Aetna Medicare Advantage’s New Inpatient Payment Policy: Implications and Regulatory Concerns

Medicare Advantage (MA) plans adjust payments based on beneficiaries' health risk scores determined through CMS Hierarchical Condition Categories (HCCs).

These risk scores impact monthly payments significantly, with higher scores increasing Medicare reimbursements. Recent audits have raised concerns that some MA plans may inflate these scores artificially to boost revenue. Concurrently, MA plans are employing new cost-management strategies focused on hospital payments that diverge from traditional Medicare policies.

Unlike traditional Medicare Part A, which directly reimburses hospitals for inpatient care, MA plans pay hospitals using Medicare Severity Diagnosis-Related Groups (MS-DRGs). Aetna, a leading MA plan provider with about 12% market share, has introduced a payment policy linking inpatient reimbursements to compliance with MCG inpatient criteria, a commercial utilization review tool. This marks a shift from standard Medicare rules, particularly the "Two-Midnight Rule," which Medicare uses to define inpatient admission criteria based on hospital stay duration.

The Two-Midnight Rule generally requires hospital stays to be two or more midnights for inpatient payment eligibility, whereas Aetna will approve inpatient status for stays of one midnight or more but may reduce payments if claims do not meet MCG criteria. This approach blends utilization review and payment terms, differing from Medicare’s established framework. Inpatient payments under MS-DRGs already account for case severity through diagnosis codes indicating complications or comorbidities, which influence the payment level.

Significant differences exist between how MCG screening and MS-DRG reimbursement handle patient diagnosis and case timing. MCG screening often occurs early in hospital stays to determine admission appropriateness but does not necessarily align with the principal diagnosis reported post-discharge, which drives MS-DRG payments. This disconnect can contribute to medical necessity denials and complicate hospital coding and billing processes.

Aetna’s policy also introduces a payment differentiation based on length of stay, with inpatient admissions under five midnights potentially reimbursed at a "reduced severity" rate approximating observation payment levels. This could limit payments for the majority of hospital stays since median lengths of stay for many diagnosis groups average around three days, raising concerns about payment predictability and revenue cycle management for hospitals.

Traditional Medicare does not impose such payment restrictions; inpatient claims are reimbursed according to full MS-DRG rates regardless of stay duration. CMS regulations prohibit MA plans from enacting coverage or payment policies more restrictive than those applicable under traditional Medicare, positioning Aetna's policy at odds with Medicare rules.

The hospital industry has expressed concerns over these changes, but CMS has yet to intervene. It remains uncertain whether CMS will address these policy shifts before Aetna’s proposed implementation, which could significantly impact hospital reimbursement processes, utilization review workflows, and clinical documentation integrity efforts.

From a broader market perspective, these developments highlight tensions between cost containment efforts by MA plans and hospital operational and financial stability. The policy shift reflects growing complexities in MA plan payment methodologies, regulatory compliance challenges, and the evolving role of utilization review tools in payer payment decisions. Stakeholders in hospital finance, compliance, and revenue cycle management should closely monitor CMS responses and regulatory developments regarding MA plan inpatient payment policies.

Additionally, challenges in accurate principal diagnosis assignment, medical necessity determination, and coding accuracy continue to influence inpatient claims, denials, and audit outcomes. Enhanced coding education, utilization of predictive analytics, and provider engagement remain critical in maintaining compliant billing and optimizing reimbursement under both MA and traditional Medicare programs.

In sum, the payment strategy introduced by Aetna represents a significant departure from Medicare inpatient payment norms, with potential regulatory conflict and operational implications for hospitals. The policy underscores the importance of aligning clinical documentation, coding, utilization review, and payment policies within the evolving Medicare Advantage landscape to ensure balanced care delivery and reimbursement integrity.