One of the many relief efforts contained in the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), signed into law on March 27th, 2020, is a hiatus of sequestration as it applies to Medicare payments. Section 4408 of the CARES Act exempts Medicare from the effects of sequestration from May 1, 2020, through December 31, 2020.[1] It also postpones the sunset of sequestration as it applies to Medicare from the end of 2029 to the end of 2030.

As background, on January 2, 2013, “sequestration,” automatic spending cuts applicable to all categories of the Federal budget, went into effect. Sequestration included a 2.0% reduction in most Medicare spending, and as a result of its implementation, many providers experienced reductions in their reimbursement. In addition to traditional fee-for-service Medicare payments, some Medicare Advantage plans reduced reimbursement under their contracts with providers to reflect the effect of sequestration, effectively passing on to providers the reductions in premiums recovered by such plans due to sequestration. Even non-Medicare reimbursement was affected for many providers whose participation agreements with plans contained fee schedules based off of Medicare reimbursement.

While this suspension of sequestration is certainly good news for providers participating in traditional fee-for-service Medicare, and plans offering Medicare Advantage products, the effect the suspension will have on reimbursement for providers participating in Medicare Advantage or commercial lines of business which rely on Medicare rates is slightly less clear.

To the extent that a provider’s rates were reduced due to sequestration in the past, and those reductions have continued over the years, providers may have grounds to assert that their rates should be increased in an amount equal to the amount by which they were reduced during this suspension period. For providers participating in agreements that have provisions that explicitly address the effect of legislative changes to payments such as sequestration, such agreements should be reviewed. In more recent agreements that do not directly address the issue, it may be more difficult to ascertain the effect sequestration has had on reimbursement under the agreement – and, therefore, the effect of this suspension.

This temporary suspension of sequestration may provide some helpful relief to providers during these difficult economic times. Providers should not, however, assume that the suspension of sequestration reductions will be seen across all products without the need for further action. Each arrangement between plan and provider will need to be reviewed to determine the effect this suspension will have on the arrangement, if any. Providers hoping for this particular economic relief should review both their participation agreements and their remittance advice and consult with counsel to determine what effect, if any, the sequestration suspension should have, and is having, on their reimbursement.