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CO-253 Code: Medicare Sequestration Reduction

CO-253 is sequestration, a reduction in federal payment required by law. It appears on Medicare fee-for-service payments, where the amount Medicare pays is reduced by a set percentage after the allowed amount and patient cost sharing are calculated.

Quick facts

Code
CO-253 (CARC 253)
Status
Active In use since June 2, 2013; last modified November 1, 2013.
Code set
Claim Adjustment Reason Codes (CARC)
Group codes
  • CO (Contractual Obligation): The reduction is borne by the provider and cannot be billed to the patient.
  • OA (Other Adjustment): Some payers report sequestration under OA. Either way it is not patient responsibility.
Official description
Sequestration - reduction in federal payment
X12 Claim Adjustment Reason Codes, retrieved September 25, 2026
Last verified
against the official X12 list.

What CO-253 means

CARC 253 is sequestration, a reduction in federal payment. Sequestration is an across-the-board cut to certain federal spending required by budget law. For Medicare fee-for-service, it reduces the amount Medicare pays on claims. The reduction has generally been 2 percent under current law, though Congress has suspended or phased it at different times, so the rate depends on the date of service.

The order of calculation matters. Medicare first determines the allowed amount, then applies the deductible and coinsurance, and only then reduces its own payment for sequestration. The patient’s share is not reduced, and the provider cannot bill the patient for the reduction.

Example: the allowed amount is $100, and the patient owes $20 coinsurance. Medicare’s share would be $80. With a 2 percent sequestration, Medicare pays $78.40, and the ERA shows CO-253 for $1.60.

Why it matters

  • It appears on almost every Medicare payment, so it should be auto-posted, not worked as a denial.
  • Secondary payers need it reported correctly on crossover and COB claims; missing sequestration information can cause secondary denials.
  • Some Medicare Advantage contracts pass the reduction through to providers, and some do not.
  • Rate changes mean historic claims may carry different reductions than current ones.

How to handle it

  1. Post CO-253 as a contractual adjustment using a dedicated adjustment code, not a denial code.
  2. Verify the math on a sample of claims: the reduction should apply to the Medicare payment, after cost sharing.
  3. Report it on secondary claims in the COB adjustment data so the secondary payer can process correctly.
  4. For Medicare Advantage, compare the reduction with your contract. If the contract does not allow it, dispute the adjustment.
  5. Do not bill the patient for any CO-253 amount.

How to prevent problems

  • Set up automatic posting rules for CARC 253.
  • Include sequestration in expected-payment calculations so it does not look like an underpayment.
  • Review Medicare Advantage contracts for sequestration language.
  • Use an ERA Analyzer to confirm sequestration is applied at the expected rate and only where it should be.

See how to read CARC and RARC codes for more on routine versus actionable adjustments.

Remark codes that may appear with CO-253

  • N811 (Missing Federal Sequestration Reduction from Prior Payer.): Used on secondary claims when the prior payer's sequestration reduction was not reported.
  • CO-45 (Charge exceeds fee schedule/maximum allowable or contracted/legislated fee arrangement.): The fee schedule reduction, which is applied before sequestration.
  • CO-237 (Legislated/Regulatory Penalty.): A legislated or regulatory penalty, such as a quality program adjustment.
  • CO-223 (Adjustment code for mandated federal, state or local law/regulation that is not already covered by another code and is mandated before a new code…): A mandated adjustment for rules without a dedicated code.
  • PR-1 / PR-2 / PR-3 (Deductible, coinsurance, and co-payment amounts.): Patient cost sharing is calculated on the allowed amount, not reduced by sequestration.

CO-253 FAQ

Can I bill the patient for sequestration?

No. Sequestration reduces what Medicare pays. It does not change the patient's cost sharing, and it cannot be passed on to the beneficiary.

What percentage is Medicare sequestration?

Under current law it has generally been 2 percent of the Medicare payment amount, but Congress has suspended or changed it at times, such as during the COVID-19 public health emergency. Check the rate that applies to your dates of service.

Do Medicare Advantage plans apply sequestration?

Some do, depending on their provider contracts. It is a contract question, so check your Medicare Advantage agreements.

Is CO-253 a denial?

No. It is a routine reduction on paid claims and should not count toward your denial rate.

Should sequestration be reported to secondary payers?

Yes. Include the sequestration adjustment in the coordination of benefits data so the secondary payer sees the full picture of the Medicare payment. Missing it can trigger secondary denials.