CO-253 Denial Code: Payment reduced by federal sequestration
The payment was trimmed by the mandatory federal sequestration cut - currently 2 percent on Medicare fee-for-service claims. It is an automatic contractual adjustment, not a denial.
- Group code
- CO - Contractual Obligation
- Code type
- CARC
- Billable to patient?
- No - contractual write-off; the patient's share is calculated before the reduction
- Appealable?
- Not appealable - verify the math
- Category
- Fee Schedule & Pricing
CAS*CO*253*125.00On a paper EOB it shows as CO-253.What CO-253 means
CO-253 is not really a denial - it is the across-the-board cut in federal payments known as sequestration, mandated by the Budget Control Act of 2011. For Medicare fee-for-service claims with dates of service on or after April 1, 2013, the payment is reduced by 2 percent, applied after deductible and coinsurance are calculated (the cut was suspended under COVID relief legislation from May 2020 through March 2022, phased back at 1 percent, and restored to the full 2 percent on July 1, 2022). Because the patient's share is figured before the reduction, none of it can be shifted to the patient. Some Medicare Advantage and other plans pass the cut through as well, depending on contract terms. Treat it as a routine contractual adjustment - the only thing worth checking is whether the math was applied correctly.
Common causes
- Normal Medicare fee-for-service processing - Part A and Part B payments have carried the reduction since April 2013, aside from the 2020-2022 COVID suspension.
- A Medicare Advantage or other plan passing the sequestration cut through under its contract.
- Posting rules in the practice-management system not mapped for 253, making routine reductions look like underpayments.
- Rare misapplication - the wrong percentage, or the reduction taken on the wrong base amount.
How to fix it
- Verify the math: the 2 percent applies to the Medicare payment after deductible and coinsurance, not to the full allowed amount.
- Post the amount as a contractual adjustment mapped to CO-253 so reporting separates it from true denials.
- Do not bill the patient - their share was calculated before the reduction was taken.
- If the percentage or base amount looks wrong, contact the MAC or payer and request reprocessing.
- For Medicare Advantage claims, check your contract language on sequestration pass-through before disputing the cut.
How to prevent it
- Configure auto-posting rules for CARC 253 so ERAs post cleanly without manual touches.
- Exclude 253 amounts from denial-rate and underpayment dashboards to keep those metrics honest.
- Build the 2 percent into Medicare revenue forecasts so collection targets stay realistic.