Sequester Will Reduce Medicare Checks Mailed to Patients

March 08, 2013

Besides cutting Medicare reimbursement for physicians by 2% as of April 1, the automatic, across-the-board federal budget cuts known as the sequester will set the stage for a complicated and perhaps difficult conversation between physicians and some of their Medicare patients.

The topic? Why Medicare is reducing reimbursement checks mailed directly to patients by 2% when a "non-participating" physician declines to take assignment on a claim.

Lest anyone wonder why the checks have shrunk, the Centers for Medicare & Medicaid Services (CMS) urged clinicians in a mass email today to talk to their patients about this fallout from the $85 billion sequester. Triggered by the failure of Congress in 2011 to reduce the deficit by $1.2 trillion, the sequester is taking an axe to everything from government-funded medical research to fighter-jet maintenance. It went into effect on March 1, but CMS said it would delay the 2% Medicare pay cut for physicians until April 1.

The sequester will not affect the coverage benefits enjoyed by Medicare beneficiaries, but it will nevertheless hit some in the wallet as a consequence of the physician pay cut. Explaining to patients why they will receive a slightly smaller check means a journey into the byzantine world of Medicare reimbursement.

A sequester chat will be unnecessary for physicians who sign a "participation" agreement. By doing so, they agree to take assignment on all Medicare claims, which means accepting the Medicare allowed charge, or allowable, for a particular service as payment in full. Medicare pays the physician 80% of the allowable, and the customer owes the rest in the form of co-insurance, sometimes referred to as the co-pay.

The conversation also will be unnecessary for physicians who elect what CMS calls "private contracting." These Medicare drop-outs can bill seniors anything they want for a service. They forgo any check from Medicare, which also will not reimburse their patients for out-of-pocket payments. As the term "private contracting" suggests, the financial relationship is strictly between physician and patient.

The sequester, however, warrants a patient-education moment for physicians in a category between participating and private contracting called non-participation. These physicians can take assignment on Medicare claims on a patient-by-patient, or claim-by-claim basis. If they take assignment, they receive only 95% of the Medicare allowable — again, 80% from Medicare and 20% from the patient.

However, non-participating physicians stand to collect more if they choose not to take assignment on a particular claim, which is why they opt for this category. They still are entitled to only 95% of the regular Medicare allowable, but they are free to balance-bill the patient for an additional 15% of that reduced charge. The American Medical Association offers this example on its Web site to illustrate the math.

Assume, for example, that the Medicare allowable for a service is $100 for a participating physician. It becomes $95 for the non-participating physician. If that non-participant declines to take assignment, he or she can bill the patient for an extra $14.25, which represents 15% of the reduced allowable.

The sequester catch for this patient applies to the reduced allowable, which in this example is $95. As usual, the patient is responsible for the co-insurance of 20%, or $19, and Medicare covers the remaining 80%, or $76, but instead of sending a $76 check to the physician, it sends the check to the patient. The patient, in turn, is responsible for passing along the $76 to the physician.

According to today's email from CMS, the sequester will reduce that $76 sent to the patient by 2%, or $1.52, leaving the patient with $74.48.

Eagled-eye patients who are accustomed to receiving reimbursement checks from Medicare may notice this reduction and ask why. Essentially, CMS is advising physicians to head off these questions at the pass.

CMS also noted today that a patient's deductible and co-insurance are not subject to the 2% sequester cut. In that respect, Medicare patients will continue to pay full freight. That could be another conversation starter.

It may take a blackboard or a Power Point slide show to crunch all these numbers for patients — before their eyes glaze over.