AI Could Cure Healthcare Sector’s $500 Billion Administrative Problem

Artificial intelligence (AI), when applied correctly and responsibly, has the potential to transform industries.

After all, wherever there exist rote and repetitive administrative tasks, there exists the opportunity for algorithmic rigor to unlock new efficiencies.

And in the intricate world of healthcare, where hospital systems face the perpetual challenge of maintaining revenue integrity while ensuring the highest quality of patient care, AI can help streamline and overcome long-standing bottlenecks — particularly within hospital billing processes, where the burgeoning complexity of medical services and the corresponding administrative tasks necessitate innovative solutions.

“At the end of the day, a hospital is responsible for generating a receipt for the care that they provided … and in healthcare, as you might expect, this is an incredibly complex process,” Dr. Michael Gao, co-founder and CEO of SmarterDx, told PYMNTS for the “AI Effect” Series.

This complexity translates into substantial administrative costs, estimated at $500 billion annually in the U.S. alone, Gao said.

That’s because traditional billing process with hospital systems involves a myriad of healthcare personnel, including nurses and medical coders, whose sole task is to verify and convert clinical notes into billing codes.

But by using AI, hospitals can “make sure that their receipts are accurate, that they have everything they should have and they don’t have anything they shouldn’t have,” said Gao, noting that AI solutions are able to take the data around clinical care and match it against financial data to ensure that hospitals “achieve 100% accuracy on 100% of charts.”

Leveraging AI to Transform Hospitals

The hospital billing process is notoriously convoluted and costly and has been for years.

The potential of AI in healthcare administration extends beyond mere efficiency. The technology’s ability to process and analyze vast amounts of data can identify discrepancies that might otherwise go unnoticed, ensuring hospitals receive appropriate compensation for the services rendered.

This, in turn, can significantly bolster the financial health of hospitals, which operate on thin margins. The average hospital has a 1.6% operating margin, Gao said, meaning even minor inaccuracies in billing can lead to substantial financial strain — and prevent hospitals from investing back into their operations.

Gao’s own experience at New York Presbyterian highlighted the inefficiencies of the incumbent hospital billing processes, while underscoring how much of a physician’s time was spent covering administrative and financial elements.

“Everybody knows when they go to a physician you have a pretty good chance that the doctor is spending their whole time looking at the computer screen instead of talking to the patient. And it turns out that a lot of why they’re doing that is to jot down notes about not just the care they’re providing and how they’re thinking about that care, but also jotting down the administrative details that are important for this financial aspect later on,” he said, noting that a single patient can generate up to 30,000 data points.

“What we realized is that we could take a lot of the work that these individuals were doing in terms of looking through chart data, the medications, the labs, the orders, the vital signs, so on and so forth, and create a tool that would help hospital staff perform that work more accurately and faster,” Gao added.

Clinical-Grade Governance

Still, despite the transformative potential of AI, its applications in healthcare must be approached responsibly and with caution.

As Gao explained, current AI models are nondeterministic, meaning their outputs are not always predictable. This unpredictability necessitates human oversight, especially when dealing with patient care. SmarterDx worked to mitigate this risk by focusing its AI on administrative tasks where errors are correctable, and by ensuring that human supervisors review AI-generated recommendations.

Looking ahead, Gao envisions a future where doctors are freed from administrative burdens, allowing them to concentrate on patient care.

“You want doctors to do what they’re meant to do — provide care — and let technology handle the administrative aspects,” he said. This paradigm shift not only enhances the quality of care but also improves job satisfaction for healthcare providers.

A recent $50 million funding round positions SmarterDx to scale its operations and meet the growing demand for its solutions by facilitating the deployment of their clinical AI tools across more healthcare systems, while also enabling further advancements in their technology.

And as AI continues to evolve, the healthcare industry must remain agile and ready to adopt new technologies. As Gao emphasized, rapid advancements in AI promise to bring about improvements in efficiency and accuracy, ultimately leading to better patient outcomes and more financially stable healthcare institutions.

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