AI war heats up between payers and providers

AI seems to be helping hospitals boost revenues without providing more care, according to a new analysis. 

The results of the drilldown were released Sept. 24 by a major AI-using payer, the Blue Cross Blue Shield Association (BCBSA).

Unsurprisingly, the study has already spurred some backlash from hospital groups. 

It’s also making waves across the consumer media, which has seized on the conflict to alert consumers. 

The “battle of hospital AI vs. insurer AI is pushing medical costs higher,” a New  York Times headline blared Sept. 24. 

Subhead: “The use of artificial intelligence by hospitals and health insurers is escalating their longstanding feud over paying for medical care.”

Consider the conclusions as well as the source 

For the BCBSA study, analysts used de-identified claims data from BCBS companies whose coverage of one in three Americans “gives insights into every ZIP code in the country,” the analysis reports. 

The authors’ key findings: 

• A sharp increase in patients being documented as having complex conditions appears to have added an estimated $942 million in healthcare spending for BCBS companies between 2023 and 2025, “driving higher premiums and out-of-pocket costs for families, employers and taxpayers.”
   
• Patients often fell into a higher-cost billing category after a secondary diagnosis, a condition identified in addition to the patient's primary reason for receiving care. “This secondary diagnosis may be derived from single laboratory values, making it particularly well-suited for detection by AI tools.”  Approximately 70% of the additional costs, more than $650 million, were tied to secondary diagnoses, the analysts note.
   
• This growth in complex coding comes “as more than 60% of hospital systems began using AI coding tools, which can document patient visits, analyze lab reports and doctors’ notes.”

The BCBS analysts suggest there is a “clear disconnect” between coding and treatment. 

“Our research shows that coding for care has changed,” they write, “but there is no evidence of corresponding change in care delivered.”

Punch-counterpunch  

In the NYT article, reporters Reed Abelson and Teddy Rosenbluth note that AI has by now become a weapon of mass tit-for-tat in the “continuing coding wars” between insurance companies on one side and provider organizations on the other. 

While insurers “insist they never deny care without oversight from a medical professional, the [AI] tools are adding to the overall friction between the parties,” the reporters write. “Patients are often caught in the middle, left with unpaid bills or denied care.”

Abelson and Rosenbluth quote a hospital system CFO who says all health insurers, including Medicare, are using AI to scan patient charts in search of claims to deny. 

“For the same reason, we’re [using AI to] look at the same charts,” the hospital C-suiter acknowledges. 

‘A completely one-sided bloodbath’  

Across the ring, a Blue Cross senior VP says flatly that medical coding is changing because of AI, implying the company would be foolish not to tap the technology while hospitals are wielding it to win. 

“It’s not a war,” he tells the Times. “It is a completely one-sided bloodbath.” 

The Blue Cross plans are using AI not to administer claims, the veep says, but to head off inappropriate billing at its source. 

Hospitals may have a leg up  

In June a third-party analyst predicted hospitals will, at some point, emerge with an edge over insurers. 

“While payers and providers are similarly working to introduce AI into their workflows, we believe AI could create a more durable competitive advantage for the leading hospital operators,” the analyst, A.J. Rice of the financial-services company UBS, told HIMSS Media. 

Payers are using AI across claims adjudication, prior authorization, fraud detection and member engagement, Rice added, but these benefits are “broadly replicated and are being pursued simultaneously across the industry.”

As a result, Rice and colleagues expect payers’ gains from lower administrative costs “are likely to be reinvested into benefits, pricing or provider relationships over time, limiting the opportunity for sustained outperformance.”

Meanwhile he anticipates hospitals will come through with “a more durable competitive advantage as they use AI to improve operations, reduce labor costs and squeeze more revenue from increasingly complex reimbursement systems.”