Provider sues Aetna over downcoding

Jefferson Health sued Aetna on April 6 in federal court in Pennsylvania, saying Aetna is approving some Medicare Advantage hospital admissions as inpatient care and then paying them more like cheaper observation care. The plaintiffs are Thomas Jefferson University doing business as Jefferson Health and Lehigh Valley Physician Hospital Organization, and the case is in the Eastern District of Pennsylvania before Judge John M. Gallagher. (justia.com) (healthcaredive.com) The fight is over a simple question with expensive consequences: when a patient sleeps in a hospital bed for a short stay, is that stay paid at the full inpatient rate or at the lower observation rate. Jefferson says Aetna’s policy took effect on January 1, 2026 and cuts payment for some stays lasting between one and four midnights even when a doctor admitted the patient as an inpatient. (medcitynews.com) (documentcloud.org) “Downcoding” is billing shorthand for moving a claim into a cheaper bucket after care has already been delivered. In this dispute, Jefferson says Aetna created a new “low severity” bucket that pays roughly like observation care instead of the normal inpatient Diagnosis-Related Group payment hospitals expect for an admitted Medicare patient. (aha.org) (healthcarefinancenews.com) Aetna’s policy did not start in this lawsuit. The American Hospital Association warned on September 15, 2025 that Aetna planned to approve certain inpatient stays but reimburse them at a lower rate it set unilaterally, and Aetna later revised the policy before launch. (aha.org) (healthcarefinancenews.com) In November 2025, Aetna narrowed the policy so it would apply to urgent or emergent inpatient stays of at least one midnight but less than five midnights, and it pushed the effective date from November 15, 2025 to January 1, 2026. Aetna also said stays of five midnights or more would be paid at the regular inpatient Diagnosis-Related Group rate. (healthcarefinancenews.com) Jefferson says that still conflicts with the federal “two-midnight rule,” which is the Medicare standard saying inpatient payment generally turns on a doctor’s expectation that the patient will need hospital care spanning at least two midnights. The lawsuit argues Medicare Advantage plans have to follow that same rule, so an insurer cannot swap in its own severity test after the fact and pay less. (medcitynews.com) (beckershospitalreview.com) (documentcloud.org) The complaint uses a vivid example. Jefferson says Aetna labeled a 72-year-old patient “low severity” after the patient had spent two midnights in the hospital, even though the patient had altered mental status, hypoxia, a prior stroke history, later needed intubation in an intensive care unit, developed acute renal failure, and received broad-spectrum intravenous antibiotics for multifocal pneumonia. (medcitynews.com) That kind of dispute is why hospitals are so angry about traceability. If a plan pays one code while the chart, physician order, and claim all show something more serious, the hospital has to prove exactly where the downgrade happened across documentation, coding, utilization review, and payment systems. (healthcaredive.com) (medcitynews.com) Jefferson is asking the court for an injunction to stop Aetna from using the policy and for damages and legal fees. Aetna told trade outlets it disagrees with Jefferson’s allegations, so this case now becomes a test of how much freedom a Medicare Advantage insurer has to reprice short inpatient stays after the patient has already been treated. (medcitynews.com) (healthcaredive.com)