AI intensifies battle between hospitals and insurers

According to the New York Times, AI has become an increasingly powerful tool for both hospitals and insurers, particularly when it comes to coding and billing. This has increased friction between both parties, with insurers arguing that hospitals are trying to bill for more expensive care and hospitals saying that insurers are denying claims.

"All the insurers are using AI to scan our charts to look for claims to deny," said Dave Mazurkiewicz, CFO at McLaren Health Care. "For the same reason, we're looking at the same charts today."

However, Luke Chalker, SVP of the Blue Cross Blue Shield Association (BCBSA), said providers had the advantage over payers with AI. "It's not a war," he said. "It is a completely one-sided blood bath."

Caroline Pearson, executive director of the Peterson Health Technology Institute, said that AI has helped intensify billing battles between hospitals and insurers, with both parties going back and forth over whether a specific claim should be paid or a treatment should be authorized.

Both sides are willing to go frequently back and forth "because it's cheap," Pearson said.

According to AJ Rice, an analyst with UBS, while both payers and providers are using AI to boost operational efficiency, hospitals may have the overall competitive advantage with the technology.

Currently, payers have implemented AI for claims adjudication, prior authorization, fraud detection, and member engagement. Although these applications can help payers reduce administrative costs, Rice noted that many of the tools are widely available and easily replicated.

Meanwhile, hospitals are using AI for revenue cycle management, denial mitigation, labor optimization, and clinical workflows, which has led to tangible improvements for both margins and operational efficiency.

"As a result, we believe that the gains from lower administrative costs are likely to be reinvested into benefits, pricing, or provider relationships over time, limiting the opportunity for sustained outperformance," Rice said. In comparison, "[…] AI could create a more durable competitive advantage for leading hospital operators."

Is AI pushing healthcare costs higher?

In a recent piece published in Health Affairs, David Brailer, a health technology executive and former government health official, predicted that AI will likely increase overall healthcare spending, citing what happened after EHRs were adopted.

According to Brailer, hospitals quickly used EHRs to bill more for care since the technology helped them document care better. AI is also helping with care documentation, such as by suggesting physicians record the severity of a patient's health condition.

Insurers have also criticized hospitals' use of AI, saying that they are using the technology to collect more information about their patients and submit larger claims. According to a recent BCBSA report, hospitals are increasingly billing patients for more complex care, which has contributed to almost $1 billion in additional healthcare costs in just two years.

"Coding is changing because of this technology," Chalker said, noting that hospitals were paid an average of nearly $12,000 more per case due to describing patients as having more serious conditions or including a secondary diagnosis.

However, some experts say that AI could help save money by reducing the number of workers needed to handle claims processing. "That frees up a huge share of cost," said David Cutler, a health economist from Harvard University.

AI could also push the healthcare industry to re-examine how doctors and hospitals are paid. Currently, both hospitals and insurers agree that the current payment system needs to be less complicated and focused more on paying for services and medications that improve patients' health.

"It is going to put a ton of pressure on the reimbursement system to be better," Cutler said.