CMS Administrator Dr. Mehmet Oz delivered a candid assessment of artificial intelligence's impact on healthcare costs Wednesday: It's going to get worse before it gets better.
"Short term, AI is going to be inflationary because it's going to turbocharge the ability of the current billing systems to work more effectively," Oz said at Oracle's annual health and life sciences summit in Orlando.
It’s the latest signal from the industry that AI could be inflating healthcare costs — even as its proponents argue the technology will lower them over time.
Healthcare has been rapidly adopting AI across clinical and administrative realms. The tech has shown promise for reducing clinicians’ time spent on paperwork, helping doctors with clinical documentation and streamlining healthcare payments.
But researchers have observed rising healthcare costs tied to AI’s use in the coding and billing space that they say could become a systemic issue if not addressed.
For providers, AI-powered coding is enabling them to bill insurers for more conditions when they treat patients. They say the technology helps them more accurately bill for care, while insurers say doctors are using AI to charge more money without any actual increase in medical care.
A study released by the insurer group Blue Cross Blue Shield Association on Thursday found that the increase of billing has added nearly $1 billion in healthcare costs between 2023 and 2025. The group said the study “raises concerns” that AI tools are contributing to higher spending.
The Trump administration has been bullish on deploying AI in healthcare, even as it’s rolled back regulations on the technology. The CMS stood up a new office dedicated to health tech and AI implementation in June and has weaved an AI focus into several initiatives, such as the health tech ecosystem and its anti-fraud efforts.
Although Oz noted the increase in healthcare costs, he said AI was still essential in the industry.
“I guarantee you we will lose lives if we don't use AI in the day-to-day trench warfare of fighting disease in America,” he said.
Oz said he hoped AI would lower healthcare costs in the long run, and that the government was relying on one particular area to make that happen: accountable care organizations.
ACOs are groups of providers that assume responsibility to provide care for a specific group of patients, such as Medicare enrollees. The hope is that a shift away from a fee-for-service model, where providers bill for each service, toward models that track health outcomes will incentivize providers to use AI as a tool for clinical efficiency rather than an engine for generating bills.
The CMS has launched several initiatives aimed at boosting ACO participation, claiming it saves billions for Medicare and drives down spending.
Critics of the ACO model say it poses financial risks for providers if they fail to lower spending while maintaining quality care and adds a new layer of bureaucracy to their jobs.
