Nobody wins the bot war
Hospitals and insurers now fight over bills with software, and patients pay. Every algorithm that moves a payment should show a clinician its evidence and be judged by how often it is right.
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read by an AI voiceThe American Hospital Association named the right test for billing software on Oct. 5. "The appropriate test for whether a patient has been correctly coded is not whether reimbursement increased; it is whether the patient's medical record supports the diagnosis," the association wrote. It was answering the Blue Cross Blue Shield Association, which estimates that hospitals' AI coding tools cost its member plans $942 million over two years for care that, it says, did not change. The consulting firm PwC told insurers much the same in June: "The goal should be more accurate payments, not more denials of claims."
Both sides now field software that is good at the fight. Hospitals use it to record what PwC calls "greater specificity and reimbursable severity" and to write appeals, and Kaiser Permanente has seen AI-written appeals raise its recovery rates by about 15%. Some insurers, the hospitals say, use automated tools to lower and partly deny claims. The chief revenue officer of New York City's public hospitals calls it a fight in which "nobody's going to win." She is right, and patients are paying for it. Every algorithm that moves a payment, up or down, should have to show a clinician its evidence from the chart and be audited for how often it is right, not for how much money it moves.
The insurers' case rests on their own claims data. The Blue Cross association found that the share of hospital stays billed to its plans as medically complex rose from 37% at the start of 2023 to 40% by the end of 2025. Hospitals in the top quarter for diagnosing anemia from blood loss transfused a smaller share of the patients they diagnosed than other hospitals did, a gap the association says "suggests that AI is identifying more billable conditions." It concedes that its analysis is limited by its reliance on claims rather than clinical documentation. The hospitals' association replies that the analysis does not appear to identify which claims involved AI tools, and that "the absence of an additional procedure does not establish that a diagnosis is invalid."
Doctors and hospitals complain of the reverse. Since July 1, Blue Cross Blue Shield of Illinois has paid some visits at a lower level than billed when it judges that the services do not justify that level, and Chicago-area clinicians say it is cutting claims for complex or longer visits automatically. The insurer says its review is "intended to appropriately support accurate payments" and did not comment on whether it uses AI. Appeals are one measure of insurers' errors, and they are rare. In 2024, by their own reports, Medicare Advantage insurers denied, in whole or in part, about one prior authorization request in 13; just over one denial in ten was appealed, and four in five appeals succeeded at least in part. The figures do not say how many decisions involved software, but most challenged denials did not hold up in full.
HCA Healthcare's finance chief said in September that hospitals are "behind the payers" in using AI on claims, and called the administrative cost on both sides "enormous." CommonSpirit Health's chief financial officer told investors on Oct. 2 that the system had "captured $200 million in financial value from artificial intelligence," though the published account of his remarks does not say which uses produced it. Both are claims about money. Aetna's chief medical officer says the early data on AI in health care are "largely inflationary," with "no real strong evidence that people are getting different clinical outcomes."
Patients pay for the contest in three ways. Insurers set premiums from projected growth in costs. In a PwC survey, seven in ten health plans named AI that brings hospitals and doctors more revenue among the three biggest drivers of next year's growth; that is their judgment, not a measurement. Patients who owe a percentage of the bill, or all of it until the deductible is met, can owe more when the bill is coded higher, up to their plan's out-of-pocket limit. A denial overturned on appeal is care approved in the end, perhaps after a delay, and such delays "may have negative effects on a patient's health." Patients seldom fight back: in federal marketplace plans, fewer than one denied claim in a hundred was appealed in 2024.
Regulators have begun to act, almost entirely on the insurers' side. At least seven states passed laws this year that, in various forms, bar insurers from leaving decisions to AI alone. Alabama's took effect on Oct. 1, and under a law signed by Gov. JB Pritzker, Illinois will require from 2028 that a person make or review every decision to lower a claim's billing code. Connecticut's comptroller has gone further for the state's own health plans, requiring that their AI be validated "for accuracy, consistency, and fairness" and that insurers and providers alike disclose when AI materially assists with, or recommends, a member's benefits or care.
Since January, federal rules have required Medicare Advantage, Medicaid and federal-marketplace plans to give a specific reason for each prior authorization they deny and to post figures on their decisions every year. Medicare's own pilot, which uses AI to review requests for selected services in six states, pays its contractors a share of the spending they avert and, Medicare says, leaves every recommendation to deny to licensed clinicians. It also cuts that pay when contractors miss standards for accuracy and timeliness, and withholds or recovers it when a denial is overturned on appeal.
