Hospitals and health systems across the country are preparing for a significant shift in how Aetna reimburses certain inpatient stays. Aetna’s Level of Severity Inpatient Payment Policy, which went into effect January 1, 2026, (updated from the original effective date of November 15, 2025) introduced a new framework for evaluating and reimbursing urgent or emerging inpatient admissions.
At its core, this policy applies to providers whose contracts are paid based upon Diagnostic-Related Group (DRG) rate/Medicare Allowable, and it creates a two-tiered reimbursement structure for inpatient hospital stays among Aetna Medicare Advantage (MA) and Special Needs Plan members. One tier applies to hospital stays of five or more midnights, and under this policy Aetna will reimburse a hospital at a higher level of severity rate for these cases.
The other tier applies to inpatient admissions lasting at least one midnight but fewer than five midnights. For these cases, Aetna will perform a level of severity review to determine if the claim will be paid at a higher or lower level of severity rate.
What the Policy Does
Key components include:
- Automatic approval for hospital stays that span more than one midnight when there is a valid inpatient order.
- Mandatory notification by hospitals within 24 hours of admission.
- Submission of pertinent clinical information to Aetna within 48 hours, triggering Aetna’s review of medical necessity using MCG criteria.
- Aetna must respond within 48 hours, either requesting more information or indicating that the criteria for full inpatient payment were not met.
- Providers may request a review with an Aetna medical director to discuss the level of severity payment determination and to appeal for the inpatient rate.
- If Aetna determines that the clinical criteria are not met—and the severity discussion with the medical director does not result in a higher level of severity payment decision—the stay will not be denied outright.
- Instead, Aetna will apply a claim adjustment, reimbursing the stay at a lower-severity inpatient rate, often comparable to the hospital’s observation rate under its contract.
- Once the claim has been adjudicated and paid, providers may pursue a formal payment appeal, contesting the reimbursement level of care payment.
- Importantly, stays of five midnights or longer will be reimbursed at a higher level of severity rate, similar to how traditional inpatient hospital stays of five or more midnights were reimbursed under the inpatient DRG rate.
Significant Opposition Surrounding this Policy
State and federal organizations have taken steps to stop this policy from being implemented, including the American Hospital Association (AHA) who urged Aetna to rescind the policy.1 The Society of Hospital Medicine and the American College of Physician Advisors (ACPA) also joined forces to expressed concern over this policy, asking the Centers for Medicare and Medicaid Services (CMS) Administrator to address this policy which they wrote “threaten Medicare beneficiaries’ coverage protections and financial security.” 2
Additional opposition has come from the Hospital and Healthsystem Association of Pennsylvania (HAP) who called for an immediate withdrawal of the policy. HAP cited, among other things, that the policy was a direct violation of federal regulations which assert that the admitting physician makes the determination for inpatient status, not an algorithm, AI tool or administrator.3 Other major hospital organizations like the Healthcare Association of New York State (HANYS)4, the Connecticut Hospital Association (CTA)5, and the Kansas Hospital Association (KHA)6 have also opposed the policy, demonstrating profound resistance. The opposition also signifies the disruptive impact this policy will have on hospitals, health systems and patients.
Aetna’s rationale appears rooted in aligning payment levels more closely with clinical severity while also increasing consistency across facilities. By adjusting payments rather than issuing formal denials, Aetna reduces the volume of reportable denial activity, potentially boosting their CMS Star measures tied to member experience and appeal metrics.
However, it remains clear that there are significant concerns for hospitals:
- It may circumvent CMS’s Two-Midnight rule for MA plans, which traditionally require MA plans to follow CMS inpatient admission standards.
- It could artificially lower denial rates, making performance metrics appear improved even though payment reductions continue in another form.
- Hospitals may face financial losses tied to contractual adjustments that are difficult to track or challenge.
While the policy avoids outright denials, it introduces new administrative demands: strict notification timelines, clinical documentation requirements, and the need for rapid peer-to-peer engagement. Hospitals may still appeal adjusted payments, but guidance on how to do so is still evolving.
Conclusion
Aetna’s Level of Severity Inpatient Payment Policy represents a complex shift in MA reimbursement. Though framed as a refinement of payment methodology, the policy’s implications reach far beyond coding or billing. Hospitals must prepare operationally, financially and strategically to manage this new environment — ensuring compliance while advocating for fair reimbursement. Hospitals should also be working with their managed care contracting teams to update language prohibiting these changes.
SOURCES
- “AHA Urges Aetna to Rescind Level of Severity Inpatient Payment Policy,” American Hospital Association. September 15, 2025.
- “SHM and ACPA Partner in Expressing Concern over Aetna Claims Process,” Society of Hospital Medicine. October 24, 2025.
- “Advocacy Correspondence: Aetna, Medicare Advantage/Special Needs Program ‘Level of Severity Inpatient Payment Policy’ Effective November 15, 2025,” The Hospital & Healthsystem Association of Pennsylvania. August 27, 2025.
- “Aetna’s new Medicare Advantage inpatient admission payment policy,” HANYS. August 20, 2025.
- “Aetna Level of Severity Inpatient Payment Policy,” Connecticut Hospital Association. October 23, 2025.
- “Concerns Regarding Aetna’s New Medicare Advantage (MA) Inpatient Payment Policy,” Kansas Hospital Association. August 19, 2025.