Author: John K. Hall, MD, JD, MBA, FCLM, FRCPC | July 2, 2026
I first have to say that Aetna’s Medicare Advantage (MA) severity adjustment policy is sheer brilliance. We probably shouldn’t be surprised, since this is the same payer whose medical director admitted to denying claims without any review, which recently accepted a settlement with the U.S. Department of Justice for $117 million to settle false-claims allegations, and which is currently being sued by the Kansas Attorney General for allegedly diverting State Employee Health Plan funds.
As a brief overview, Aetna announced in 2025 that it would approve all inpatient MA stays of a duration of 1-5 days. However, for stays fewer than five days, it would also apply a what it calls a “level-of-severity” reimbursement reduction. This policy does things.
First, it essentially converts a Diagnosis-Related Group (DRG) stay into a per-diem reimbursement. Make no mistake, this is a unilaterally imposed fee schedule change.
Second, approving the inpatient stay deprives providers of appeal rights and protections. After all, it’s a reimbursement change, not a denial.
Third, the reduced severity reimbursement may be less than for an outpatient stay with observation services. But, since there’s no denial, there are likely few options for rebilling.
But let me be clear, this is not a utilization management (UM) problem, but a finance and contracting problem. As you may have heard before, these situations require a comprehensive strategic approach. Standard UM transactional approaches are almost certainly doomed to fail as a sole response to any such invidious and predatory payer policy changes.
Rather than transactional approaches, providers should consider other options.
First, analyze the relative outpatient/observation and reduced-severity inpatient reimbursements. Determine if there is a fiscally responsible trim point at which inpatient admission is likely to survive the severity reduction policy.
Second, consider simply exercising any for-cause cancellation rights. Remember, this “policy change” is nothing more than a unilaterally imposed fee schedule change. It’s a patently material change to the contract. This option requires careful market analysis and strategic engagement with payers. This option maybe be very time-dependent.
Finally, consider very specific complaints to the Centers for Medicare & Medicaid Services (CMS) or the DOJ. Potential complaints might include the following:
- Violations of CMS regulations. 42 CFR 422.101 requires the use of criteria for determining status. In this case Aetna has publicly acknowledged that it approves as inpatient all requests between 1-5 days. This approval appears to be subject to no recognized criteria. Such laissez-faire disregard for criteria unambiguously violates the spirit if not the actual letter of the regulations.
- Through this policy Aetna may be manipulating status in order to make patients appear sicker.
- Through this policy Aetna, manipulates denials and artificially increases STAR ratings, thus misleading Medicare eligible beneficiaries. This potentially drives enrollment of additional, unearned beneficiaries.
- Manipulated STAR ratings and illness severity scores have the potential to unjustifiably increase Aetna’s reimbursement from CMS.
- Finally, Aetna imposes readmission penalties and further erodes overall reimbursement to payers.
In short, providers need to aggressively pursue strategies to mitigate Aetna’s behavior.
Simultaneously they need to work with legislators, lobbying groups, and law enforcement to apply pressure on Aetna for these practices.
This article was originally published on RACmonitor.
