RISE summarizes recent regulatory-related headlines and reports.
Jefferson Health files lawsuit against Aetna over MA ‘downcoding’ policy
Jefferson Health has filed a federal lawsuit against Aetna challenging the insurer’s new Medicare Advantage “level of severity inpatient payment policy,” which the health system argues unlawfully reduces reimbursement for certain inpatient hospital stays. According to Jefferson, the “downcoding” policy allows Aetna to approve inpatient admissions while paying hospitals at lower, observation-level rates for stays lasting fewer than five midnights unless they meet the insurer’s internal severity criteria. Jefferson contends this approach violates Medicare’s long-standing two-midnight rule and federal requirements mandating that Medicare Advantage plans cover medically necessary services at the same level as traditional Medicare.
The lawsuit also claims the policy breaches Aetna’s contractual agreements with hospitals by effectively creating a two-tier reimbursement system that was never negotiated. Jefferson alleges the policy has led to underpayment even for clinically complex cases, citing an instance in which a 72-year-old stroke patient requiring ICU care and intubation was initially classified as “low severity.” The health system argues that the policy shifts financial risk onto providers, increases administrative burden, and creates confusion that detracts from patient care. Jefferson, joined by Lehigh Valley Physician Hospital Organization, is seeking an injunction to halt the policy, along with legal fees and other relief.
Aetna, meanwhile, maintains that its policy complies with all applicable federal laws and provider contracts and says it was designed to streamline and speed payment approvals for inpatient admissions. The insurer announced the policy in 2025 but delayed implementation until January 1, 2026, following widespread provider backlash. Industry groups, including the American Hospital Association, have criticized the policy as undermining established Medicare standards and reducing transparency for patients.
Report: Health plans cut prior authorization requirements by 11%
Health plans participating in voluntary commitments with the Centers for Medicare & Medicaid Services and Department of Health and Human Services report an 11 percent reduction in prior authorization requirements, representing 6.5 million fewer prior authorization requests nationwide, the AHIP reports. The findings are based on a new AHIP-Blue Cross Blue Shield Association (BCBSA) survey of health plans.
Medicare Advantage plans accounted for more than a 15 percent reduction, with changes focused on services supported by evidence-based clinical guidelines. Plans also implemented a 90-day continuity-of-care policy, honoring existing authorizations when members switch insurers, and enhanced consumer-friendly communications around prior authorization decisions. Additional reforms—including standardized electronic prior authorization and real-time responses—are scheduled to take effect in 2027.
CMS issues guidance on federal Medicaid and CHIP funding limits for noncitizens
The Centers for Medicare & Medicaid Services (CMS) released guidance to prepare states for a change that takes effect October 1 that will limit the ability to claim federal matching funds for Medicaid and the Children’s Health Insurance Program (CHIP) for individuals who are not U.S. citizens or U.S. nationals, or who fall into specific noncitizen categories identified in statute. The information provides states with operational guidance on eligibility systems, applications, verification, and claims processing. CMS will provide technical assistance and use existing oversight tools to support compliance and ensure accurate claiming of federal funds.
AHIP: Medicare supplement plan enrollment continues to grow
Forty-three percent of fee-for-service (FFS) Medicare enrollees chose a Medicare supplement plan in 2024, the sixth consecutive year of increased enrollment, according to AHIP’s State of Medicare Supplement Coverage report.
Fourteen million Americans currently have supplement coverage and they are significantly less likely to experience difficulty paying medical bills than those with FFS Medicare alone, AHIP said in an announcement. The report examines enrollment trends, characteristics of enrollees, plan types, and state-by-state enrollment data. Among the findings:
- 93 percent of seniors said they are satisfied with their Medicare Supplement plan.
- 91 percent of seniors said they would be concerned about losing their financial security if they didn’t have Medicare Supplement coverage.
- Fifty-four percent of policyholders are women, and 46 percent are 75 years old or older.
