2% reduction on their claims, they will get the much-needed funds right away.
So how else do medical practices adapt to this reduction? Cost-cutting measures like reducing unnecessary expenses and downsizing might be possible solutions. Also, some practices may shift their services to preventive care to prevent large claims from Medicare.


What are the implications for patients?

Overall, sequestration cuts in healthcare don’t have a direct impact on patients. They will still get their treatments and coverage from Medicare. However, since practices like yours have to bear the payment reductions, you may be forced to pass it on to patients.
For example, patients may have to face higher co-pays or increased deductibles. Aside from that, they may have reduced access to specific services. So for patients that rely heavily on Medicare, the sequestration reduction can have a real impact on their healthcare needs.


Sequestration Reduction vs. Other Cost-Cutting Measures

Sequestration reduction isn’t really the only medical billing reimbursement reduction practices may encounter. If you’re a new practitioner, you also have to be aware of the following setups:
  • Bundled payments. Under bundled payments, multiple healthcare services, including yours, are grouped together and reimbursed as a single payment. The catch is that these services aren’t usually provided by one practice. It’s because this measure rewards coordination and efficiency between various healthcare practitioners.
  • Value-based reimbursement. With this strategy, the payments your practice will receive depend on the quality and outcomes of your service. It focuses on quality before the quantity of the service you provided. This is done to encourage practitioners like you to provide the best possible patient care.
Still, sequestration reduction is very much different from the two strategies we mentioned above. First, it’s an across-the-board rule, which means it doesn’t really factor in the quality and kind of care the patient received. It’s also a more aggressive form of cost reduction compared to bundled or value-based payments.


Best Practices for Healthcare Providers

Although the sequestration’s impact on reimbursements can’t be avoided, practitioners like you can still manage the challenges it brings. Below, we share some strategies that can help you navigate this billing setup:


1. Monitor Reimbursement Changes

You should always stay updated with the latest changes in your payor’s reimbursement rates and policies. Make sure you review Medicare and other payors’ updates and keep your billing and coding staff in the loop.


2.Improve Your Coding Accuracy

To make sure that you’re maximizing your Medicare reimbursements, you should invest in quality medical coding services. This way, you can avoid further losses due to inaccurate claims information.


3.Streamline Your Billing Processes

Take note that a messy billing process can cause you more losses than the 2% from sequestration reduction. If you don’t have the resources for this, you can always partner with a medical billing company to handle everything for you. They will streamline your revenue cycle management together with comprehensive medical billing reports.


4.Verify Your Patient’s Insurance Coverage

It’s important that you check your patient’s insurance coverage before providing any services. This way, you can avoid payment delays or denials from Medicare reimbursements. If you don’t have the time to perform this task, a billing service can help you in the process.


5.Negotiate Your Contracts

One way to compensate for the losses due to sequestration reduction is to negotiate your contracts with other payors. Try to get a higher payment rate to help sustain your practice’s financial growth.


6.Diversify Your Revenue Streams

As we’ve mentioned earlier, a good way to adapt to sequestration reduction is to diversify your payor and payment portfolio. You can consider implementing non-traditional fee-for-service models. For example, you can offer wellness programs, telemedicine services, and other value-added services that will help you generate more income.



Sequestration reduction isn’t a new ruling, but it surely brings new challenges to practitioners like you. But instead of suffering from long-term losses, there are ways you can try to adapt. You can always negotiate your contracts with other payors, cut unnecessary expenses, and offer added services.  
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