Perhaps the hospitals' software is simply recording the truth. Hospitals say patients are older and sicker, coding vendors say their software catches conditions that hospitals used to miss, and the Blue Cross figures rest on claims rather than charts. Some insurers already cut bills by automated rule, so a hospital that set its tools aside would be paid less for the same work, and the deeper fault lies in paying for care service by service. Much of this may be right, and the rule proposed here asks no one to disarm; it asks for the hospitals' own test, whether the record supports the diagnosis. If the new codes are real, an audit against the chart will show it, and the same test would oblige insurers' software to point to the chart before it lowers a bill. Nor would paying differently end the contest. Medicare pays its private plans per patient, more for patients whose records say they are sicker, and Congress's advisers on Medicare estimate that the plans' own coding makes their enrollees' risk scores about 4% higher than those of similar patients in traditional Medicare, even after Medicare's correction.
The principle that matters most is that the evidence travels with the decision. Any software that adds a diagnosis to a bill, lowers a code or recommends a denial should cite the passages in the record it relied on, so that a clinician on either side can check the call in minutes. Medicare can require it of its private plans and its own contractors, building on the specific reasons it already demands for prior authorization denials, and states can write it into the laws they are passing. Hospitals can make it a condition of their contracts with coding vendors.
Just as important is how accuracy is measured. Appeals catch only the errors someone contests, and patients rarely appeal. The health department's inspector general showed a better way in a 2022 report: its reviewers checked a random sample of the denials that 15 of the largest Medicare Advantage insurers issued in one week of 2019 against Medicare's rules and found that more than one denied prior authorization in eight would probably have been approved in traditional Medicare. Samples like that, drawn yearly for every tool on both sides and reported as error rates in both directions, would show which software to trust. Any contract that pays a vendor a share of the money its software brings in or saves should also dock it for errors, as Medicare's pilot does. Medical staffs should ask for those error rates before a tool touches their patients' bills. For patients the test is simpler: the right decision, made quickly.
The hospitals' association has written down the right test, and insurers have heard the same advice. Applied to every bot on both sides, with the results made public, it could shorten the billing war. Until then nobody wins, and patients go on paying for the fight.
- What Blue Cross countedFierce Healthcare's account (Sept. 24, 2026) of the Blue Cross Blue Shield Association's white paper: "The increase in coding intensity since baseline translates to an estimated $942 million of additional costs shouldered by BCBSA's member plans over two years," from a 2023 baseline, and the share of medically complex cases billed to Blue plan members "has risen from 37% at the beginning of 2023 to 40% by the end of 2025." Hospitals in the top quartile for posthemorrhagic anemia diagnosis (13.7% versus 9.9% for the remainder) had lower transfusion rates among those diagnosed (16.9% versus 19.3%). Luke Chalker, the association's senior vice president of product and data science, said the figure covers cases where "we believe there is no change in care delivered," and Fierce reports that the association "acknowledged that the analysis is limited due to its reliance on claims rather than clinical documentation." Becker's gives the average cost per excess complex case as $11,800; Fierce gives $11,000.
- The hospitals' replyIn a blog post on Oct. 5, 2026, the American Hospital Association wrote that "BCBSA's analysis insinuates conclusions about AI-enabled coding without reviewing the underlying medical records," that it "does not appear to identify which claims involved AI tools rather than traditional documentation and coding processes," and that "the appropriate test for whether a patient has been correctly coded is not whether reimbursement increased; it is whether the patient's medical record supports the diagnosis." It said the estimate "appears to account for only a small fraction of commercial healthcare spending and premium growth" and that "Americans are living longer and managing more chronic conditions than in the past." Its fact sheet on AI and coding intensity (August 2026) says "some insurers are using automated tools to partially deny claims," "forcing providers to engage in burdensome and costly appeals to be reimbursed," and that AI tools "can reduce documentation time, improve coding accuracy, expand appointment capacity."
- Software on both sidesBlue Cross Blue Shield of Illinois's website, as quoted by WBEZ and the Chicago Sun-Times (Aug. 26, 2026), says that for dates of service from July 1, "if services billed do not support the level of E&M services billed, your reimbursement will be for a lower level of service validated." Chicago-area providers report "a trend of BCBS automatically decreasing claims"; the company said its review is "intended to appropriately support accurate payments of correctly coded claims," and "BCBS did not comment on whether it was using an AI tool." Among hospitals (HFMA, Jan. 30, 2026), "Kaiser Permanente, meanwhile, has seen AI appeal writing increase recovery rates by about 15%." Coding vendors disagree (Healthcare Dive, Sept. 28, 2026): Solventum's Dr. Travis Bias said "We live in a fee-for-service system, we pay for volume, not for value," and Codametrix's chief executive, Hamid Tabatabaie, said "When last year they submitted their claims, if they weren't using a valid system, they were missing it."
