Why Will Medicare Administrative Contractors be Holding Claims Up?

by  Jared Staheli, MPP
Apr 27th, 2021

**UPDATE: 4-27-2021** The pause on sequestration has been extended through the end of 2021.

When Congress passed the expansive American Rescue Plan Act last month, most Americans were focused on the direct payment provision of the bill. However healthcare administrators and policymakers had their attention on another aspect: cuts to Medicare payments. Why would Congress be cutting Medicare payments during the COVID-19 Public Health Emergency (PHE), when the costs borne by healthcare providers and facilities have been so great? Two reasons: a budget provision called PAYGO and the ever-looming sequestration cuts.

Increased spending associated with the stimulus package triggered a 4% cut in Medicare payments

As defined by the Tax Policy Center, “PAYGO,” which stands for ‘pay as you go,’ is a budget rule requiring that tax cuts and mandatory spending increases must be offset (i.e., “paid for”) by tax increases or cuts in mandatory spending.” The increase in spending associated with the stimulus package triggered a 4% cut in Medicare payments. However, the PAYGO rule can be overridden by Congress, and it appears that it will be, to the relief of the heavily affected providers and facilities. In addition to the 4% PAYGO cut, the standard 2% sequestration cut is also scheduled to occur.

Medicare is holding claims in case a new law stops cuts to Medicare

The Senate bill, which differs from the bill passed by the House, must now return to the House before it can be signed into law by President Biden. The bill, if passed, will eliminate the 4% PAYGO cut and will delay the 2% sequestration cut until the end of the PHE. Congress, however, is on a break until April 13th, so in order to avoid re-processing claims with payment reductions that are very likely to be rescinded, CMS has told its Medicare Administrative Contractors to hold onto claims for services performed on or after April 1. When the bill is signed into law, as it appears it will be, those claims will then be processed.