In an April 17, 2014 letter to the American Hospital Association, CMS Administrator Marilyn Tavenner stated that whether “sequestration might affect a [Medicare Advantage plan’s] payments to its contracted providers [is] governed by the terms of the contract” between the provider and the Medicare Advantage plan.  The letter does not reference any provision of law requiring Medicare Advantage plans to implement a sequestration adjustment to provider payments.  The two-percent sequestration adjustment, therefore, is applied to Part C provider payments only if required by the terms of the parties’ contract.  This latest guidance repeats similar instructions to Medicare Advantage plans the agency issued on May 1, 2013. 

Medicare fee-for-service provider payments, and per-member-per-month capitation payments to Medicare Advantage plans, are reduced by two percent pursuant to President Obama’s March 1, 2013 sequestration order.  However, CMS’s April 17, 2014 letter states that sequestration adjustments are not made to payment benchmarks such as “fee schedules, pricers, etc.” but only to the “final payment amount” due to providers after adjusting for beneficiary cost-sharing and Medicare Secondary Payor amounts.  Many Medicare Advantage plans began reducing provider payments by two percent once the president’s sequestration order became effective.  However, many providers have contended that contract provisions tied solely to payment benchmarks – and not to the “final payment amount” due to providers – are unaffected by sequestration since the two-percent cut does not apply to such benchmarks.

CMS’s April 17, 2014 letter is available here.  CMS’s May 1, 2013 letter is available here. 

Reporter, Christopher Kenny, Washington, D.C., + 1 202 626 9253, ckenny@kslaw.com.