As AI transforms the healthcare landscape, hospital and health system leaders are sounding the alarm about a growing arms race: one that pits payer algorithms against provider revenue cycle teams, often with patients caught in the middle.
For some systems, the stakes are rising quickly: mounting denials, deeper administrative burdens and growing pressure to do more with less. While payers have accelerated their investment in automation and AI, many providers are still playing catch-up, a dynamic that’s creating more friction, not less, according to hospital executives.
Payers have been among the earliest adopters of AI, deploying it across claims processing, call centers and utilization management. UnitedHealth Group alone boasts more than 1,000 AI use cases, including transcription tools and automated claims review, according to The Wall Street Journal. The company anticipates AI will handle over half of all consumer calls by the end of 2025. SCAN Health Plan and Elevance Health are also embedding AI in their contact centers.
Alongside broader concerns over utilization trends — including increased emergency room use and demand for behavioral health — many insurers have flagged a growing concern with what they describe as “aggressive provider coding.”
“We do see a subset of providers employing more aggressive coding tactics,” Elevance CEO Gail Boudreaux said during the company’s July 17 second-quarter earnings call, adding that some providers may be “inappropriately leveraging” the independent dispute resolution process to inflate payments.
Dennis Laraway, executive vice president and CFO of Cleveland Clinic, described the current payer-provider dynamic as deeply imbalanced.
“There’s a double-edged sword effect and we in the provider sector are chasing this a bit,” Mr. Laraway said during an upcoming episode of the Becker’s CFO and Revenue Cycle Podcast.
“We don’t control the purse strings, so we’re often responding to claims edits, rules, bulletins and things of that nature that guide, from the purse-string holders — from government payers, CMS, Medicaid plans to small, medium and large commercial plans across our communities,” he said. “We do our best to adopt change, create billing editors and claim editors, and try to align with the rules and with changes over time to minimize as much friction as we can.”
Despite aggressive backend efforts to comply and align with payer rules, Cleveland Clinic still sees more than 15% of claims initially denied — only to bring that figure down to below 2% after a lengthy, resource-intensive appeals process.
“But all of the time, energy and resources consumed to get it from 15% to sub-2% is unsustainable,” Mr. Laraway said. “That’s arguably also unnecessary and unsustainable for the payers and the plans. If they’re watching the same report card that we are — an initial 15% ends up being sub-2% — that doesn’t seem to be productive friction in healthcare for either side of the table.”
If payers are accelerating AI adoption more quickly than providers to outmaneuver algorithms and edits, that game runs counter to healthcare’s core mission and ultimately leaving patients caught in the middle and bearing the greatest burden.
“We need to collaborate and create alignment, come to agreement on claim reviews, chart reviews — things that need to be done to create ongoing integrity in the revenue cycle for both sides,” Mr. Laraway said. “And then do that on retrospective reviews and audits, or on collaborative, joint operating committees, rather than putting claims and patients and providers in the middle of all of this friction.”
Mr. Laraway cautioned that while both payers and providers are ramping up AI, simply building smarter algorithms isn’t a sustainable solution.
“We need to be able to do this better, and AI is not exactly the answer for either side of this table,” he said. “The payer-provider friction is really unsustainable, and just because both sides can ramp up AI algorithms doesn’t make that better. We do need to figure that out better in the industry, between both the payers and providers.”
‘It’s become an arms race’
Aron Klein, vice president of finance operations and supply chain at Urbana, Ill.-based Carle Health, echoed similar concerns and pointed to growing disparity in technological investment.
“I really do think it’s become an arms race, and payers are definitely ahead,” Mr. Klein said during an upcoming episode of the Becker’s Healthcare Podcast. “As larger organizations, they have deeper pockets and the ability to invest in AI and technology — which, in some cases, has added burdens for health systems. Right now, we’re in catch-up mode as an industry. But I don’t think we have a choice.”
Like many CFOs, Mr. Klein said his health system is focused on automation, particularly in the revenue cycle, an area in which workforce shortages and rising complexity make human staffing difficult.
“We have to leverage technology wherever possible. Adding people isn’t always realistic: we consistently face a limited candidate pool, especially when hiring for revenue cycle roles,” he said. “We’re always competing for coders, follow-up reps and others who are willing to do tough, often thankless work. So we need to invest in tech that supports and strengthens the teams we do have.”
“At the same time, there’s a real opportunity to improve provider-payer relationships, especially by sharing data and discussing the burdens these administrative processes create. Partnering more effectively with payers could help reduce denials and overall friction.”
Carle Health, an eight-hospital system, has also seen newer payers experiment with creative contracting models, including proposals to waive all prior authorization and patient cost-sharing in exchange for lower reimbursement.
“Some newer payers have approached us with a unique proposition: They’d offer a lower contracted rate if we agreed to eliminate all prior authorization requirements and waive all patient out-of-pocket costs,” Mr. Klein said. “Depending on the proposed rates, that can be appealing. Reducing administrative burden and eliminating patient financial barriers could improve the overall experience, and reduce the need for collections or chasing down payments.”
Mr. Klein anticipates the emergence of new, hybrid business or care‑models in healthcare, driven by growing pressures. He predicts that employers, payers and health systems will respond with novel approaches as the landscape becomes more complex and challenging.
Tech tools to tackle gray areas
Tom Buckley, senior vice president of revenue cycle and managed care at Marlton, N.J.-based Virtua Health, said one critical friction point remains the inpatient-versus-observation status dilemma, and the short window providers have to justify that determination.
“We’ve tried to add tools to our physician community to help them identify what is an inpatient case versus an observation case,” Mr. Buckley said. “Part of the challenge is the amount of time — one or two days — where the payers want you to make the argument.”
To accelerate and support decision-making, Virtua implemented tools to help determine inpatient status based on clinical inputs early in a patient’s stay. It’s also leveraging robotic process automation to reduce manual work and shorten payer response timelines.
“Instead of sitting on the phone and waiting for a response, you can let the machine do that work for you,” Mr. Buckley said.
Building payer-facing platforms from the inside out
Robin Damschroder, executive vice president, value-based enterprise, and CFO at Henry Ford Health in Detroit, emphasized the need to eliminate administrative waste at the source and move closer to real-time decisions at the point of care.
“With the Health Alliance Plan … and our Blue Cross contract … we are working with all of our payers to see if we can take down the administrative burden or get it closer to the point of care so people aren’t having to wait for treatment,” Ms. Damschroder said.
Henry Ford is deploying Epic’s payer platform and has launched multiple pilots to streamline prior authorizations and clean claim processing. Ms. Damschroder cited a 95% pre-authorization approval rate as proof of well-defined protocols and standards, suggesting more automation is both possible and appropriate.
“That is a testament to our physicians, the clinical criteria protocols they’ve established, and making sure we’re adhering to those within our EMR.”
