Apr. 30—Medicare cuts under the so-called sequester apply only final payment amounts and do not affect rates, the Centers for Medicare & Medicaid Services (CMS) recently confirmed.

The clarification was sought by the American Hospital Association (AHA) and 17 state hospital associations in May 2013 after some Medicare Advantage organizations (MAOs) began passing along to hospitals the 2 percent cut they received debt-reduction provisions of the Budget Control Act of 2011. Medicare providers also were subject to the 2 percent payment cut under the law.

The insurers were apparently confused over how the policy could affect certain payment terms used in Medicare Advantage contracts with providers, according to the AHA.

The April 17 letter from CMS Administrator Marilyn Tavenner reiterated earlier statements that the agency is prohibited by law from “interfering in the payment arrangements between MAOs and contracted providers.” 

“Thus, whether and how reductions to plan payments due to sequestration might affect a MAO’s payments to its contracted providers are governed by the terms of the contract between the MAO and the provider,” Tavenner wrote.

Her letter also noted that the insurers “must follow the prompt pay provisions established in their contracts with providers and pay providers under the terms of those contracts.”

Lawsuits Threatened

Last year, hospitals and other providers accused the insurers of breaching contracts by unilaterally reducing payments due to the sequester cuts and some considered lawsuits, according to published reports. Insurers countered that the cuts were contractually allowed.

Some healthcare experts said contracts between a provider and an MAO tied to rates or rate schedules did not allow insurers to pass along the 2 percent cut, according to published reports. However, contracts tied to what Medicare would have paid could allow insurers to pass on the cuts.

Some hospital advocates said the insurers’ cuts were not based on contract provisions.

Publication Date: Wednesday, April 30, 2014