Can AI Reduce Healthcare Administrative Costs?

By Rasit Dinc

The healthcare industry is grappling with soaring administrative costs, which account for a significant portion of total healthcare spending. In the United States alone, administrative costs are estimated to be around $353 billion annually [1]. This enormous financial burden is driven by a complex web of factors, including inefficient workflows, manual processes, and a lack of interoperability between different systems. However, the advent of artificial intelligence (AI) presents a transformative opportunity to streamline administrative tasks, reduce costs, and improve the overall efficiency of healthcare delivery.

One of the most promising applications of AI in healthcare administration is the automation of repetitive tasks. AI-powered solutions can automate a wide range of administrative processes, from medical billing and coding to claims management and prior authorization. For instance, natural language processing (NLP) algorithms can analyze clinical documentation and automatically assign the appropriate medical codes, reducing the need for manual coding and minimizing errors. This not only saves time and resources but also improves the accuracy of billing and reimbursement. Digital scribes, another AI-powered tool, can listen to patient-physician conversations and automatically generate clinical notes, freeing up physicians from the burden of documentation and allowing them to focus more on patient care [2].

Moreover, AI can play a crucial role in optimizing scheduling and resource allocation. Machine learning models can analyze historical data to predict patient demand and optimize appointment scheduling, ensuring that resources are utilized effectively and wait times are minimized. This can lead to significant cost savings by reducing no-shows and improving patient flow. By analyzing vast amounts of data, AI can also help to identify high-risk patients in need of preventive care, allowing for early interventions that can prevent costly hospitalizations and treatments down the line [3].

Another area where AI can make a significant impact is in reducing the burden of prior authorizations. The prior authorization process is a major source of administrative waste and can lead to delays in patient care. AI-powered solutions can automate the prior authorization process by extracting relevant information from electronic health records (EHRs) and submitting it to payers in a standardized format. This can significantly reduce the time and effort required to obtain prior authorizations, freeing up healthcare professionals to focus on patient care.

AI is also transforming how healthcare professionals manage their inboxes and communicate with patients. The electronic inbox has become an overwhelming aspect of medical practice, with clinicians spending a significant amount of time responding to messages. AI-powered tools can help to categorize, prioritize, and even draft responses to patient inquiries, reducing the administrative burden on clinicians and improving response times [2].

In addition to these specific applications, AI can also be used to identify and prevent fraud, waste, and abuse. Machine learning algorithms can analyze large datasets of claims data to identify patterns and anomalies that may be indicative of fraudulent activity. This can help to reduce financial losses and ensure that healthcare resources are used appropriately.

The potential of AI to reduce healthcare administrative costs is vast. By automating repetitive tasks, optimizing workflows, and improving the accuracy of data, AI can help to create a more efficient and sustainable healthcare system. However, it is important to note that the successful implementation of AI in healthcare requires careful planning and consideration of ethical and legal issues. It is also essential to ensure that AI-powered solutions are developed and implemented in a way that is transparent, fair, and equitable.

In conclusion, AI has the potential to be a powerful tool for reducing healthcare administrative costs and improving the efficiency of healthcare delivery. By embracing AI-powered solutions, healthcare organizations can free up valuable resources, reduce the burden on healthcare professionals, and ultimately, improve the quality of care for patients.

References

[1] Lavoie-Gagne, O., Woo, J. J., Williams III, R. J., Nwachukwu, B. U., Kunze, K. N., & Ramkumar, P. N. (2025). Artificial Intelligence as a Tool to Mitigate Administrative Burden, Optimize Billing, Reduce Insurance- and Credentialing-Related Expenses, and Improve Quality Assurance Within Health Care Systems. Arthroscopy: The Journal of Arthroscopic & Related Surgery, 41(8), 3270-3275. https://doi.org/10.1016/j.arthro.2025.02.038

[2] Pavuluri, S., Sangal, R., Sather, J., & Taylor, R. A. (2024). Balancing act: the complex role of artificial intelligence in addressing burnout and healthcare workforce dynamics. BMJ Health & Care Informatics, 31(1), e101120. https://doi.org/10.1136/bmjhci-2024-101120

[3] PwC. (2025, March 4). How can AI make healthcare more affordable. PwC. https://www.pwc.com/us/en/industries/health-industries/library/ai-healthcare-affordability.html