What is the current Medicare sequestration rate in 2026?

The current Medicare sequestration rate is 2%, applied to all Medicare Part A and Part B fee-for-service claims under the Budget Control Act of 2011. A potential additional 4% PAYGO sequestration was waived by Congress on November 12, 2025. Providers should budget for the 2% BCA cut as a permanent fixture of Medicare reimbursement through at least February 28, 2033, and model the risk of future PAYGO activation in financial scenario planning.

How is Medicare sequestration applied to claims?

Sequestration is applied post-adjudication. Medicare first processes the claim to determine the allowed amount, then calculates patient cost-sharing (deductibles and coinsurance). The 2% reduction is applied to Medicare’s remaining payment share — not to the total allowed amount and not to the patient’s cost-sharing obligation. The sequestration adjustment appears on the Explanation of Benefits as Claim Adjustment Reason Code (CARC) 253.

Does Medicare sequestration affect patient out-of-pocket costs?

No. Medicare sequestration does not change patient coinsurance, copayments, or deductible obligations. The reduction falls entirely on the provider’s Medicare payment. Patients owe the same cost-sharing amounts as they would without sequestration. The sequestration protection for beneficiaries is explicit in the Budget Control Act and the PAYGO statute — both laws prohibit sequestration from reducing beneficiary benefits or cost-sharing protections.

Does Medicare sequestration apply to Medicare Advantage?

Yes — but differently. For traditional Medicare FFS, sequestration reduces the payment CMS makes directly to providers. For Medicare Advantage, sequestration reduces the capitation payments CMS makes to MA plans. MA plans may or may not pass that reduction through to providers, depending on their contracted rates. Provider contracts with MA plans generally do not reference sequestration directly, so MA plan payment rates are not automatically reduced at the provider level the way FFS payments are.

Has the 4% PAYGO sequestration ever taken effect?

No. The PAYGO sequestration mechanism has been triggered by deficit-increasing legislation multiple times, but Congress has always passed supplemental legislation to waive the cuts before they take effect. The November 2025 stopgap bill waived the PAYGO sequestration that would have been triggered by the One Big Beautiful Bill Act. However, the waiver history should not be interpreted as a guarantee — the political environment and deficit levels make future waivers increasingly difficult to predict.

How does sequestration interact with the 2026 Medicare Physician Fee Schedule conversion factor increases?

The 2026 PFS conversion factor increases (3.77% for QPs, 3.26% for non-QPs) are calculated before sequestration is applied. The published CF figures in the final rule do not incorporate the 2% BCA sequestration reduction. Your actual net payment per service reflects the CF-based allowed amount, reduced by the applicable patient cost-sharing, and then reduced by 2% sequestration. For specialties also affected by the -2.5% efficiency adjustment on Work RVUs, the combined effect may offset most or all of the headline CF increase.

What is the best way to manage sequestration in a medical billing system?

Configure your billing system to map CARC 253 as a contractual adjustment — not an underpayment or open AR balance. Establish a payment posting protocol that identifies and correctly records sequestration deductions on every Medicare remittance. Build post-sequestration net revenue figures into all financial reporting and budgeting. Train your AR follow-up team to distinguish CARC 253 adjustments from genuine underpayments, so that collection resources are focused on recoverable revenue. Qualigenix handles all of this as part of standard RCM setup for new clients.

How can Qualigenix help my practice manage Medicare sequestration?

Qualigenix configures all client billing systems to correctly apply and report Medicare sequestration adjustments from day one. Our healthcare performance reporting dashboards display post-sequestration net revenue alongside gross allowed amounts, giving practice administrators a clear view of their true Medicare income. Our AR management team is trained to distinguish CARC 253 adjustments from recoverable underpayments, ensuring your team’s time and energy is directed at revenue that can actually be collected. Book a free AR assessment at qualigenix.com/contact-us/.

Medicare Sequestration 2026: What It Means for Your Practice Revenue

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