In the Crosshairs: Aetna’s Severity Policy

As the Centers for Medicare & Medicaid Services (CMS) clarifies existing Medicare policies like the Two-Midnight Rule, which guides the appropriateness of inpatient services, some Medicare Advantage (MA) plans are implementing policies designed to maintain current profit margins by reducing payments for healthcare services. One such policy that has come under fire by the American Hospital Association (AHA) and other hospital organizations is the Aetna Level of Severity Inpatient Payment Policy.

This policy has left many hospital administrators feeling powerless and frustrated, as Dr. Ronald Hirsch verified in a Jan. 28 article for RACmonitor noting that CMS “has no problem” with the Aetna Severity Payment policy because it “meets the Two-Midnight Rule.” He reported on the notion that “how much you get paid for (an) admission is a contractual issue.” This article argues that CMS should reconsider the characterization.

Aetna’s Level of Care Severity Policy

Is Aetna’s policy really compliant with the Two-Midnight Rule (which can be read at this link)? If you are not familiar with the specifics, Aetna will approve urgent and emergent hospital stays for MA beneficiaries that cross at least one midnight as inpatient. First, Medicare has been clear that one-day inpatient admissions are generally not appropriate for payment under Medicare Part A (unless total hospital care totals at least two midnights). Second, MA plans cannot apply additional or alternative criteria that would restrict payment for an inpatient stay that meets Medicare’s standards. “An inpatient admission is generally appropriate for payment under Medicare Part A (as an inpatient) when the admitting physician expects the beneficiary to require hospital care that crosses two midnights.” Payment under Medicare Part A is synonymous with inpatient payment.

Subverting Patient Protections

By approving most urgent and emergent inpatient admissions, Aetna is bypassing patient protections associated with an adverse organization determination, e.g., not approving inpatient services. Aetna claims the policy benefits hospitals because it relieves them of the burden associated with appealing an inpatient denial, but in order to receive full payment, the hospital must appeal the level-of-severity determination. This increases hospital burden without the same protection that would be afforded if the inpatient denial was downgraded to observation.

Under Aetna’s policy, inpatient stays of fewer than five midnights are subject to a level-of-severity review to determine the payment rate. “If the inpatient stay meets MCG severity criteria,” claims are paid at a higher severity rate, but if they do not, these inpatient claims will be paid at the lower level of severity rate that “is comparable to the observation rate.” Aetna’s policy creates a new category of hospital services that is not defined within Medicare regulations, a hybrid between outpatient and inpatient. Therefore, it should be considered noncompliant with the Two-Midnight Rule.

Inpatient Admissions Are Based upon Physician Judgment

Per official guidance, “inpatient hospital admission determinations are unique among covered items or services in that they are dependent on physician judgment at the time of the inpatient order.” Allowing Aetna to alter inpatient payments based on MCG, rather than physician judgment, i.e., a two-midnight expectation, is contrary to the spirit of this guidance.

The policy also conflicts with CMS guidance reading that “it is not necessary for a beneficiary to meet an inpatient ‘level of care,’ as may be defined by a commercial screening tool, in order for Part A payment to be appropriate.” This position is reiterated in CMS-4021-F, which explicitly states that “MA plans may not use InterQual or MCG criteria, or similar products, to change coverage or payment criteria already established under Traditional Medicare laws” (like the Two-Midnight Rule).

By approving inpatient status and reducing payment if MCG criteria are unmet, Aetna is imposing an additional barrier for payment when a hospital renders inpatient services in good faith. Aetna is implementing a requirement that is explicitly excluded from use when making patient status determinations, e.g., determining when inpatient payment is appropriate.

It also conflicts with MCG guidance for using its tool. MCG recognizes that patient status “depends on individual patient assessments by clinicians, and as such, MCG decision support tools are designed to be used in conjunction with the clinical judgment of a healthcare professional.”

Aetna’s policy is inappropriately linking inpatient payment criteria to MCG criteria. This action subverts Medicare inpatient payment criteria. If Aetna wants to consider patient severity in their payment, they should adopt the Medicare Severity Diagnosis-Related Groups (MS-DRG) payment methodology. It was developed to differentiate patients who need average hospital resources from those who require additional hospital resources due to the severity of the conditions being treated.

Medicare Regulations Include Payment Criteria

Medicare cannot establish payment rates for MA plans, but it can establish payment criteria. This policy is not a contractual issue; it is a coverage issue. Inaccurately considering Aetna’s policy as a “payment” or “contractual” issue allows Aetna to bypass protections that were codified under CMS-4201-F, and more recently under CMS-4208-F. It allows Aetna to bypass the spirit of Medicare regulations and weaken the Two-Midnight Rule.

Throughout Medicare regulations, payment criteria (e.g., when payment under Medicare Part A is appropriate) are discussed and defined. “Section 1852(a)(1) of the Act and CMS regulations at § 422.101(a) and (b) require all MA organizations provide coverage of, by furnishing, arranging for, or making payment for (emphasis added) all items and services that are covered by Part A.”

Additionally, MA plans must comply with “general coverage and benefit conditions included in Traditional Medicare laws, unless superseded by laws applicable to MA plans. This includes criteria for determining whether an item or service is a benefit available under Traditional Medicare. For example, this includes payment criteria for inpatient admissions at 42 CFR 412.3.”

But to put an even finer point on it, CMS4201F clarifies, “it is irrelevant whether Traditional Medicare considers the criteria part of a coverage rule or a payment rule, as both address the scope items and services for which benefits are available to Medicare beneficiaries under Parts A and B.”

Conclusion

Medicare does not set payment rates for MA plans, which is a contractual issue, but it does regulate inpatient (Medicare Part A) payment criteria. Hospital services that cross two midnights are generally appropriate for payment under Medicare Part A (i.e., as inpatient hospital services). Full stop. Therefore, Aetna’s severity policy violates the Two-Midnight Rule. They are creating additional criteria beyond Medicare regulations for full payment of an inpatient admission by requiring that MCG standards are met – or the stay must cross five midnights.

Aetna’s policy contradicts Medicare admission regulations and offers no explanation as to why inpatient admissions that pass two midnights are subject to these payment downgrades. It is preposterous to think that four days of hospital care do not automatically demonstrate patient severity, especially when the median length of stay for MS-DRGs, the payment methodology used by Traditional Medicare, is four days.

This policy appears to be part of a trend reported by the U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG), which found that “a central concern about capitated payment models – including the model used in Medicare Advantage – is the potential incentive for insurers to deny access to services and payment in an attempt to increase profits. (CMS’s) annual audits of MAOs (Medicare Advantage Organizations) have highlighted widespread and persistent problems related to inappropriate denials of services and payment.”

Currently, the only recourse hospitals have is to end their contracts with Aetna MA plans. Doing so allows them to be appropriately reimbursed for inpatient services under Traditional Medicare payment criteria as an out-of-network provider. I am not advising hospitals to do this; I am only pointing out what many hospitals have already concluded. I hope CMS will reconsider its current stance on Aetna’s Level of Severity Payment Policy. If allowed to stand, other payors may replicate this policy, which could further erode the tenuous relationship between hospitals and MA plans.