By Missy Harbert-Miskell, MBA, Solution Advisor at Revecore

Aetna is approving the admission. Then it’s repricing it — outside your contract, outside the standard appeals process, and outside CMS oversight. And the claim will still show as paid. 

That is the operational reality of Aetna’s Level of Severity (LLS) inpatient payment policy, which took effect January 1, 2026. Understanding what it is — and what it isn’t — is now essential for any organization with meaningful Medicare Advantage exposure. 

What This Policy Actually Does 

Under the LLS policy, Aetna approves urgent or emergent inpatient admissions for Medicare Advantage and Special Needs Plan members. But for stays of one to four midnights, it then performs a severity review using Milliman Care Guidelines (MCG) to determine the payment rate. If the stay doesn’t meet MCG criteria, Aetna pays at a lower, Aetna-calculated rate — one it describes as comparable to observation rates — rather than the contracted inpatient DRG rate. 

For stays of five midnights or longer, Aetna pays the full inpatient rate without a severity review. Stays under one midnight, behavioral health admissions, acute rehabilitation, and long-term acute care hospitals are excluded from the policy entirely. 

Critically, this framework does not exist in Medicare fee-for-service. It is an Aetna-specific construct, applied unilaterally, outside the rate negotiation process. As the American Hospital Association noted in its September 2025 letter urging Aetna to rescind the policy, hospitals are being paid at a rate Aetna “determined unilaterally outside of the good faith contract and rate negotiation process.” 

Why This Is Structurally Different From a Standard Denial 

The most important thing to understand about the LLS policy is what it is designed to avoid: a formal denial. 

Under the traditional approach, when Aetna deemed an inpatient stay medically unnecessary, it would deny the claim and downgrade it to observation status. That denial triggered established federal protections — CMS coverage rules, standard appeal pathways, and regulatory oversight. The LLS policy sidesteps all of that. By framing reduced payment as a reimbursement adjustment rather than a denial, Aetna avoids the federal regulations that, as the AHA noted, “require plans to use CMS coverage rules and disallow use of proprietary criteria to determine whether care is medically necessary.” The admission is approved. The payment is simply repriced — using proprietary MCG criteria that CMS does not sanction for medical necessity determinations. 

This is not a denial-first strategy. It is a severity-management strategy that operates after the admission is approved — and largely outside the regulatory guardrails designed to protect providers and patients. 

Disputes don’t go through the standard appeals process either. According to the AHA, in most cases they go to arbitration — a more costly and burdensome process whose outcomes almost always go undisclosed. That opacity matters. It limits providers’ ability to identify patterns, share experiences, and build collective pressure for policy change. 

A Regulatory Concern Worth Naming 

Beyond the financial impact, the LLS policy raises a structural concern about how Medicare Advantage oversight functions. 

The AHA has specifically flagged that this policy could distort Aetna’s MA Star Ratings. Star Ratings include measures tied to appeal volumes and member experience. Because LLS adjustments don’t generate formal denials, they don’t generate formal appeals — which means Aetna’s denial and appeal metrics could appear to improve even as payment reductions continue. Independent analysts have noted that Aetna’s rationale appears partly rooted in reducing reportable denial activity, creating an artificial boost to performance metrics that CMS uses to evaluate plan quality. 

In short: the policy may allow Aetna to reduce payments to hospitals while simultaneously appearing to perform better on the oversight measures designed to hold it accountable. That is not a minor administrative concern — it is a structural integrity issue for the Medicare Advantage program. 

The Financial Stakes Are Larger Than Any Single Claim 

When clinical language leans toward stability and monitoring rather than intervention and risk, it creates conditions where reimbursement may erode over time. Hospitals may experience increases in:  

• DRG downgrades following clinical validation review  

• CC/MCC removal based on perceived lack of severity  

• Length-of-stay denials beyond the first few days  

• Observation-equivalency arguments in retrospective audits (asserting that care rendered was outpatient in nature despite inpatient admission)  

Individually, these adjustments may seem modest. At scale, they represent meaningful financial pressure across Medicare Advantage populations.  

