Suspension of the 2% Sequestration Reduction May Affect Commercial Payer Reimbursement

King & Spalding

Section 4408 of the CARES Act suspends the 2% sequestration reduction to payments under the Medicare program that have been in place since April 1, 2013. The suspension of sequestration in Medicare will run from May 1, 2020 through December 31, 2020 and will impact both fee for service payments under original Medicare as well as capitation payments by Medicare to Medicare Advantage Organizations (“MAOs”). While it is clear that the lifting of sequestration will result in higher reimbursement to providers paid directly by Medicare under the original Medicare program (Medicare Part A and Part B), reimbursement from MAOs and commercial plans is also likely to be impacted. Moreover, while the statute does not address whether Medicare will implement the suspension of sequestration based on the date of admission or date of discharge, because CMS originally implemented sequester in 2013 based on the date of discharge, it may use the same standard with respect to implementing the suspension of sequestration.

Medicare Advantage Reimbursement

In the Medicare Advantage program, the impact on provider reimbursement will depend on whether the provider has a contract with the Medicare Advantage plan, and if so, how the reimbursement language is phrased.

  1. Non-Contracted Medicare Advantage: Medicare rules require that MAOs pay non-contracted providers what that provider would be paid by Original Medicare. As a result, sequestration applies to non-contracted Medicare Advantage fee for service reimbursement. Because MAOs imposed a 2% reduction on all non-contracted provider claims, MAOs must now turn off the sequestration payment reduction. If plans continue to apply the 2% sequestration reduction during the suspension period, providers should appeal to the plan and then to CMS if the underpayments are not corrected. Due to short deadlines for appeal, it is important for providers to track non-contracted MAO reimbursement closely and set up processes to appeal expeditiously. Moreover, under the CMS Section 1135 Waiver on Hospital Operations and Reimbursement During the Coronavirus Pandemic, non-contracted providers may qualify to recover for services they provided during the period of the public health emergency directly from CMS. This departure from the normal rule that CMS's liability in the Medicare Advantage program is limited to paying MAOs is intended to allow Medicare Advantage beneficiaries to receive necessary care from non-contracted providers and make additional provider funding available when they do during the relevant period.

  2. Contracted Medicare Advantage: Whether or not sequestration applies in the context of a contracted Medicare Advantage arrangement depends on the specific reimbursement language in the contract. While in many cases MAOs should not have been applying a 2% reduction to contracted fee for service reimbursement, many plans have done so since the implementation of sequestration in 2013. Whether or not sequester reductions were actually permissible under the contract language, if the plan imposed the reductions, the CARES Act requires the cessation of such reductions. If a plan fails to stop imposing sequester reductions during the suspension period, providers should timely appeal the improper payments pursuant to the appeal terms of the contract in order to preserve the right to pursue proper payment.

  3. How Specific MAOs Plan to Implement the Suspension of Sequester: It remains to be seen how the CARES Act’s changes to provider reimbursement are implemented by commercial health plans. So far, of the major health plans, only one -- United Healthcare -- has squarely addressed the issue. United Healthcare posted a bulletin on its website stating “If you have a Medicare Advantage plan fee-for-service contract with us based on Medicare methodology or rates that have been adjusted for sequestration, including Medicare fee schedules, we intend to implement the waiver of the 2 percent Medicare Sequester for physician, facilities, ancillary provider and other health care professional payments for dates of service or dates of discharge from May 1, 2020 until Dec. 31, 2020.” Thereby, United has confirmed its intention to cease sequestration payment reductions based on the date of service or the discharge for inpatient claims, which is consistent with CMS fee-for-service guidance.

Commercial Contracted Reimbursement

Some commercial plans set reimbursement rates that reference Medicare-based rates set forth by the IPPS, OPPS or other Medicare reimbursement methodologies. In such contractual arrangements, whether the plan was permitted to impose a sequester reduction depends on the precise reimbursement language in the contract. However, if the plan did impose a sequester reduction based on a contractual reference to a Medicare-based payment methodology, the plan should suspend the sequester reductions during the suspension period. To prepare for the possibility that commercial plans may not turn off sequester after having implemented it pursuant to specific contract terms, providers should review contracts for reimbursement structures that reference Medicare-based methodologies and prepare to closely monitor affected reimbursements. Providers should also timely appeal underpayments.

Preserve Reimbursement Rights

To prepare for the suspension of sequestration, we recommend that providers review their managed care contracts with Medicare Advantage and commercial providers to determine the scope of the impact of the CARES Act suspension of sequestration. If a provider disputed the imposition of sequester reductions by health plans that were resolved by a settlement or other agreement or amendment, those providers should collect and review those agreements to determine what they require in the event of changes to sequestration. Reimbursement language and settlement agreement language will vary and require individual analysis to determine the impact of the suspension of sequestration. Because many contracts set short deadlines to appeal underpayments, we recommend beginning this contract review process immediately.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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