Aetna pulls back on new Medicare Advantage payment policy

Insurer Aetna is pulling back on a downcoding policy for inpatient Medicare Advantage claims after at least one prominent hospital group criticized the original policy. 

In a notice posted to its website, Aetna said that level of severity review will only apply to urgent or emergent inpatient stays of at least one midnight, but less than five midnights. Level of severity review is the process of classifying a patient’s condition to determine the medical necessity of treatment, appropriate care settings, and ultimately, the level of reimbursement. 

Stays of five midnights or greater will not be subject to level of severity review, and will be paid at the inpatient DRG rate, said Aetna. For inpatient stays of at least one midnight but less than five midnights that don’t meet MCG criteria, providers can request a severity review and discuss it with an Aetna medical director. 

Aetna’s updated policy also has a new effective start date. Originally it had been planned to take effect November 15; the new start date is January 1, 2026.

The rest of the policy remains unchanged, said Aetna.

WHAT’S THE IMPACT 

The original version of the policy had drawn criticism from the American Hospital Association, which said it could ramp up financial pressure on hospitals.

Aetna earlier this year said it was creating a new type of inpatient reimbursement for the “low severity” inpatient stays that would be comparable to observation rates, the AHA said. This policy was to take the place of Aetna’s (and essentially every other insurer’s) long-standing approach of denying inpatient stays it deemed medically unnecessary and then, in most instances, downgrading them to outpatient observation status. 

Instead, Aetna said it would approve these inpatient stays but reimburse hospitals at a lower rate. This policy was to have applied only to Aetna’s Medicare Advantage and dual eligible lines of business. 

Initially, under the new policy, emergency and urgent inpatient admissions of more than one midnight would have been automatically approved. 

But if the patient didn’t meet Milliman Care Guidelines (MCG) inpatient criteria, the insurer would only have reimbursed the hospital at the lower rate for observation services.

“One of the most worrying consequences of this policy is the impact it could have on beneficiaries’ and regulators’ ability to assess the quality of Aetna’s coverage,” said AHA President Richard Pollack in the September letter. “Specifically, this policy could distort data that have direct bearing on Aetna’s performance on several measures that make up the Medicare Advantage Star Ratings Program.”

Aetna’s policy would reduce the opportunity for patients and providers to file appeals, said Pollack, and fewer appeals could affect star ratings calculations by giving the impression that Aetna’s performance has improved.

The policy would stress an already financially unstable healthcare system at a time when hospital costs for patient care continue to rise, the AHA said.

“Without an official denial, it is unclear how hospitals will know that an underpayment has occurred, something that is done today through established standard denial codes,” wrote Pollack. “Hospitals likely will need to invest in staff and financial resources to identify these claims and then adjudicate any disputes not through the standard appeals process, but rather through the dispute resolution mechanisms under their contracts.”

THE LARGER TREND 

Aetna announced earlier this year that it would be exiting the Affordable Care Act’s individual markets in 2026.

President and CEO David Joyner said during an earnings call in May that the company was disappointed by “continued underperformance” from its individual exchange products and saw no path to improve its position. 

Aetna has exited the ACA market before, in 2018, when it joined other insurers in leaving or downsizing its footprint, as premiums rose and insurers lost money.

In 2021, Aetna re-entered the market, with former CEO Karen Lynch saying at the time that the market had stabilized and resolved earlier “structural issues.”

Yet Aetna has struggled since its reintroduction into the ACA exchange and posted an adjusted operating income loss of $924 million in 2024.