Five things to know about Sequestration

Here are the five things you should know about sequestration:

1.  What is sequestration? 

what is sequestrationIt is the mandatory 2% payment reduction in the Medicare fee-for-service (FFS) program required by the Budget Control Act of 2011.

2.  Who does it affect?

healthcare providerAll providers of medical services that are reimbursed under the Medicare fee-for-service (FFS) program (i.e., Part A and Part B) are subject to the 2% reduction.

DME suppliesThis also includes those entities that bill for durable medical equipment (DME), prosthetics, orthotics, and supplies.

3.  When does it begin?

effective dateMedicare FFS claims with dates of service or dates of discharge on or after April 1, 2013.  Reduced claim payments for DME, prosthetics, orthotics and supplies will be based upon whether the date of service, or the start date for rental equipment or multi-day supplies, is on or after April 1, 2013.

4.  How is the 2% calculated? 

payment calculationThe reduction is taken from the calculated payment amount, after the approved amount is determined and the deductible and coinsurance are applied.


1.        A provider bills a service with an approved amount of $100.00. 

2.       Medicare normally would pay 80 percent of the approved amount ($100.00 x 80 percent = $80.00).

3.       The patient is responsible for the remaining 20 percent coinsurance amount of $20.00 ($100.00 – $80.00 = $20.00).

4.       However, due to the sequestration reduction, 2 percent of the $80.00 calculated payment amount is not paid, resulting in a payment of $78.40 instead of $80.00 ($80.00 x 2 percent = $1.60).

medical billing noteBilling Note:  The 2% reduction will be noted on the explanation of payment as Claim Adjustment Reason Code 223.  (CARC 223 is defined as 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.)


5.  Where do I get more information? 

CMS informationDocumentation was issued by CMS on March 8, 2013 and can be found via this link:

You can also contact your local Medicare Administrative Contractor for further information.