Aetna’s Level-of-Severity Inpatient Payment Policy creates a clear and appealable pathway for hospitals to challenge underpaid inpatient claims. At its core, the issue is straightforward: once Aetna approves an admission as inpatient, medical necessity is established, and reimbursement must follow the contracted inpatient DRG rate, not a post-hoc, severity-based reduction. The policy’s reliance on proprietary criteria, hybrid payment methodologies, and claim adjustments, instead of formal denials, improperly circumvents contract terms, CMS Medicare Advantage rules, and provider appeal rights.
In this Q&A, Aspirion’s Rikki Ashkin, J.D., Senior Client Success Director, and Melissa Schmersahl, J.D., Director & Managing Attorney, break down appeal-ready arguments to reframe these underpayments as improper medical necessity reversals, addressing procedural defects and bad-faith claims administration.
Q. What is the fundamental error in Aetna’s Level-of-Severity payment reduction?
Melissa Schmersahl: Under this new policy, Aetna is reducing payment after approving inpatient medical necessity, which is not permitted. Once Aetna approved the admission as inpatient, medical necessity was fully established. Aetna may not reassess the appropriateness of inpatient care under the guise of a “severity” payment adjustment. Any reduction after inpatient approval constitutes an improper reversal of a medical necessity determination and must be overturned on appeal.
Q. Why is this an appealable issue rather than a discretionary payment calculation?
Rikki Ashkin: Our belief is that the payment reduction is based on a clinical determination. Aetna’s level-of-severity adjustment relies on a clinical review of the patient’s condition, treatment, and acuity. This makes it a coverage determination, not a mathematical pricing adjustment. Any reduction in benefits based on clinical judgment is appealable and must comply with formal denial and appeal requirements.
Q. How does the provider contract support reversal of the underpayment?
Melissa Schmersahl: Because the admission remained inpatient, Aetna’s reduced payment likely violates the provider’s contract and must be corrected. If the hospital contract requires full DRG reimbursement once inpatient status is approved, then the provider agreement mandates reimbursement at 100% of the contracted inpatient DRG rate for approved inpatient admissions. Most hospital contracts do not authorize:
- Severity-based payment tiers
- Observation-equivalent payment for inpatient stays
- Post-approval clinical reclassification
Q. How should providers respond when Aetna argues that “status was not changed”?
Rikki Ashkin: Status is irrelevant if payment methodology was altered. Aetna cannot maintain inpatient status while applying a non-inpatient reimbursement methodology. Doing so creates a hybrid classification that does not exist in the contract or under CMS rules. Appeals should clearly state that reimbursement must align with approved status, not an internally created severity label.
Q. Why does CMS guidance invalidate Aetna’s severity-based payment reduction?
Melissa Schmersahl: CMS does not permit post-admission severity downgrades for inpatient stays. Under Medicare rules, once an inpatient admission is determined to be medically necessary, payment is made under the MS-DRG system. CMS does not apply severity-based payment reductions after admission approval. Aetna’s approach directly conflicts with this framework and is therefore impermissible for Medicare Advantage claims.
Q. How should appeals address Aetna’s reliance on MCG criteria?
Rikki Ashkin: MCG criteria cannot be used to restrict Medicare Advantage payment. Medicare Advantage plans are prohibited from using proprietary criteria (such as MCG) to impose more restrictive coverage or payment standards than Traditional Medicare. Appeals should clearly state that Aetna’s use of MCG to reduce inpatient reimbursement violates Medicare Advantage regulations and must be disregarded.
Q. How does Aetna’s severity review improperly override the MS-DRG system?
Melissa Schmersahl: Aetna is duplicating and superseding CMS’s severity methodology. The MS-DRG system already accounts for severity through diagnosis codes and CC/MCC assignments. Aetna’s separate severity review represents an unauthorized re-adjudication of inpatient classification. Appeals should emphasize that CMS, not Aetna, controls how inpatient severity is measured and reimbursed.
Q. Why is Aetna required to issue a formal denial for these reductions?
Rikki Ashkin: Because the reduction materially decreases covered benefits. Appeals should assert that payment adjustments issued without denial notices are procedurally defective and invalid. Any action that reduces reimbursement based on clinical criteria constitutes an adverse benefit determination. Aetna’s failure to issue a formal denial:
- Deprives the provider of appeal rights
- Masks the true basis of the reduction
- Violates good-faith claims administration standards
Q. How should providers frame the bad-faith argument in appeals?
Melissa Schmersahl: Aetna’s use of adjustment codes instead of denial notices allows it to reduce payment without accountability or transparency. Appeals should state that this practice:
- Evades contractual and regulatory obligations
- Prevents meaningful clinical review
- Constitutes bad-faith administration of claims
Q. What is the requested resolution on appeal?
Rikki Ashkin: The only appropriate remedy is full inpatient reimbursement under the provider agreement. This is because:
- Inpatient admission was approved
- Medical necessity was established
- Contract terms were violated
- CMS rules were disregarded
- Appeal rights were improperly bypassed
Healthcare providers don’t have to accept Aetna’s severity-based reductions as the final word. The contractual, regulatory, and procedural arguments for full inpatient reimbursement are well-established—and winnable. Aspirion works alongside hospitals to help identify affected claims, build compelling appeals, and hold payers accountable to the terms they agreed to. Reach out today to learn how we can help protect what your organization has rightfully earned.
