Artificial intelligence is likely to increase U.S. healthcare spending before eventually helping reduce it, according to Centers for Medicare and Medicaid Services Administrator Dr. Mehmet Oz, who argues that AI will initially make existing medical billing systems substantially more efficient at identifying diagnoses and reimbursable services. Speaking at a health and life sciences summit, Oz said providers will be able to treat more patients, document more conditions and generate additional procedure codes, contributing to higher near-term spending; an industry analysis estimated that changes in hospital coding contributed $942 million in additional healthcare expenditures between 2023 and 2025. Oz nevertheless maintains that AI can ultimately lower costs by improving diagnosis, reducing administrative burdens, preventing unnecessary or duplicative care and supporting a transition from fee-for-service medicine toward accountable-care arrangements that reward outcomes rather than the volume of services performed. The administration is simultaneously encouraging greater private-sector participation in Medicare technology initiatives, with hundreds of technology companies joining federal efforts intended to modernize health data, chronic-care management and patient access to medical information.
Key Takeaways
- Oz expects AI to be inflationary initially because automated documentation and coding can identify additional diagnoses and billable services, potentially increasing payments without necessarily reflecting an equivalent increase in treatment.
- The administration’s longer-term strategy depends heavily on using AI alongside accountable-care models that emphasize outcomes, coordination and efficiency rather than rewarding providers for performing greater numbers of separately billable services.
- CMS is expanding technology-driven healthcare initiatives, including programs employing AI and machine learning to identify wasteful or inappropriate Medicare services, while working with hundreds of private technology companies to modernize healthcare delivery and data access.
In-Depth
Artificial intelligence presents American healthcare with an unusual economic paradox: technology capable of making medicine dramatically more efficient could initially make it more expensive. CMS Administrator Dr. Mehmet Oz argues that AI will strengthen the ability of providers to document illnesses, identify diagnoses and capture reimbursement that today’s cumbersome billing system sometimes misses.
That could produce a substantial near-term spending increase. Automated coding and documentation systems can discover secondary diagnoses buried in medical records, potentially moving patients into more expensive reimbursement categories. Insurers have consequently raised concerns that AI-assisted coding could increase payments without corresponding increases in actual medical treatment, while providers contend that improved technology simply allows them to bill accurately for conditions previously overlooked.
The larger question is whether policymakers can harness AI’s efficiencies without allowing technology to become another mechanism for expanding an already enormous healthcare bureaucracy. Oz’s proposed answer is greater reliance on accountable care, where providers assume responsibility for patient outcomes and total costs rather than receiving payment primarily for individual services.
That approach could change AI’s financial incentives. Under traditional fee-for-service medicine, technology that discovers another billable diagnosis can generate additional revenue. Under outcome-oriented arrangements, AI that prevents hospitalization, eliminates duplicate testing or detects disease earlier can instead generate savings.
The potential is substantial, but savings are hardly automatic. Government and industry will have to demonstrate that AI improves outcomes rather than merely producing more sophisticated billing. American healthcare does not need technology that simply automates bureaucracy faster; it needs technology that reduces bureaucracy while helping physicians deliver better care at lower cost.
Sources
- https://www.theepochtimes.com/us/ai-will-increase-healthcare-costs-short-term-produce-future-savings-dr-oz-6094912
- https://www.healthcaredive.com/news/ai-will-inflate-healthcare-costs-before-lowering-them-oz-says/831277/
- https://www.hcinnovationgroup.com/analytics-ai/article/55407376/cms-administrator-mehmet-oz-discusses-ai-prior-authorization-and-innovation
- https://www.cms.gov/priorities/innovation/innovation-models/wiser
- https://www.cbsnews.com/news/mehmet-oz-cms-administrator-face-the-nation-transcript-08-23-2026/