Healthcare costs in the commercial sector are predicted to increase by 9% next year, largely attributed to the growing use of artificial intelligence (AI) in billing practices by healthcare providers, as highlighted in a recent report by PwC, a leading professional services firm.
According to the report, about 70% of health plans surveyed identified providers’ implementation of AI-based documentation and coding tools as a significant contributor to next year’s cost increases. Approximately 20% of respondents placed AI at the top of the list of inflationary factors.
However, PwC’s U.S. health industries leader, Glenn Hunzinger, emphasized that while AI does play a role in escalating healthcare expenses, it is not the primary factor. He explained that labor costs, supply chain inflation, and a surge in healthcare usage are more significant contributors. “The integration of technology and AI allows for more precise coding and documentation, which is indeed a trend we are observing,” he noted. “While it influences the projected 9% increase, it’s not the main driver.”
The forecasted rise in medical costs marks the steepest climb in nearly 20 years, based on findings from interviews and surveys of actuaries from 27 health plans. The analysis identifies five key factors that are pushing costs higher next year, with the rise of AI being one of the most prominently discussed technologies in healthcare.
Healthcare providers are swiftly embracing various AI solutions, including tools that help generate clinical notes and recommend billing codes. This enhanced and thorough documentation enables clinicians to document more diagnoses and comorbidities during patient visits, thereby justifying billing for more complex cases and potentially leading to better reimbursement, even if the treatments administered remain unchanged. Hunzinger clarified that this intense coding is not necessarily inappropriate, as many healthcare systems have likely missed proper coding opportunities due to their high patient volumes and complex operational systems.
Additionally, many hospitals operate on thin margins and may experience heightened pressure to secure reimbursements, especially with expected cuts to federal healthcare spending, particularly affecting the Medicaid program. This financial strain may drive hospitals to increasingly adopt AI billing tools as a survival strategy.
Other trends are also contributing to rising healthcare expenses. High provider costs related to labor and supplies continue to escalate, a challenge that has persisted since the COVID-19 pandemic. The report also notes that consolidation within the healthcare sector is further exacerbating these trends, granting providers greater leverage in negotiations with payers. Nearly 65% of survey participants highlighted contractual pressures exerted by providers as a key factor inflating costs for the upcoming year.
Another factor influencing costs includes the Independent Dispute Resolution process established by the No Surprises Act, which protects patients from unexpected out-of-network bills. Providers have been winning the majority of these disputes, often leading to higher earnings for services rendered.
Further cost pressures are anticipated from rising pharmaceutical expenses, particularly for pricier GLP-1 medications, alongside an increased demand for mental health services.
Efforts to curb healthcare spending, such as the promotion of biosimilars, generic medications, and shifting care to lower-cost facilities, are already factored into the current growth projections and are unlikely to contribute to a significant slowdown in costs, according to the report.
Nonetheless, experts like Hunzinger remain optimistic that technology, including AI, could eventually help reduce costs. For instance, automating administrative processes—which represent a substantial portion of healthcare expenditures—might lead to some savings. Additionally, AI can alleviate provider burnout by allowing healthcare professionals to concentrate on clinical responsibilities.
However, significant changes in cost dynamics are challenging to achieve in a heavily regulated environment like healthcare. “Operating flawlessly in this landscape is quite difficult,” Hunzinger said, stressing the human elements involved. “Ultimately, it takes time to effectuate change.”
