Guide · Updated Jul 6, 2026
Medicare Sequestration and the ~2% Cut
Sequestration is an across-the-board reduction — commonly about 2% — applied to Medicare payments after the fee schedule amount is calculated. It is applied to the payment, not baked into the RVUs or the conversion factor, so a correct rate can be shown either gross (before) or net (after) the cut.
When it is applied
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
Different users want different figures. Some need the gross fee schedule amount for contract benchmarking; others need the net amount that will actually be paid. We apply sequestration only when it is explicitly requested, and we never bake it into the underlying rate, so both views stay available and auditable.
The rate can change
The sequestration percentage has been adjusted by legislation over time, including temporary suspensions and phase-ins. Because we apply it as a separate, final step, the underlying computed rate is unaffected by those changes — only the optional net figure moves.
On a real remittance: the 80% share, not the whole allowed
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
Enter the allowed amount to see the reduction the way it lands 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
Is sequestration included in the rate you show?
No by default. We show the gross fee schedule amount and apply the ~2% reduction only when you request the net figure.
Is sequestration always exactly 2%?
It is commonly about 2%, but the exact percentage has changed over time through legislation. Because we apply it as a final step, the base rate is unaffected.
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.
Related
Sources
Written from primary CMS sources — see how we source, compute, and verify everything on this site.