On November 2, President Obama signed the Bipartisan Budget Act of 2015. As an offset for near-term increases in federal spending, the new law extends by one year – to 2025 – two-percent sequestration reductions in federal spending for mandatory federal programs including Medicare.  The end result is that Medicare Advantage Organizations (MAOs) can expect their capitated payments from Centers for Medicare and Medicaid Services (“CMS”) to continue to be reduced, and Medicare fee-for-service providers can also expect to have sequestration reductions on their CMS reimbursements until at least 2025.

First established by the Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA), “sequestration” is a process of automatic, largely across-the-board reductions enacted to constrain federal spending. Sequestration in its current form began on March 1, 2013, when President Obama, pursuant to the Budget Control Act of 2011, ordered cuts to federal spending effective April 1, 2013, after Congress and the President failed to reach a budget compromise.

Under the Budget Control Act of 2011, the size of reductions to the Medicare program is limited to two-percent. As required by President Obama’s sequestration executive order, on March 8, 2013, CMS notified providers that a “2 percent reduction in Medicare payment[s]” would apply to “Medicare FFS claims with dates-of-service or dates-of-discharge on or after April 1, 2013.” In other words, due to sequestration, as of April 1, 2013, CMS reduced the amount it pays to providers for fee-for-service Medicare claims by two-percent.

The reductions have also impacted the Medicare Advantage Program (also known as Medicare Part C). For one, sequestration reduced net capitated payments made to MAOs by two-percent.  For another, many contracts between MAOs and health care providers incorporate Medicare’s reimbursement methodology, or a percentage thereof, as their contractual payment amount.  On May 1, 2013, CMS reiterated its position that “whether and how sequestration might affect an MAO’s payments to its contracted providers are governed by the terms of the contract between the MAO and the provider.” The application of sequestration under specific MAO and provider contracts is already the subject of disputes.

Pursuant to the Budget Control Act of 2011, sequestration was initially set to expire in Fiscal Year 2021. This expiration date has already been extended twice – to 2023 in the Bipartisan Budget Act of 2013, and to 2024 by another law that provided financing for military benefits.  The Bipartisan Budget Act of 2015 passed last month extends sequestration for mandatory programs like Medicare by yet another year to 2025.

The bottom line takeaway from the latest extension of sequestration is that sequestration appears here to stay in the near term, and likely for at least the next decade.

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Photo of Christopher Flynn Christopher Flynn

Chris Flynn is a partner in Crowell & Moring’s Washington, D.C. office and is co-chair of the firm’s Health Care Group. Chris focuses his practice on complex commercial litigation before federal and state courts, administrative agencies and arbitral forums. Chris regularly represents HMOs…

Chris Flynn is a partner in Crowell & Moring’s Washington, D.C. office and is co-chair of the firm’s Health Care Group. Chris focuses his practice on complex commercial litigation before federal and state courts, administrative agencies and arbitral forums. Chris regularly represents HMOs, PPOs, IPAs, TPAs, health benefit plans, fiscal intermediaries, managed behavioral healthcare organizations, plan sponsors and health care industry associations in various litigation, investigations, and regulatory matters. Chris’ experience includes all areas of health care, including payor/provider contract disputes, class action defense, ERISA preemption, subrogation disputes, regulatory challenges and whistleblower claims. Chris has also briefed health care matters for the Supreme Court as counsel for amicus curiae.

Photo of Peter Roan Peter Roan

Peter Roan is a Health Care Group partner in Crowell & Moring’s Los Angeles office. With over 30 years of experience, Peter concentrates his practice on litigation in the health care and insurance industries. He represents managed care organizations, health benefit plans, Medicare…

Peter Roan is a Health Care Group partner in Crowell & Moring’s Los Angeles office. With over 30 years of experience, Peter concentrates his practice on litigation in the health care and insurance industries. He represents managed care organizations, health benefit plans, Medicare Advantage Organizations, Medicaid managed care plans, insurers, plan administrators, plan sponsors, physician organizations, other health care providers and suppliers, ambulatory surgical, skilled nursing and other health care facilities, and trade associations in various litigation and regulatory matters. Peter’s health care litigation experience includes payer / provider and other disputes and defending class action, bad faith, wrongful death, ERISA, unfair business practices, False Claims Act and RICO cases. Peter represents health care payers that offer or administer group and individual insurance, as well as payer organizations participating in government sponsored health programs including Medicare Advantage, Medicaid, TRICARE and FEHBP. He also represents clients facing regulatory enforcement action both in court and before the agencies, and in peer review proceedings and follow-on litigation.

Photo of Mike Lieberman Mike Lieberman

Mike Lieberman is a partner in Crowell & Moring’s Litigation, Health Care, and White Collar & Regulatory Enforcement groups, and co-chair of the firm’s E-Discovery Practice. He litigates complex matters in federal, state, and arbitral forums, with a particular focus on commercial health…

Mike Lieberman is a partner in Crowell & Moring’s Litigation, Health Care, and White Collar & Regulatory Enforcement groups, and co-chair of the firm’s E-Discovery Practice. He litigates complex matters in federal, state, and arbitral forums, with a particular focus on commercial health care disputes, class actions, discovery disputes, and fraud cases. Mike’s clients include managed care companies, health benefit plans, clinical laboratories, government contractors, corporate and individual criminal defendants, and various other corporate commercial litigants.