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Medicare Sequestration and the ~2% Cut

Sequestration is an across-the-board cut to Medicare payments, usually about 2%, taken after the fee schedule amount is calculated. It comes off the payment rather than the RVUs or the conversion factor, so a rate can be shown either gross (before the cut) or net (after it).

When it is applied Copy link

The sequestration reduction is applied at the end of the calculation, after RVUs, GPCIs, and the conversion factor have produced a payment amount. Because it is the last step, the gross amount and the net amount differ only by the reduction percentage.

Why we keep it optional Copy link

Some readers need the gross fee schedule amount for contract benchmarking; others need the net amount that will actually be paid. We apply sequestration only when you ask for it and never build it into the underlying rate, so both figures stay available.

The rate can change Copy link

Congress has changed the sequestration percentage over time, including temporary suspensions and phase-ins. Because we apply it as a separate last step, those changes never touch the underlying rate. Only the optional net figure moves.

On a real remittance: the 80% share, not the whole allowed Copy link

On an actual claim, Medicare pays 80% of the allowed amount after the deductible and the beneficiary (or a secondary payer) owes the other 20%. Sequestration is taken from Medicare's 80% payment only—the patient's coinsurance is never reduced. So on a remittance, the reduction works out to about 2% of the 80% share (roughly 1.6% of the full allowed amount), which is why the sequestration line on an ERA is smaller than 2% of the allowed. The calculator below shows the split.

Sequestration calculator Copy link

Enter the allowed amount to see the reduction as it appears on a remittance. For a $100.00 allowed amount with the deductible met: Medicare's share is $80.00, a 2% sequestration reduction takes $1.60, so Medicare pays $78.40; the patient or secondary payer still owes the full $20.00 coinsurance, for a total expected collection of $98.40.

Medicare share (80%)
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Reduction
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Medicare pays
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Patient / secondary (20%)
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Assumes the Part B deductible is met and no other adjustments apply.

Frequently asked Copy link

Is sequestration included in the rate you show?

Not by default. We show the gross fee schedule amount and apply the ~2% reduction only when you ask for the net figure.

Is sequestration always exactly 2%?

It is usually about 2%, but Congress has changed the percentage over time. We apply it as a final step, so the base rate is not affected.

Is sequestration taken from the full allowed amount or just Medicare's share?

On a real claim it is taken from Medicare's 80% payment only. The patient's 20% coinsurance is not reduced, so the remittance-level reduction is about 2% of the 80% share—roughly 1.6% of the total allowed amount.

Sources Copy link

Written from primary CMS sources—see how we source, compute, and verify everything on this site.

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