Dive Brief:
- Health plans are projecting commercial healthcare costs will rise 9% next year, driven in part by increased adoption of artificial intelligence billing tools by providers, according to a report released Thursday by professional services firm PwC.
- Nearly 70% of surveyed plans ranked providers’ use of AI documentation and coding products as a top three inflator next year, while about 20% called AI the number one inflationary trend.
- Still, AI isn’t a major driver of growing healthcare costs compared with labor and supply cost inflation or increased healthcare utilization, said Glenn Hunzinger, U.S. health industries leader at PwC. “The ability to use technology and AI to more appropriately code or code things that they were never able to, that’s the trend we’re seeing,” he said. “It does have an impact on that 9%, albeit it’s not the biggest piece.”
Dive Insight:
The projected medical cost trend is the highest in nearly two decades, according to the PwC report, which surveyed and interviewed actuaries at 27 health plans.
The analysis identified five inflators increasing the cost of care next year, including the heightened use of AI — one of the healthcare sector’s most anticipated and hyped technologies.
Providers have been rapidly adopting a range of AI products, including tools that can record and draft clinical notes and suggest codes for billing. More complete and detailed documentation means clinicians can record more diagnoses and comorbidities during visits, code for more complex care and receive higher reimbursement — even if the clinical work or treatment doesn’t change, according to the analysis.
That doesn’t mean the more intense coding is inappropriate. Many health systems were probably missing correct codes due to the volume of care and complexity of their own internal systems, Hunzinger said.
Plus, margins are thin for many hospitals, and they’re likely facing increased reimbursement pressure amid federal healthcare spending cuts, particularly to the safety-net insurance program Medicaid. That could motivate them to adopt AI billing tools to stay afloat, Hunzinger said.
And there are other trends pushing increased healthcare spending. One major driver is elevated costs for providers, which continue to manage increased labor and supply expenses in the wake of the COVID-19 pandemic.
Consolidation is also fueling that trend, as providers merge and gain increased negotiating leverage over payers, according to the report. Nearly 65% of survey respondents said contracting pressure from providers was a top three inflator next year.
Another inflationary trend is the Independent Dispute Resolution process set up by the No Surprises Act, a law that went into effect in 2022 to protect patients from unexpected out-of-network medical bills, according to the report. Providers are winning the vast majority of the disputes and earning more than they typically would for providing care.
Additionally, rising pharmacy spending — like for expensive GLP-1 medications — and increased demand for behavioral healthcare could drive rising costs.
And trends that could slow healthcare spending — like biosimilars and generic drugs or pushing care towards cheaper facilities — are already baked into the current trajectory, so they likely won’t drive further improvement, according to the report.
Still, technology like AI could eventually start to bend the cost curve, Hunzinger said. For example, administrative work accounts for a large chunk of healthcare spending, so automating some of those tasks could make a dent. Plus, AI tools could lessen burnout and allow in-demand providers to focus on clinical tasks.
But innovation takes time to bring down costs, especially in a highly regulated industry like healthcare.
“Its a tough environment to operate in, in a flawless fashion,” he said. “Because at the end of the day, it’s patients, it’s people. So that’s why it probably takes a little bit longer.”
