Aetna’s new payment policy could leave hospitals at a disadvantage

Hospitals should take note of an insurer’s new approach regarding the two-midnight rule, especially given the potential implications if the policy becomes widely adopted.

In a recent communication, Aetna said providers that contract with the company’s Medicare Advantage (MA) plans and Medicare Special Needs Plans face a new policy beginning Nov. 15 in instances when a patient is admitted on an urgent or emergency basis and the stay spans at least one midnight.

When the provider submits an inpatient order, Aetna intends to approve the admission without a medical necessity review, then pay the claim at roughly the observation rate. Exceptions will apply in circumstances such as unexpected death, initiated mechanical ventilation, services on Medicare’s inpatient-only list (which CMS has proposed to phase out over the next few years) and hospice referral.

In most other cases, however, the inpatient rate would be subsequently paid only if the stay qualifies based on MCG Care Guidelines admission status criteria. Payment for care episodes that stretch over two or more midnights thus could be limited to the observation rate.

The guidelines will be used only to determine whether the severity of the admission warrants paying the inpatient contracted rate and will not apply to medical necessity determinations, Aetna says. Cases that do not span one midnight will remain subject to medical necessity review.

Cause for concern

“Now, you’ll get paid faster without having to rebill claims for 1+ midnight stays that don’t meet MCG [criteria],” Aetna says in its bulletin, adding that hospitals retain the right to dispute the payment rate.

But stakeholders should take heed of what the insurer is looking to do with a policy that could be “catastrophic” for hospitals if other health plans go the same route, said Ronald Hirsch, MD, vice president of regulations and education with R1 Physician Advisory Solutions. The change could create upheaval in hospital reimbursement systems, he noted.

Instead of a denial that is subject to an appeal or that allows for a peer-to-peer discussion with a health plan representative, hospitals will simply receive a payment at the lower rate. Billing systems will interpret the difference between the payment and the billed amount as a contractual adjustment and thus will consider the admission fully paid.

Essentially, hospitals stand to miss out on any chance to contest the significantly lower reimbursement, even though Aetna says such appeals will be permissible.

“The only upside for hospitals to this is that if every inpatient admission is approved, there will be an accompanying IME [indirect medical education] payment for hospitals with teaching programs,” Hirsch said. “But this hardly makes up for the payment differential between inpatient and observation.”

While Aetna’s policy directly concerns hospitals, at least one other insurer appears set to take a similar approach with physician payments. Cigna announced it will lower payments for evaluation and management services by one CPT level beginning Oct. 1 if the encounter criteria on the claim do not support the higher reported code.

The policy context

Aetna’s new policy most likely is a strategic response to CMS’s 2023 guidance on how MA plans should apply the two-midnight benchmark (i.e., the two-midnight rule) and two-midnight presumption with respect to inpatient admissions. The guidance solidified the criteria MA plans need to follow but also afforded them leeway to disregard the traditional Medicare program’s presumption that any stay spanning two or more midnights is appropriate as an inpatient admission.

By using MCG criteria to gauge the level of severity and the corresponding payment rate, rather than to assess medical necessity, Aetna technically may be able to avoid violating CMS’s edict on the two-midnight benchmark while capitalizing on the flexibility regarding the two-midnight presumption.

Key responses

Hirsch said hospitals should adjust their billing software to flag pertinent Aetna payments for manual review and action beginning Nov. 15, giving facilities a chance to challenge the lower payments where appropriate.

He also strongly recommends that affected hospitals contact CMS regarding Aetna’s policy and that of any other insurer that attempts something similar. Such notice could spur the agency to clarify to MA plans that using commercial criteria to evade two-midnight payment requirements amounts to a subversion of the rule’s true intent and that federal authorities will be keeping a close eye on how the plans proceed.