The Blue Cross Blue Shield Association (BCBSA) says hospitals’ increasing use of artificial intelligence in documentation assistance and coding tools is making inpatient claims appear more medically complex and expensive.
In its latest analysis, BCBSA estimated this AI-assisted coding process added almost $1 billion in costs to Blue Cross and Blue Shield plans during 2024–2025 relative to a 2023 baseline.
Between 2024 and 2025, providers more frequently billed for secondary conditions, or those stemming from a separate illness from the one they were treating, driving costs up by $653 million for BCBS companies during that period. Overall, more intense care contributed $942 million in costs to BCBS firms over the two-year period, when compared to 2023, the study added.
BCBSA said providers used AI technology to identify secondary conditions by scanning existing patient records or using ambient scribes, which passively listen to conversations with patients and draft medical notes.Patient visits where more complex medical care is documented command higher payments by insurers. In hospital settings, secondary or coexisting conditions can be categorized as more complex.“If patients are truly sicker, we’d expect to see more treatment,” said Luke Chalker, senior vice president of product and data science at BCBSA.
Hospital payment systems often increase reimbursement when claims indicate greater clinical severity, complications, or comorbidities. If AI enables providers to document and code more qualifying secondary conditions, hospital revenue can rise even if the underlying admission and care plan have not materially changed.
AI identification of “secondary conditions” helps add thousands to the cost of patient treatment per case. Additionally, it is also being used to generate arguments for denial of care.
By describing patients as having more complicated conditions and adding a secondary diagnosis, like anemia or low sodium, the hospitals were paid an average of nearly $12,000 more per case….Just as providers are using sophisticated A.I. tools to say their patients are sicker, insurance companies have been accused of using the tools to delay or deny care. The companies have come under intense criticism for their use of A.I. when requiring prior approval of treatments and medicines. A new pilot program in Medicare that relies on sophisticated technology to help determine whether certain kinds of care should be covered has come under attack by some lawmakers.While Medicare and the insurers insist they never deny care without oversight from a medical professional, the tools are adding to the overall friction between the parties. Patients are often caught in the middle, left with unpaid bills or denied care.“All the insurers are using A.I. to scan our charts to look for claims to deny. For the same reason, we’re looking at the same charts today,” said Dave Mazurkiewicz, the chief financial officer for McLaren Health Care, a small Michigan health system. McLaren buys A.I. technology from SmarterDx, which takes a cut of the additional revenues it generates.
The American Hospital Association challenged the Blue Cross/Blue Shield assessment.
The American Hospital Association pushed back on BCBSA’s analysis. “Patients today are older and more clinically complex,” and AI tools are helping providers “appropriately capture their patients’ conditions to aid in care planning. The BCBSA’s analysis lacks the context needed to meaningfully assess how these tools impact healthcare quality, patient access, or spending,” an AHA spokesperson said in a statement to CNBC.“It is particularly troubling to see insurers raising concerns about provider coding while continuing to rely on automated downcoding and denial practices that can impede coverage of medically necessary care, add burden on the workforce, and increase costs through administrative waste,” the AHA spokesperson added.[BCBSA’s senior vice president of product and data science Luke] Chalker said Blue Cross Blue Shield companies also use AI in claims review, but that “any clinical denial is always reviewed by a qualified human clinician.”
Interestingly, Centers for Medicare & Medicaid Services (CMS) Administrator Dr. Mehmet Oz recently projected that AI’s impact on healthcare costs is “going to get worse before it gets better”. Oz thinks that AI will eventually lower healthcare costs in the long term via accountable care organizations (ACOs).
ACOs are groups of providers that assume responsibility to provide care for a specific group of patients, such as Medicare enrollees. The hope is that a shift away from a fee-for-service model, where providers bill for each service, toward models that track health outcomes will incentivize providers to use AI as a tool for clinical efficiency rather than an engine for generating bills.The CMS has launched several initiatives aimed at boosting ACO participation, claiming it saves billions for Medicare and drives down spending.Critics of the ACO model say it poses financial risks for providers if they fail to lower spending while maintaining quality care and adds a new layer of bureaucracy to their jobs.
AI can support clinicians and billing teams, but it cannot replace human and humane judgment about whether a diagnosis, treatment, payment level, or coverage denial is truly justified.
Remember that because Medicare and Medicaid reimburse a substantial share of hospital care, unjustified AI-driven coding intensity or automated denials can ultimately shift higher costs onto taxpayers (as well as patients and private insurance members)…and rob people of essential treatment to which they are entitled.
Health care providers and insurers must not use AI as a pretext to inflate reimbursement or restrict medically necessary care; the people applying these tools should remain accountable to the Hippocratic commitment to patient welfare, and not simply to the financial bottom line.
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