AI Adoption Linked to Rising Healthcare Costs, PwC Reports
PwC estimates medical costs will increase by 9% in the employer market and 8.5% in the individual market next year. A primary driver of these rising costs is providers' use of AI-enabled software and scribes, which more thoroughly document care and facilitate greater billing complexity. While artificial intelligence offers potential patient benefits, its current application in the healthcare system is contributing to higher expenses for plans and consumers.
Medical costs are projected to rise significantly in the coming year, with PwC estimating a 9% increase in the employer market and an 8.5% increase in the individual market. This trend is largely attributed to providers utilizing AI-enabled software and scribes to enhance the documentation of delivered care. These tools are reportedly being used to capture greater billing complexity, with health plans absorbing the associated costs. PwC notes that the financial impact stems more from changes in coded severity, case mix, and paid amounts per claim rather than an increase in medical service utilization.
Industry experts suggest that existing incentives within the healthcare system, which reward more services with higher payments, contribute to this dynamic. Paul Markovich, CEO of Blue Shield of California parent company Ascendiun, stated that companies will leverage AI to advance their self-interests. Bob Kocher, a Venrock partner, echoed this, suggesting AI makes the system more efficient at driving fee-for-service units of care and coding, potentially accelerating healthcare spending growth. He added that much of the investment in AI is focused on revenue cycle management and developing new, potentially expensive drugs.
However, there is also a perspective that AI could eventually lead to cost reductions. Markovich believes AI will ultimately remove administrative costs from the system. Hossein Estiri, a Harvard Medical School associate professor, anticipates that the focus will shift from administrative AI applications to those that improve patient outcomes. He argues that AI can enable more proactive and precise health, leading to fewer sick individuals and lower overall care costs.
A UBS report examining AI's impact on insurers and hospitals suggests that while AI may make the insurance industry more efficient, financial gains from administrative cost reductions could be "competed away" over time and reinvested. This is because all insurers are pursuing similar efficiencies. Among hospitals, large for-profit operators like HCA, Tenet, and UHS are better positioned to invest aggressively in AI faster than nonprofit hospitals, potentially gaining a market advantage.
The potential for AI to shift payment systems towards non-fee-for-service models is also being observed. Kocher highlighted that efforts to implement payment models rewarding lower total costs could drive AI adoption for achieving these goals. This could make value-based care, which focuses on outcomes rather than units of care, a necessity within the industry.
(Source: Axios)
