On September 22, 2014, twelve hospitals filed a complaint in a Pennsylvania state court against a Medicare Advantage plan, Highmark, Inc., along with its HMO subsidiary, for implementing a two-percent reduction to the hospitals’ contracted payment amounts pursuant to the Federal budget sequestration that went into effect in April, 2013. The hospitals allege that the two-percent cuts required under the Budget Control Act of 2011 only apply to Medicare’s per-member per-month payments to Medicare Advantage plans and not directly to the plans’ payments to providers.

The hospitals cite CMS guidance stating that “whether and how sequestration might affect” a provider’s Medicare Advantage payments is “governed by the terms of the contract” between the provider and the Medicare Advantage plan. The hospitals claim that their contracts with the Medicare Advantage plan do not incorporate sequestration adjustments into provider payment rates nor permit the Medicare Advantage plan to unilaterally amend payment terms to incorporate the adjustment.

The case is Butler Healthcare Providers v. Highmark, Inc., (Pa. Ct. C.P., No. GD-14-016452), and the complaint is available here.