New Claim Adjustment Reason Code (CARC) to Identify a Reduction in Payment Due to Sequestration 

This article is based on CR 8378 which informs Medicare contractors about a new Claim Adjustment Reason Code (CARC) reported when payments are reduced due to Sequestration. Make sure that your billing staffs are aware of these changes.

As required by law, President Obama issued a sequestration order on March 1, 2013, canceling budgetary resources across the Federal Government. As a result, Medicare Fee-For-Service claims, with dates of service or dates of discharge on or after April 1, 2013, incur a two percent reduction in Medicare payment. The Centers for Medicare & Medicaid services (CMS) previously assigned CARC 223 (Adjustment code for mandated Federal, State or Local law/regulation that is not already covered by another code and is mandated before a new code can be created) to explain the adjustment in payment.

Effective June 3, 2013, a new CARC was created and will replace CARC 223 on all applicable claims.

The new CARC is as follows:

•  253 – Sequestration – Reduction in Federal Spending

Also, Medicare contractors will not take any action on claims processed prior to implementation of CR8378.

The Medicare Administrative Contractor is hereby advised that this constitutes technical direction as defined in your contract. CMS does not construe this as a change to the MAC statement of Work. The contractor is not obliged to incur costs in excess of the amounts allotted in your contract unless and until specifically authorized by the Contracting Officer. If the contractor considers anything provided, as described above, to be outside the current scope of work, the contractor shall withhold performance on the part(s) in question and immediately notify the Contracting Officer, in writing or by e-mail, and request formal directions regarding continued performance requirements.

The claims payment adjustment shall be applied to all claims after determining coinsurance, any
applicable deductible, and any applicable Medicare Secondary Payment adjustments.

Though beneficiary payments for deductibles and coinsurance are not subject to the 2 percent payment
reduction, Medicare’s payment to beneficiaries for unassigned claims is subject to the 2 percent
reduction. The Centers for Medicare & Medicaid Services encourages Medicare physicians, practitioners,
and suppliers who bill claims on an unassigned basis to discuss with beneficiaries the impact of
sequestration on Medicare’s reimbursement.

For example:

The Net Medicare Payment for the claim line is $104.46 and the Medicare Payment Reduction was $2.13.

* Add $104.46 to $2.13, which is $106.59

* $104.46 represents Medicare’s Payment for the service or item and $2.13 represents the Medicare Payment Reduction related to the service or item

* Enter the Sum, which is $106.59, as ‘Medicare Paid (incl. Medicare Reduction(s)) Amount’

How will Medicare physician payments be affected?

• All Medicare physician claims with a date of service on or after April 1 will be subject to a 2 percent payment cut.

• Costs for physician-administered drugs included on the physician claim will also be subject to the 2 percent cut.

• The cut will be applied to the payment itself, not the underlying “allowed charge” in the Medicare fee schedule. As a result, beneficiary copayments and deductibles will not change. In other words, the 2 percent cut is imposed only on the 80 percent of the allowed charge that a participating physician would receive directly from
Medicare. The 20 percent copayment amount (and any deductible) that the physician collects from the patient will be based on the full allowed charge amount.

• With respect to unassigned claims for services provided by nonparticipating physicians, the 2 percent cut will be applied to the Medicare payment made to the beneficiary (but not to the limiting charge amount).

How long will the sequestration last?

• The Budget Control Act requires that $1.2 trillion in federal spending cuts be achieved over the course of nine years. So, unless Congress takes action to change the law, federal spending will be subject to sequestration until 2022.

• Because the American Taxpayer Relief Act that was signed into law in January delayed the 2013 sequester for two months (with a budget offset), the Defense and discretionary program cuts are less severe now than they will be in coming years.

• As an entitlement program, the Medicare payment cut is treated a little differently than the cuts being imposed on programs subject to the appropriations process. The Medicare cut will never be higher than 2 percent.

• Importantly, the Medicare cuts each year are not cumulative. So, the 2 percent cut this year will not be followed by another 2 percent cut next year, and so forth, producing a cumulative double-digit cut at the end of the sequestration period. In other words, this year’s 2 percent cut will simply remain in place every year through 2022 (unless Congress takes action to stop it).

What are the prospects of Congressional action to stop the sequester?

• With all the fiscal deadlines facing Congress this year, the sequester will remain a subject for debate. However, we are mid-way through the fiscal year and, barring a major backlash, it is expected that the sequester cuts will remain in effect through at least Sept 30, 2013.

• The future of sequestration beyond 2013 is likely to depend on whether or not Congress and the White House are able to reach a new budget agreement to address deficit and spending concerns.