New Aetna policy could significantly impact hospital reimbursement
For over a decade, the two-midnight rule has served as an important determinant of whether a hospital inpatient stay is reimbursable by Medicare, as well as a measure of protection for hospitals that treat patients over multiple days. The "sword" aspect of the rule provided that reimbursement for an inpatient service was only appropriate when the physician expected the patient to require a hospital stay of two midnights. The "shield" was that a hospital stay exceeding two midnights was presumed to be medically necessary and payable.
Aetna's August 2025 update to providers announced a new policy that threatens to upset this balance and severely impact hospital reimbursement for inpatient services provided to Medicare Advantage members. Effective November 15, 2025, Aetna will implement a "Level of severity inpatient payment policy" under which emergency and urgent inpatient admissions of more than one midnight will be automatically approved, but if the patient does not meet MCG criteria for inpatient admission, Aetna will only reimburse the hospital at the rate for observation services. Aetna indicates there are limited exceptions to this policy, such as services on the CMS Inpatient Only List, but Aetna did not provide a comprehensive list of the exceptions.
The new policy raises a host of issues. Aetna justifies the policy as being intended to "pay you faster" because its current process is to deny a stay that does not meet MCG criteria, which requires a hospital to submit an appeal. This will be cold comfort for already revenue-strapped hospitals, since hospital billing systems are not always able to identify underpayments, making identification of claims impacted by this new policy much more difficult than if Aetna were to issue a denial. Further, Aetna attempts to characterize this use of MCG criteria as not being a medical necessity determination, but rather, a measure of the "severity" of the inpatient admission. But this is a distinction without a difference; the refusal to reimburse a claim at an inpatient claim is effectively a denial of the medical necessity of the inpatient service, no matter how characterized. Finally, it is unclear how Aetna will apply the MCG criteria in the claims because a hospital's 837 claim submission likely does not include all the clinical information necessary to accurately apply the MCG criteria. This means that Aetna will very often pay inpatient claims at an observation level of care, despite the patient having been admitted for inpatient services. Hospitals wanting to obtain full payment at the inpatient service level will be forced to submit clinical appeals.
Hospitals may have contractual rights to object to this new Aetna policy. State laws may also afford certain protections.
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