- Denials and appealsKFF (Jan. 28, 2026), using insurers' reports to CMS: of 52.8 million Medicare Advantage prior authorization determinations in 2024, 4.1 million (7.7%) were denied in full or in part; 11.5% of denied requests were appealed, and 80.7% of appeals were partially or fully overturned. KFF reports the highest denial rate for UnitedHealth Group (12.8%) and the lowest for Elevance (4.2%). The data cover service determinations, not claims payment, and KFF does not attribute the denials to AI. A separate KFF analysis (March 24, 2026) found that insurers on HealthCare.gov denied 19% of in-network claims in 2024; fewer than 1% of denied claims were appealed, and on internal appeal, insurers upheld 66% of the denials.
- Checking decisions against the rulesThe HHS Office of Inspector General (OEI-09-18-00260, April 27, 2022) reviewed a stratified random sample of 250 prior authorization denials and 250 payment denials issued by 15 of the largest Medicare Advantage organizations during June 1-7, 2019; coding experts reviewed all cases and physicians a subset. Thirteen percent of the prior authorization denials met Medicare coverage rules ("these services likely would have been approved for these beneficiaries under original Medicare"), and 18 percent of payment denials met Medicare coverage and plan billing rules, mostly through human error in manual reviews or claims-system errors. In WISeR (six states, 2026 to 2031), participants receive, in CMS's words, "a percentage of the expenditures associated with averted wasteful, inappropriate care"; CMS reduces payments when they miss accuracy or timeliness standards and "will withhold or recoup the WISeR payment for a pre-payment review if the denied claim is successfully appealed." CMS says "All recommendations for non-payment are determined by appropriately licensed clinicians."
- Costs, premiums and claims of valuePwC ("Medical cost trend 2027: Behind the Numbers," June 11, 2026) projects group medical cost trend of 9% and individual-market trend of 8.5% for 2027, from surveys and interviews with actuaries at 27 U.S. health plans: "70% of health plans rank AI-enabled tools that capture more provider revenue as a top-three inflator," and "Insurance companies use the cost trend projection to calculate health plan premiums for the coming year." HCA Healthcare's chief financial officer, Mike Marks, said on Sept. 15 that hospitals are "behind the payers"; Aetna's chief medical officer, Ben Kornitzer, MD, said early data on AI's impact are "largely inflationary" and encouraged the industry to resist framing the situation as "an agentic bot war" (Becker's). CommonSpirit Health's chief financial officer, Michael Browning, said on the system's fiscal 2026 investor call on Oct. 2 that it "captured $200 million in financial value from artificial intelligence"; Becker's account does not say which uses produced it.
- Rules on AI in coverage decisionsBecker's Payer Issues (July 28, 2026) lists seven state laws passed in 2026, among them Alabama SB 63 (effective Oct. 1) and Illinois's Transparency in Downcoding Act (Jan. 1, 2028), which it summarizes as requiring that a person make or review every downcoding determination. WBEZ and the Chicago Sun-Times reported on Aug. 26, 2026, that Gov. JB Pritzker had signed the Illinois act. On Sept. 16, 2026, Connecticut's comptroller set rules for the State Employee Health Plan and Partnership Plan (more than 270,000 members), among them that AI systems be "validated against historical data for accuracy, consistency, and fairness" and that "Carriers and providers must disclose when AI is materially assisting with, directly interacting, or recommending a benefit or health service to a member." Under CMS-0057-F, "Beginning in 2026, impacted payers must provide a specific reason for denied prior authorization decisions" and must post prior authorization metrics annually, the first by March 31, 2026.
- Coding in Medicare AdvantageMedPAC (March 12, 2026) estimates that Medicare spends about 14 percent more on Medicare Advantage enrollees than it would in fee-for-service Medicare, "a projected $76 billion in 2026," and that, because of higher coding intensity, Medicare Advantage risk scores will be about 4 percent higher than those of similar fee-for-service beneficiaries "even after accounting for the annual CMS coding adjustment." Its March 2025 report put the 2025 gap in risk scores at about 10 percent, "a projected $40 billion of the $84 billion" in higher payments, and named chart reviews and health risk assessments among the sources. In a memo of Feb. 6, 2024, CMS told Medicare Advantage organizations that they "must make medical necessity determinations" based on "the circumstances of each specific individual," and that "an algorithm that determines coverage based on a larger data set instead of the individual patient's medical history, the physician's recommendations, or clinical notes would not be compliant" with Medicare's rules.