2022 Medicare Sequestration Considerations

by | Dec 21, 2021 | Blog


In a late 2021 legislative session, Congressional activity resulted in a little bit of breathing room for hospitals after the New Year. In a bipartisan vote by Senate late last week, legislation was passed that mitigates nearly 10% Medicare reimbursement cuts poised to occur in 2022. Aptly named the “Protecting Medicare and American Farmers from Sequestration Cuts Act (The Act), it provides hospitals and providers temporary relief from several federal reimbursement adjustments.

Extension of Moratorium on Medicare 2% Sequestration

As the name suggests, sequestration cuts Medicare payments up to 2% annually. This decade-long reimbursement adjustment is an automatic reduction in Medicare Fee-For-Service claim reimbursements required by the 2011 Budget Control Act to curtail federal spending. Congress initially paused the sequestration at the start of the COVID-19 pandemic as part of the CARES Act. The resounding relief it provided to hospitals across the nation has led to the moratorium being extended multiple times throughout the pandemic. Congress passed the latest legislation in April 2021 that continues the suspension of the sequestration until the end of the year.

The Act once again extends the moratorium on the sequester until March 31, 2022. The sequester will resume April 1, 2022; however, the sequestration rate will be reduced to 1% until June 30, 2022, and will continue after that at the normal 2% sequestration – unless otherwise adjusted before the date sequestration resumes. CMS published last week in the latest issue of mlnconnects the sequestration changes.

Delay of the Implementation of the Consolidated Appropriations Act of 2021

The Consolidated Appropriations Act of 2021 was a $2.3 trillion spending bill that combined $900 billion in stimulus relief for the COVID-19 pandemic in the United States with a $1.4 trillion omnibus spending bill for the 2021 fiscal year. For the Medicare program, this resulted in a 3.75% increase to all payments made under the Medicare Physician Fee Schedule in 2021, but the increase is slated to expire in January 2022.

The recently passed legislation is poised to lessen the financial impact of the impending end to the generous 3.75% increase to the Medicare Physician Fee Schedule by implementing a 1-year 3% increase to the Medicare Physician Fee Schedule conversion factor. The overall implications therefore equate to only a difference of .75% for the 2022 fiscal year.

Halting 2022 Impact of the “Pay-As-You-Go Act” (PAYGO)

The PAYGO law is part of a greater piece of legislation that was essentially put in place as a budgetary constraint to prevent massive spending additions to the national debt and limits unnecessary overspend in the federal budget. The law was established as an enforcement mechanism that sets a spending threshold that blocks legislation from increasing the federal deficit over a 5 – 10-year period. If the threshold is exceeded, it mandates a 4% sequester to federal programs (specifically Medicare reimbursements) if federal spending reaches a certain level.

House legislation proposed earlier this year included a delay to the 4% additional cut; however, the Senate bill that eventually passed did not include this delay. With the subsequent passage of the $1.9 trillion American Rescue Plan, and the passage of the $1.2 trillion American Jobs Plan, as well as the pending passage of the nearly $2 trillion Build Back Better Plan, the PAYGO sequestration is likely to be triggered in January 2022 and a massive 4% reduction in Medicare funding was inevitable.

The 4% reduction was estimated to be approximately $36 billion in Medicare funding cuts and over $9 billion in cuts to hospital providers. To mitigate the catastrophic impact the reductions will have while still mitigating the effects of the pandemic, the new Act has halted the impact of the PAYGO law until 2023 and has delayed any mandated cuts for the 2022 year. Congress has set up a process to basically shift the penalty for the overspend that will occur in 2022 to 2023. The additional 4% reduction in reimbursement is coming, just not in 2022.

Although the above provisions offer significant relief to providers, there are a number of other provisions of the Act that further impact our nation’s health care system. For additional insight into the impact of the legislation the American Hospital Association has issued a Special Bulletin further detailing the legislative impact.

Please email Ms. Angela Sorbelli, J.D., LL.M, MBA, CHC with your questions.

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