Aetna’s New Payment Policy: A Challenge to Hospitals and the Two-Midnight Rule

Understanding the Background: The Two-Midnight Rule and Medicare Advantage Plans

In January 2024, the Centers for Medicare & Medicaid Services (CMS) codified in 42 CFR 422.101 that Medicare Advantage (MA) plans must comply with the Two-Midnight Rule. The rule, originally established for traditional Medicare, stipulates that hospital stays crossing at least two midnights generally qualify for inpatient admission status. Its purpose was to reduce disputes over whether a patient’s stay should be billed as inpatient or observation and to ensure fair, consistent reimbursement for hospitals.

Despite this requirement, hospitals across the country continue to face administrative hurdles when dealing with MA plans. Many payers still question the medical necessity of inpatient admissions, forcing providers to defend their decisions through peer-to-peer calls, formal appeals, and extensive documentation. While these steps are burdensome, they at least provide hospitals with a mechanism to secure proper reimbursement.

Aetna’s New Approach: One Midnight + MCG Criteria

In a November 2025 OfficeLink Update, Aetna announced a sweeping policy change:

Beginning November 15, 2025, Aetna will approve all inpatient admissions that include at least one midnight. After approval, Aetna will run the case against MCG© criteria (a widely used set of clinical guidelines).

• If the admission meets MCG inpatient criteria, Aetna will pay the full contracted inpatient rate.
• If it does not meet MCG criteria, Aetna will downgrade the payment to what they call a “lower level of severity rate,” comparable to the contracted reimbursement rate for observation services.

On the surface, this looks like a streamlining of inpatient approvals. But the fine print tells a different story—one with significant financial consequences for hospitals.

Why This Policy is Concerning

Unlike the current system, where hospitals can appeal denials or engage in a peer-to-peer review with a medical director, Aetna’s new process removes these avenues of recourse. Hospitals will still receive a payment, but at a reduced rate, and the difference between the billed amount and payment will be automatically recorded in the billing system as a contractual adjustment. In other words, it will appear as though the hospital has been fully paid—when, in reality, it has not.

This creates several problems:

• Loss of Appeal Rights: Hospitals lose their ability to challenge decisions and advocate for full reimbursement.
• Hidden Underpayment: Reduced payments are masked as contractual adjustments, preventing hospitals from recognizing them as recoverable underpayments.
• Conflict with CMS Intent: The rule requiring MA plans to follow the Two-Midnight Rule was meant to standardize payments, not create loopholes for insurers.

Financial and Operational Impact on Hospitals

Hospitals are already under tremendous strain—rising labor costs, declining reimbursement rates, and increased patient volumes have pushed many institutions to the brink. Some are even facing closure or eliminating key service lines. Aetna’s new policy threatens to exacerbate these issues by systematically reducing payments for admissions that CMS has explicitly recognized as inpatient care.

Consider a real-world scenario:

• A hospital admits an elderly patient who stays two midnights due to complications.
• The stay does not meet all points of MCG inpatient criteria, even though clinically, the inpatient setting was appropriate.
• Under Aetna’s new policy, the hospital will only receive observation-level payment—potentially thousands of dollars less—without any opportunity to appeal.

Over time, the cumulative financial shortfall from such cases could be devastating.

What Hospitals Should Do Now

Hospitals cannot afford to wait passively for this policy to take effect. Proactive action is necessary:

• Alert Leadership: Hospital finance, compliance, and legal teams must be made aware of this policy change and its implications.
• Adjust Billing Software: Ensure systems are updated to flag these reduced payments instead of automatically writing them off as contractual adjustments.
• Escalate to CMS: Hospitals should submit comments and concerns to CMS at part_c_part_d_audit@cms.hhs.gov to push for clarification or intervention.
• Engage in Advocacy: Hospital associations, trade groups, and legal teams should challenge this policy on grounds that it circumvents CMS intent.
• Educate Clinicians: Physicians and case managers must be informed of this change so they can document care in ways that strengthen the case for full inpatient status.

The Bigger Picture: A Test Case for Other Payers?

Aetna’s move may be a trial balloon for the rest of the industry. If other MA plans adopt similar policies, hospitals could see a wave of silent underpayments with no appeals process—eroding financial stability nationwide. This is why immediate and coordinated opposition is essential.

Final Takeaway

The Two-Midnight Rule was designed to bring clarity and fairness to hospital reimbursement. By unilaterally redefining how inpatient admissions are paid, Aetna’s policy undermines both the rule and hospitals’ financial viability. Hospitals must act decisively to flag, escalate, and fight back against this change—before it spreads further across the payer landscape.

Partner with Experts to Navigate Complex Payer Policy Changes

As payer policies continue to evolve, hospitals and healthcare organizations need a trusted partner to ensure compliance, safeguard revenue, and push back against underpayments. At Bristol Healthcare Services, we specialize in medical billing, medical coding, and revenue cycle management solutions that help providers identify hidden underpayments, strengthen denial prevention strategies, and maintain financial stability in the face of policy changes like Aetna’s.

Our team of experts stays ahead of industry updates, payer-specific rules, and CMS regulations so that you can focus on patient care while we protect your bottom line. Don’t let silent underpayments erode your revenue—partner with us for proactive solutions that keep your reimbursements accurate and maximized.