Healthcare Is Fighting the Wrong AI War

The Blue Cross Blue Shield Association is crying wolf about AI. Its new analysis claims that “hospital systems are increasingly billing patient hospital stays as more medically complex,” and that these upcodings cost BCBS plans almost $1b from 2023 to 2025. That’s just claims from hospital systems, just to BCBS plans, so the total number could be much higher.

This is not how to make healthcare better. Credit: Microsoft Designer

Well, you might say, a billion here, a billion there – that’s just healthcare these days. Everything is going up. But BCBSA is less sanguine; it thinks the coding is part of a strategy, and it thinks AI is driving that strategy.

“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. “For example, we're seeing significantly more anemia diagnoses at these hospitals without a corresponding increase in transfusions. The disconnect between diagnoses and treatment suggests that AI is identifying more billable conditions, not sicker patients.”

The analysis indicated that most (70%) of the increased costs came from secondary diagnoses that shifted payment into higher reimbursement categories, so the hypothesis is plausible.

The American Hospital Association, of course, is having done of it. An August 2026 ”fact sheet” on AI and coding intensity called claims of AI driving coding intensity “unsubstantiated,” citing numerous factors that drive coding intensity. It blamed insurers for having AI-supported “downcoding programs,” the purpose of which are “to arbitrarily and inappropriately reduce provider reimbursement for medically necessary care that has already been delivered.”

AHA also snarkily but accurately noted how many Medicare Advantage plans have been caught upcoding members to boost their Medicare payments, so it depends on where one is sitting.

It’s also worth noting that this year the Trump Administration rolled out a Medicare program -- Wasteful and Inappropriate Service Reduction (WISeR) – to use AI to help identify “fraud, waste and abuse” – a.k.a., deny claims. It has not, to say the least, gone well.

Both sides are using AI, to each other’s detriment. Which is to say, our detriment.

The BCBSA press release notes that more than 60% of hospital systems are using AI technologies, and, indeed, the 2026 Oliver Wyman Healthcare RCM Survey found that 63% of health systems are using AI in their revenue cycle management. But it’s not quite the smoking gun BCBSA would have us believe. Oliver Wyman found that “roughly 20% to 40% of organizations we surveyed report broad or enterprise-wide use of AI-enabled tools,” but this included ambient listening (33% in broad use or enterprise-wide standard), clinical decision support (38%), clinical document integrity (41%), electronic prior authorization (41%), and coding/billing automation (43%).

On the other hand, Oliver Wyman also found 70 to 90% of decision makers expected to increase AI-related RCM spending over the next three years, and you have to wonder why that number isn’t 100%.

To BCBSA’s point, the report did find that health systems “are seeing meaningful gains with targeted uses of AI improving how clinical complexity is captured, with some studies showing accuracy hit 90% or higher in specific clinical domains,” with the result that “reimbursement levels are increasing, contributing to measurable shifts in cost-of-care trends.”

Accordingly, the report suggested “payers need to accelerate investments in analytics, payment integrity capabilities, auditing and validation.” Which will drive greater investments from health systems, and so on.

And, in case you were wondering, it is not just health systems and payors using AI. The American Medical Association’s “2026 Physician Survey on Augmented Intelligence” found that more than 80% of physicians are using AI professionally, double what was reported in 2023. Like health systems, they’re using it for lots of reasons, but “diagnostic accuracy” is listed as one of the greatest expected advantages. Whether “accuracy” means more precision or upcoding depends on which side of the ledger one is on.

Source: AMA 2026 "Physician Survey on Augmented Intelligence"

Yep, we’re in an AI war about healthcare claims, although Mr. Chalker says: “It’s not a war. It’s a completely one-sided blood bath.”

In a New York Times article on the BCBSA report, Reed Abelson and Teddy Rosenbluth quote Dr. Shiv Rao, CEO and founder of healthcare AI firm Abridge: “That’s the danger, where it’s bots fighting bots, agents fighting agents, a horrible dystopic future nobody wants to live in.” They also cited a recent panel with leaders from Cigna and Emory Health, during which Dr. Joon S. Lee, the chief executive of Emory Healthcare, said: “My nightmare is that we have bots on Emory Healthcare’s side, bots on Cigna’s side that keep talking to each other. A whole data center could be occupied just doing that.”

It should be everyone’s nightmare. Bots on bots doesn’t make patients better. Bots on bots doesn’t make healthcare more affordable. Bots on bots just exacerbate the problems we already have in healthcare.

Ms. Abelson and Ms. Rosenbluth point to a Health Affairs article earlier this year by Dr. David Brailer, a former Obama official who helped oversee the adaption of electronic health records (EHRs). Its title -- Why AI Will Accelerate Health Care Inflation – is daunting. EHRs, he points out, led to higher hospital payments, and we should expect the same with AI. “The extraction economy of American health care does not resist useful technology,” he said. “It recruits it. AI is being recruited the same way, and AI’s scale and speed is different from anything electronic records achieved.”

 In other words, if we’re not very careful and very thoughtful, AI will make all the things we hate about our healthcare system much worse, much faster. And we don't have much o9f a track rec9ord in being very cautious or very thoughtful. 

At Health Datapalooza, Amy Gleason, the Administrator of the U.S. DOGE Service, had a great quote: “We have normalized the absurd in healthcar4e.” I couldn’t agree more. If AI serves to further normalize what everyone agrees are the absurdities of our healthcare system, then maybe it is time for AI to get rid of us.

I’ve long argued that all of our problems in healthcare stem from the fact that we don’t really know what “quality” is for health care. Because of that, we also don’t really know who is providing it, or who is not, either intentionally or unintentionally. Focusing AI on that would benefit both those who provide care and those who pay for it, not to mention those who receive it.

Yes, AI should help us make our healthcare system more efficient, reducing the ridiculous administrative tasks we have allowed to accumulate, but if that just results in “bots on bots” fighting over diagnosis codes, we’ll have wasted our best chance to actually fix our healthcare system.