Aetna's New Medicare Advantage Policy Alters Two-Midnight Rule Payment Approach

In January 2024, CMS officially required Medicare Advantage (MA) plans to adhere to the Two-Midnight Rule under 42 CFR 422.101, a move intended to standardize inpatient admission practices and ensure appropriate hospital reimbursement. Despite this mandate, MA plans have continued to struggle with accurately applying the rule, leading to extensive effort from hospitals to justify inpatient admissions through peer-to-peer calls and formal appeals.

This ongoing challenge has created operational inefficiencies and payment uncertainties for healthcare providers. Aetna announced a policy change effective November 15, 2025, whereby it will approve all inpatient admissions that last at least one midnight. However, payment for these admissions will depend on whether the case meets MCG© inpatient criteria. Cases meeting the criteria will be paid at the contracted inpatient rate, while those that do not will receive payment at a significantly lower severity rate aligned more closely with observation service rates. This approach deviates from current practices where non-qualifying admissions might face denials or additional medical director reviews, introducing a new payment model that eliminates denials and peer-to-peer discussions and treats lower payment as a contractual adjustment.

Hospitals face significant implications from this policy, as the new payment method could lead to reduced reimbursements without recourse, effectively undermining the financial integrity intended by the Two-Midnight Rule. Hospital administration teams are advised to proactively address this change by revising billing software to flag such cases for manual review and submitting formal comments to CMS to seek regulatory intervention.

This development occurs amid broader financial pressures on hospitals nationwide, emphasizing the need for vigilant management of payer policies that impact compliance and revenue cycles. Stakeholders must monitor payer initiatives closely to safeguard reimbursement standards and maintain compliance with evolving Medicare Advantage guidelines.