Sequestration reductions on Medicare Cost Reports per CMS

The Centers for Medicare & Medicaid Services has updated the online Medicare Provider Reimbursement Manual, modifying instructions related to the 2% reimbursement reductions resulting from sequestration.

CMS updated Chapter 41, Skilled Nursing Facility and Skilled Nursing Facility Complex Cost Reports, Form CMS-2540-10. Parts of four worksheets — E, H, I and J — have been changed due to the sequestration cuts that took effect April 1, 2013. (Most SNFs only use Worksheet E.)

The CMS instructions state that for cost reporting periods that overlap or begin on or after April 1, 2013, the sequestration adjustment for SNFs should be calculated as follows:
Two percent times the sum of  the period’s PPS reimbursement and Medicare bad debt reimbursement, prorated for the days that sequestration is in effect  (total days in the cost reporting period that occur during the sequestration period beginning on or after April 1, 2013, divided by total days in the entire cost reporting period.)

Thus, there will typically be a difference between the calculated amount and the amount of sequestration on the PS&R, since the PS&R will be based on actual claims for dates of service on or after April 1, 2013.

CMS understands that the sequestration ‘days proration’ will yield a different result than the amount actually sequestered per the PS&R, but this is currently the method that sequestration will be calculated on the cost report, which can thus impact the settlement.

This is in contrast to the Home Health Agency Medicare Cost Report – Form 1728, where the sequestration amount is an input field, and is taken from the PS&R or HHA’s internal records of amount actually sequestered on the paid episodes.


  1. The sequestration amount is prorated based on the cost report instructions both for claims related payments as well as the bad debt payment. Ultimately, the cost report will will audited. What instructions or steps are being followed by the MAC to settle the payment amounts. For claims, will the sequestration amount be adjusted to the latest PS&R at final? For the bad debt interim payment, will the sequestration amount be determined based on the actual write-off on April 1st and thereafter on the submitted bad debt listings?

  2. We do expect the sequestration adjustment at audit to be adjusted per the PS&R and final Medicare bad debt. The SNF cost report does not look at actual PPS payments and Medicare bad debt that apply to April 1st and later, to determine sequestration. The SNF cost report instead looks at the total reimbursement from these two prior to sequestration (after deducting coinsurance), and then prorates the 2% sequestration based on a ratio of days of 4/1/13 and later, as compared to total calendar days of the cost report. Feel free to contact us at 800 447-2540 for further clarification.

    • Elouise,

      For the RHC, as for many other provider types, sequestration is calculated at 2% of total projected Medicare reimbursement. The exception to this would be for cost reports which overlap 04/01/13 (meaning that this date falls within the cost report period). For those cost reports, sequestration is only calculated at 2% of the Medicare reimbursement starting from April 1, 2013. This amount is determined using a ratio of how many days of the cost report are prior to 04/01/13 and how many are afterwards. For the most part, cost reports going forward no longer overlap that date, so sequestration will be, as stated, 2%.

      Please feel free to contact us with any more questions: 800-447-2540

      BTW, you may find the information in our webinars helpful. We have a RHC/ FQHC webinar scheduled for April 21

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