California man admits to planning $270M medication reimbursement fraud scheme
A California man pleaded guilty to orchestrating a nearly $270 million Medi‑Cal fraud scheme involving medically unnecessary prescription drugs. Paul Randall, 66, of Orange, Calif., collaborated with a pharmacist, Kyrollos Mekail, and nurse practitioner Patricia Anderson to exploit Medi‑Cal’s temporary suspension of prior authorization requirements in 2022. Through Monte Vista Pharmacy, the group billed tens of millions of dollars per month for high‑reimbursement drugs made with low‑cost ingredients, many of which were never provided, according to the Department of Justice.
Randall also paid illegal kickbacks for beneficiary information and pre‑signed prescriptions for drugs that Anderson never determined were medically necessary. Authorities say Medi‑Cal paid about $178 million on the false claims. Randall admitted to wire fraud and faces up to 30 years in prison; the government has seized more than $126 million in assets tied to the scheme.
Insurance brokerage company pleads guilty in $160M ACA enrollment fraud scheme
AP of South Florida, LLC (APSF), an insurance brokerage company headquartered in Florida, has agreed to plead guilty for its role in an Affordable Care Act (ACA) enrollment fraud scheme, the Office of Inspector General announced.
OIG said APSF, through its highest-ranking executives, preyed on thousands of vulnerable consumers to fraudulently enroll them into fully subsidized ACA plans, for which the federal government awarded $141.5 million in unwarranted subsidies. In a parallel civil resolution, AssuredPartners, Inc., a national partnership of insurance brokers and the then-parent company of APSF, agreed to pay $135 million to resolve allegations that it violated the False Claims Act by submitting fraudulent ACA health insurance plan applications. AssuredPartners, Inc., is not charged in the criminal investigation.
HRSA to provide $135M to expand nutrition services, strengthen rural health workforce
The Health Resources and Services Administration (HRSA) has announced more than $135 million in new funding opportunities to expand nutrition services and strengthen the rural health workforce. HRSA Administrator Tom Engels said the funding will support new rural residency programs to deliver evidence-based nutrition services, and create a stronger, more sustainable system of care. Funding will provide $125 million for expanded nutrition services for more than 350 HRSA-funded health centers and $11.25 million for the rural residency planning and development program to support new rural residency programs in high-need specialties.
CMS issues 2027 IRF Prospective Payment System proposed rule
CMS released a proposed rule updating Medicare payment policies for Inpatient Rehabilitation Facilities (IRFs) under the FY 2027 IRF Prospective Payment System (PPS) and Quality Reporting Program (QRP). The agency proposes a 2.4 percent payment rate increase, reflecting a 3.2 percent market basket update minus a 0.8 percent productivity adjustment, and estimates the changes would increase total IRF payments by $355 million in FY 2027. CMS also proposes technical updates to case-mix weights, wage index calculations, and the outlier threshold, while finalizing the last year of the rural adjustment phase-out for reclassified facilities
The rule also includes significant compliance clarifications. CMS would require all therapies to begin within 36 hours of admission, mandate initial interdisciplinary team meetings by day four, and define weekly team meetings more clearly. On the quality side, CMS proposes shortening IRF QRP data submission deadlines to 45 days, beginning in FY 2029, to improve timeliness of public reporting. The agency is also seeking industry feedback on modernizing the IRF case-mix system and adding advanced care planning as a future quality measure.
CMS proposes 2027 Hospice payment updates and oversight enhancements
CMS also issued a proposed rule updating Medicare hospice payments and quality reporting requirements for FY 2027. The agency proposes a 2.4 percent payment rate increase, representing approximately $785 million in additional payments, and sets the FY 2027 hospice aggregate cap at $36,210.11. Hospices that fail to meet quality reporting requirements would face a 4-percentage-point payment penalty, consistent with statutory requirements.
A major focus of the rule is program integrity. CMS introduces a Service and Spending Variation Index (SSVI) to identify potentially concerning hospice utilization and non-hospice spending patterns. The proposal would also make the hospice election statement addendum mandatory for all beneficiaries, rather than only upon request, to improve transparency around non-covered services and potentially reduce beneficiaries’ out-of-pocket costs. CMS also proposes adding a consumer-facing icon on the Medicare.gov Care Compare site to identify hospices that fail to meet Hospice Quality Reporting Program (HQRP) requirements. Agency data show that roughly 20 percent of hospices remain non-compliant despite increased penalties, limiting CMS’ ability to assess quality and inform beneficiaries’ choices.