Understanding the impact of sequestration in the medical billing world is crucial for revenue cycle teams in 2025. If your practice or facility handles Medicare claims, the term sequestration medical is more than just jargon—it’s a financial reality. In this article, we’ll explain what medical sequestration is, how it affects Medicare reimbursement in 2025, and what billing and coding professionals can do to stay compliant and mitigate revenue losses.
What Is Medical Sequestration?
Medical sequestration refers to the automatic reduction in federal spending for certain programs, including Medicare. These across-the-board cuts are part of budget control measures enacted by the Budget Control Act of 2011. Since 2013, Medicare claims have been subjected to a 2% reduction in provider payments under sequestration. These cuts apply to allowed amounts after deductibles and coinsurance.
For instance, if Medicare approves $1,000 for a service, and the patient owes $200 (coinsurance), the 2% sequestration applies only to the remaining $800, reducing the provider’s payment by $16.
2025 Updates: What’s New With Sequestration Medical?
As of 2025, sequestration remains in effect for Medicare fee-for-service (FFS) claims. However, several critical updates from CMS and major payers influence how these cuts are processed and reported:
- Sequestration remains at 2% for most Medicare Part A and B claims submitted in 2025.
- MA Plans and Commercial Payers: While sequestration is a Medicare policy, some Medicare Advantage payers may model similar reimbursement structures, so review EOBs carefully.
- 835 Remittance Advice Codes: The sequestration reduction continues to appear under adjustment reason code CARC 253: “Sequestration – reduction in federal payment.”
These updates reinforce the need for billing staff to monitor remittance advice closely and ensure accurate posting of reduced payments.
How Does Sequestration Affect Your Billing Workflow?
Sequestration doesn’t change how you bill Medicare. However, it does impact your collections and revenue projections. Here’s how:
- Payment Shortfalls: Expect a 2% shortfall in Medicare payments even when claims are fully approved.
- Cash Flow Planning: Budgeting must account for consistent reductions to avoid cash flow surprises.
- Adjustment Posting: Ensure that write-offs for sequestration are properly documented in your billing system using CARC 253.
For example, failing to recognize sequestration adjustments may cause reconciliation errors and inflate outstanding AR.
Tips to Manage Sequestration Medical Reductions in 2025
- Train your team on how sequestration adjustments appear on EOBs and 835s.
- Use accurate adjustment codes in your billing software to avoid misreporting.
- Communicate with providers about expected payment amounts, especially when managing expectations for claims involving high-cost services like CT scans (e.g., CPT 74178 billing).
- Monitor your denials to differentiate sequestration-related payment adjustments from true denials. Learn more about common denial reasons.
- Appeals are not an option: Sequestration reductions are mandated by federal law and cannot be appealed.
Real-World Example: Sequestration in Action
Suppose you submit a Medicare Part B claim for CPT 99214, and the allowed amount is $150. After the patient pays their coinsurance of $30, Medicare’s payment would typically be $120. Due to sequestration, the actual payment would be $117.60 (2% cut of $120).
This consistent trimming across all Medicare payments can add up significantly over the year, especially for high-volume providers.
Documentation and Reporting Considerations
While sequestration doesn’t affect coding or documentation directly, it’s vital to note reductions accurately in reports and financial reviews. Facilities should ensure they include sequestration amounts in write-off or contractual adjustment columns and educate finance teams about these automatic cuts.
Moreover, for billing audits and compliance, it’s helpful to document that reductions were due to federally mandated sequestration—not billing errors or denials.
Frequently Asked Questions
Is sequestration still in effect in 2025?
Yes. The 2% Medicare sequestration cut continues in 2025, per CMS guidance. It affects both Part A and Part B claims.
Can I appeal sequestration reductions?
No. Sequestration is a mandatory federal budget reduction. Appeals are not allowed, as these are not claim errors or denials.
Where do I see the sequestration cut on my remittance?
Look for adjustment reason code CARC 253 on your ERA or EOB. This reflects the 2% reduction on the Medicare-approved portion of the claim.
Conclusion
In 2025, understanding sequestration medical policies is essential for maintaining accurate revenue forecasting and clean claims reporting. While the 2% cut may seem small, it adds up across thousands of claims. Ensure your billing team is trained to recognize and document these reductions correctly, and always stay updated with CMS changes.
For more expert insights, check out our guides on ICD-10 coding tips, CPT modifier usage, and other Medicare billing best practices.
Staying compliant with sequestration rules ensures you’re not leaving money—or accuracy—on the table.