As a medical practice manager or biller, seeing an adjustment or denial code on a Remittance Advice (RA) can be frustrating. One of the most common and confusing codes you’ll encounter from Medicare is the CO 253 denial code. While it’s categorized as a denial, it functions more as a non-negotiable payment reduction.
Understanding this code is essential for accurate revenue forecasting and maintaining your practice’s financial health. This guide will demystify the CO 253 denial code by explaining its root cause: the federal policy of sequestration.
What Exactly is the CO 253 Denial Code?
The code CO 253 is a Claim Adjustment Reason Code (CARC) that stands for Sequestration – reduction in federal payment.
Let’s break that down:
- CO (Contractual Obligation): This prefix means the provider is contractually obligated to accept the adjustment. You cannot bill the patient for the amount reduced under a CO code.
- 253 (Sequestration): This number specifically identifies the reason for the payment reduction as federal sequestration.
Essentially, when you see the CO 253 denial code on your RA, it is not an indication that your claim was improperly filed or that the service was not medically necessary. It is simply an explanation for a mandatory, government-enforced payment cut.
The Root Cause: What is Sequestration in Medical Billing?
To understand CO 253, you must first understand the policy behind it. The term “sequestration” might sound complex, but the concept is straightforward.
Sequestration in medical billing is a mandatory 2% reduction in payments for all Medicare Fee-for-Service (FFS) claims.
This policy was enacted as part of the Budget Control Act of 2011, which mandated across-the-board cuts to federal spending. These cuts, known as sequestration, have been in effect since 2013. For healthcare providers, this means that for any approved claim submitted to Medicare, the final payment will be reduced by 2% off the top.
The Sequestration Adjustment on Your Remittance Advice
The practical application of this policy appears on your RA as a sequestration adjustment. This line item shows the exact dollar amount deducted from your payment due to this federal mandate.
- How it Works: If your practice submits a claim and Medicare’s approved amount is $1,000, you will not receive $1,000. Instead, you will see a sequestration adjustment of $20 (2% of $1,000). Your final payment will be $980. The CO 253 denial code will be listed next to this adjustment to explain why the $20 was withheld.
Can You Appeal a Sequestration Adjustment?
No. Because sequestration is a federal law and the adjustment is mandated, a sequestration adjustment cannot be appealed. It is a standard cost of processing Medicare claims that all providers must absorb. Likewise, you are prohibited from billing the patient for this 2% reduction.
How to Mitigate the Impact of Mandatory Payment Reductions
Since you cannot fight the sequestration adjustment, the only way to protect your revenue is to optimize every other aspect of your revenue cycle. That mandatory 2% cut makes it more critical than ever to ensure you are collecting the other 98% efficiently and completely.
If your billing processes have other leaks-like coding errors, missed filing deadlines, or poor A/R follow-up, the 2% sequestration cut is compounded, leading to significant financial losses.
Here’s how to build a stronger defense:
- Achieve a >98% Clean Claim Rate: The fewer errors on your initial claims, the faster you get paid. This minimizes delays and reduces the staff time spent on rework.
- Implement Aggressive A/R Follow-Up: For every legitimate denial (not a CO 253), you need a robust process to appeal and recover that income. Don’t let appealable revenue die in aging A/R.
- Ensure Flawless Coding: Maximize legitimate reimbursement by ensuring every claim is coded to the highest level of specificity and is fully supported by documentation.
Don’t Let Sequestration Erode Your Bottom Line
Navigating the complexities of Medicare, including the constant presence of the CO 253 denial code, requires diligence and expertise. The 2% sequestration adjustment may seem small on a single claim, but it adds up to thousands of dollars in lost revenue annually.
At Medical Billing Direct, we specialize in fortifying your revenue cycle against these challenges. Our team of certified billing and coding experts ensures that every claim is clean, every denial is worked aggressively, and your practice collects every dollar it rightfully earns. By optimizing your entire billing process, we help offset the impact of non-negotiable cuts like sequestration.
Stop leaving money on the table.
Frequently Asked Questions
- What does the CO 253 code mean in simple terms?
The CO 253 code is an explanation on your Medicare Remittance Advice that your payment has been reduced by 2% due to a mandatory federal budget cut known as sequestration. It is not a denial based on an error in your claim. - Can I bill my patient for the 2% sequestration adjustment?
No. The “CO” in CO 253 stands for Contractual Obligation, which legally prohibits you from billing the patient for this specific reduction. The sequestration adjustment must be treated as a contractual write-off. - If I can’t appeal the CO 253 denial code, what should my practice do about it?
Since the reduction is mandatory, the best strategy is to focus on strengthening other areas of your revenue cycle. By eliminating coding errors, reducing claim denials, and improving A/R follow-up, you can maximize your overall collections to help offset the unavoidable 2% loss from understanding what sequestration is in medical billing.