Insurers claim AI could significantly increase healthcare costs, while billing companies refute this assertion.
A costly debate
A financial crisis looms over the healthcare sector, potentially costing billions, as insurers point fingers at AI-driven billing tools, while technology providers defend their systems. Last week, the Blue Cross Blue Shield Association (BCBSA) disclosed that it had paid approximately $942 million over a two-year period to these technology vendors.
According to BCBSA, this surge in expenses is not accompanied by a corresponding rise in medical treatments, which the insurer said it would expect if patients were truly sicker. Hospitals are increasingly categorizing inpatient stays as more complex, attributing this to a higher number of medical diagnoses that warrant increased reimbursement.
This trend suggests that AI-powered billing systems might be contributing to escalating healthcare costs, the insurer argues. “If patients are truly sicker, we’d expect to see more treatment,” said Luke Chalker, BCBSA’s senior vice president of product and data science, in a statement. “For example, we’re seeing significantly more anemia diagnoses at these hospitals without a corresponding increase in transfusions,” he said. “The disconnect between diagnoses and treatment suggests that AI is identifying more billable conditions, not sicker patients.”
Technology providers refute allegations
The creators of these billing technologies are challenging the insurers’ claims, asserting that their AI systems ensure providers receive fair compensation under the current reimbursement rules governing the relationship between payers and providers. “Making a claim like this is making it in the context of the current paradigm,” said Dr. Travis Bias, deputy chief medical officer of health information systems at Solventum, whose coding platform is utilized by over 80% of U.S. hospitals. “We live in a fee-for-service system, we pay for volume, not for value. So yes, if you collect more codes and do more procedures, the payments will increase.”
BCBSA is not the sole insurer grappling with rising costs. PwC analysts project a 9% increase in insurers’ medical expenses next year, attributing this to AI-driven billing tools.
Insurers fear that these tools facilitate upcoding, where providers submit inflated diagnostic codes to secure higher reimbursement. Hamid Tabatabaie, president and CEO of Codametrix, a healthcare technology firm using AI for coding in over 500 hospitals and health systems, acknowledges the rise in healthcare costs but disputes the blame placed on AI.
In an interview, Tabatabaie stated that while autonomous coding tools increase costs for insurers, this is not due to malicious intent. Although rare instances of fraud, waste, or abuse cannot be ruled out, the tools primarily help providers capture information they would otherwise miss without technical aid. “When last year they submitted their claims, if they weren’t using a valid system, they were missing it,” Tabatabaie said. “And now this year, they have addressed it.”
Bias further elaborated that in the current fee-for-service environment, a more full documentation of clinical encounters naturally leads to higher costs. Under this system, insurers reimburse providers based on the volume and complexity of services, incentivizing providers to maximize care delivery and insurers to minimize costs.
Tabatabaie noted that AI enables providers to more accurately claim what they are entitled to under existing rules, which alarms insurers. “Any optimization that a provider does that causes them to receive payment for otherwise what they weren’t receiving — they don’t like that,” Tabatabaie said. “Payers don’t want to pay any more than they absolutely have to.”
Tabatabaie also argued that medical codes were originally intended to represent clinical concepts, not billing. “Codes are supposed to be codes of clinical concepts,” he said. “They got hijacked by payers because that was the most convenient way to do claims processing.”
Bias suggested that insurers’ concerns may not persist indefinitely. New incentives and changing provider behaviors could mitigate the cost challenges associated with AI-driven billing platforms. Since the Affordable Care Act’s enactment in 2010, the healthcare industry has been transitioning to value-based care, which reimburses providers based on patient outcomes rather than service volume, promoting cost-effective, high-quality care.