Aetna delays and modifies new policy that’s set to hit reimbursement for inpatient hospital stays

Hospitals received a brief reprieve from a pending Aetna payment policy that remains likely to decrease reimbursement starting in 2026.

In a prior announcement, Aetna said it would apply level-of-severity criteria to all urgent or emergent hospital admissions lasting at least one midnight for Medicare Advantage (MA) and Medicare Special Needs Plans patients. For stays not meeting the criteria, Aetna would pay the observation rate rather than the inpatient rate.

In a recent change, the insurer pushed back the start of the policy from Nov. 15 to Jan. 1, giving providers more time to prepare for what could be a slew of cases where the payment rate gets downgraded.

As well, after previously saying the new policy would apply to almost all cases that last at least one midnight, Aetna now plans to pay the inpatient rate by default if the stay spans at least five midnights. That likely still leaves the majority of admissions subject to the new policy at most hospitals.

How Aetna will assess severity

Aetna will use MCG Care Guidelines admission status criteria to gauge whether the inpatient payment rate is warranted for any stay lasting between one and five midnights, except for stays that involve an unexpected death, a newly initiated mechanical ventilation, or a procedure on CMS’s inpatient-only list.

Because Aetna will approve inpatient admissions the same way it always has, CMS is unlikely to intervene on behalf of providers, said Ronald Hirsch, MD, vice president of regulations and education with R1 Physician Advisory Solutions.

“It’s all about payment, and that’s a contractual issue,” Hirsch said.

That’s echoed in Aetna’s explanation that “while CMS regulates inpatient coverage determinations, it does not dictate payment terms for contracted providers.”

In September comments, the American Hospital Association criticized Aetna, in part, for seeking to skirt federal policy that “disallows use of proprietary criteria to determine whether care is medically necessary and should therefore be covered. By treating this as solely an issue of payment, Aetna avoids these rules.”

Among the pressing questions about the new policy is the vague nature of the criteria, Hirsch noted, because MCG’s inpatient guidelines for MA do not appear to mention anything about severity. The criteria refer to the two-midnight benchmark as an indication that an inpatient admission is warranted as long as there is supporting documentation.

For stays lasting at least two midnights, “will Aetna honor that or will they look at something else?” Hirsch said.

Considerations for hospitals

The policy has raised concerns that hospital billing systems are unprepared to flag the downgrades for a possible appeal. The payment change from inpatient to observation would not show up as a denial, meaning hospitals might overlook the reimbursement reduction.

Aetna says it will communicate any such decision to providers, allowing them to request a severity review during a specified time frame after being notified and before submitting the claim. Providers also retain the right to appeal a payment following claims adjudication.

Beyond updating their billing systems as needed to account for the new policy, hospitals should seek to amend their contracts to prohibit this new approach and ensure all inpatient admissions are paid at the contracted inpatient rate, Hirsch said. That step will become even more important if other insurers look to follow Aetna’s lead.

But there may be scenarios when the policy works to a hospital’s advantage, such as in certain cases where an observation stay is paid as a percent of charges. Ensuring the hospital billing team is familiar with all contract provisions thus becomes paramount.

“A four-day observation stay may just pay a lot better than an inpatient DRG payment,” Hirsch said. “If that’s the case, why fight it?”

Aetna says the policy can benefit providers by expediting payment in situations when an inpatient admission is deemed not to meet the severity criteria. Starting Jan. 1, hospitals will not have to go through the process of rebilling such claims as an observation stay.

Another new policy of concern

In a policy that took effect Oct. 1, Cigna was set to automatically downgrade level 4 and level 5 evaluation and management (E/M) claims if accompanying documentation was assessed as failing to support the billed code.

To appeal the downgrade, providers would need to fax over extensive medical records in support of the coding. Physician advocates also have expressed concern about the lack of adjudication criteria pertaining to documentation.

Cigna has emphasized that most practices would not face adverse impacts from the policy, with the potential downgrade applying only if Cigna has sent a written notice about the provider’s coding practices. In California, the policy has been paused with respect to fully insured commercial HMO and PPO health plans but remains in place for self-insured plans, according to an update from the California Medical Association.