Sequestration Threat About to Become Reality

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As an update to last week’s article, it is all but certain that the sequestration cuts will go into effect on March 1st.  Skilled nursing facilities should do budget and cash flow planning now to prepare for the impact on reimbursement.  Health care providers are hoping that a one-month delay in reductions to Medicare reimbursement rates under sequestration will give lawmakers enough time to develop and pass legislation to avert cuts under the sequester.  Sequestration will involve a two percent cut in Medicare payments, effective for services provided on or after April 1, 2013.  While there is little formal or practical guidance available to providers, it is our understanding that facilities should continue to bill at the FY2013 rates.  Any adjustments to reimbursement will be made by the Medicare Administrative Contractor (MAC) Palmetto GBA.

The Obama administration has estimated that sequestration would slash $11 billion from Medicare as a result of the two percent provider cut.  The impending budget action is meant to force a deal on long term deficit reduction.

Based upon recent average SNF payment information for calendar year 2011 developed by the Centers for Medicare and Medicaid Services (CMS), the average payment reduction for Virginia facilities attributable to a two percent sequestration cut would be approximately $8.00 per Medicare patient day.

Many health policy experts believe that unless there is a substantial increase in federal revenues, like those that could result from a sustained economic expansion, Congress will face overwhelming pressure to cut between $400 billion to $700 billion in federal spending on health care over the next 10 years. The sequester would start to reduce that goal, whereas entitlement reform could achieve that level of cuts with the passage of a single bill.  In other words, whether the sequester goes into effect for a week, month, year, or the full 10 years, it’s likely to be only a starting point of the conversation because Congress will likely need to seek additional health care spending reductions.