The broader denial environment reinforces the urgency. According to the American Hospital Association, Medicare Advantage claim denials increased 55.7% between 2022 and 2023.  

A peer-reviewed study in Health Affairs, analyzing claims from MA plans covering 30% of the market, found initial denial rates of 17% across submitted claims, with unresolved denials producing a net 7% reduction in provider MA revenue — and the authors noted that figure likely understates the true impact because partial claim adjustments, including DRG downgrades, were not captured. 

The downstream effects extend beyond any single claim. LLS underpayments function as DRG-level adjustments. And as Ascendient Healthcare Advisors has noted, repeated DRG downgrades suppress a hospital’s case mix index (CMI), which informs prospective payment rates — meaning that artificially lowered severity designations today can reduce reimbursement for years to come, while also distorting quality metrics to suggest a less complex patient population than actually exists. 

Which Patient Populations Are Most at Risk 

Organizations will see the greatest impact in service lines where patients stabilize quickly and where intervention intensity is difficult to quantify in the first few days of a stay. Common examples include CHF exacerbations, COPD admissions, pneumonia, syncope, chest pain, AKI without dialysis, and post-operative short stays. 

In these scenarios, approval may be granted based on initial presentation, but subsequent clinical stability can be used to support a lower severity designation — even when the complexity of the clinical decision-making, the escalation risk managed, or the failed outpatient treatment that prompted the admission clearly warranted inpatient-level care. Approval and underpayment can be separated by days, making the connection easy to miss in standard revenue cycle workflows. 

The asymmetry here is stark. As analysis published in The Hospitalist found, among the millions of accounts audited by Medicare Advantage plans, instances where insurers adjust DRGs upward to increase hospital reimbursement are virtually nonexistent — audits invariably lead to downgrades, never upgrades. The process is structurally one-directional.  

What Revenue Cycle and CDI Leaders Should Do Now 

The LLS policy requires a different kind of operational response than a standard denial program. Because adjustments post as paid rather than denied, your existing denial-tracking workflows will not surface them. A dedicated monitoring layer for short-stay MA claims — specifically watching for payment variances against expected contractual rates on one-to-four midnight admissions — is now essential infrastructure, not optional. 

Hospitals should also pursue formal written confirmation of their LLS rate determinations from Aetna’s contracting and provider relations teams. Without knowing what rate you should have been paid, you cannot validate whether any given payment is accurate. 

On the documentation side, CDI teams should understand that severity anchors matter more than ever in this environment. Capturing organ dysfunction, failed outpatient treatment, escalation risk, complex decision-making, and the clinical uncertainty that justified inpatient-level care — early and specifically — is both a concurrent review strategy and a retrospective defense. The clinical story documented at admission is what protects reimbursement downstream. 

Hospitals should also explore whether their contracts can be amended to prohibit this payment approach and ensure all inpatient admissions are reimbursed at the contracted inpatient rate. As HFMA has noted, that step becomes even more important if other insurers move to adopt similar frameworks. 

The Broader Signal: This May Not Stay Aetna-Specific 

The LLS policy is worth watching not only for its immediate financial impact, but for what it signals about the direction of Medicare Advantage utilization management. Aetna has demonstrated that a payer can restructure inpatient reimbursement — reducing payments significantly — while avoiding the regulatory, transparency, and appeal obligations that attach to formal denials. 

If the policy survives legal and regulatory scrutiny, other MA plans will be watching. The same mechanics that allow Aetna to quietly downcode short-stay admissions today could be adopted more broadly across the industry. Health systems that build the monitoring, documentation, and contracting infrastructure now will be better positioned to respond — both to Aetna’s current policy and to whatever comes next. 

Access is being granted. Acuity is being redefined. And it is happening in claims your system is currently marking as closed. 

The LLS policy is a test of whether hospitals have the infrastructure to detect underpayments that don’t look like underpayments, dispute adjustments that don’t come with denial codes, and protect reimbursement integrity in an environment where the rules are being rewritten in real time. 

The organizations that recognize this shift as a strategic signal — not just an administrative update — and respond accordingly will be best positioned to protect both their revenue and their patients.