Kansas Hospital Sues Blue KC Over AI-Driven Claims Denials

MERRIAM, Kan. — Advent Health Shawnee Mission Hospital has filed a lawsuit against Blue Cross and Blue Shield of Kansas City, accusing the insurer of using artificial intelligence to wrongfully deny payment for medically necessary care. The hospital alleges that Blue KC’s automated system, which uses AI software to validate diagnoses, improperly overrode physician decisions and withheld more than $2 million in payments.

Filed in the U.S. District Court for the Western District of Missouri, the complaint claims the insurer used technology developed by Apixio to review claims and reject hundreds of diagnoses made by hospital doctors. The hospital argues that this system violates their contractual agreement as well as state and federal regulations.

AI at the Center of Controversy

According to the lawsuit, Blue KC's technology deemed around 350 diagnoses as “clinically invalid and unsupported.” Advent Health says this review process is driven by artificial intelligence tools that ignore individual patient needs and medical judgment.

Apixio, which was previously owned by Centene from 2020 to 2023, markets its AI as capable of identifying a high rate of invalid diagnoses. One promotional claim highlighted in the lawsuit says 60% of hospital stays include clinically invalid diagnoses—an assertion Advent Health disputes.

The lawsuit criticizes the opacity of the AI’s decision-making process, arguing that it conceals how the system qualifies to override medical professionals’ diagnoses. It also claims that appeals submitted by the hospital are often rejected instantly, with no review by a human.

Past Recognition Turns Into Dispute

Shawnee Mission Hospital and Blue KC previously enjoyed a strong partnership. The hospital was once recognized by the insurer for excellence in areas such as cardiac care, maternity care, and joint replacement surgeries.

However, the current dispute suggests a sharp turn in that relationship. Advent Health says Blue KC’s denial of claims has financially harmed the hospital and undermined trust between medical providers and insurers.

Wider Concerns Over AI in Healthcare

The case reflects broader concerns in the healthcare industry about the use of artificial intelligence in insurance decisions. A March report from the American Medical Association found that over 60% of doctors believe unregulated AI tools are leading to systematic denials of necessary care. The Centers for Medicare and Medicaid Services also expressed concern in a 2023 memo, warning that AI could worsen discrimination and bias in the healthcare system.

Similar lawsuits have been filed against other insurers. UnitedHealth Group and Humana have faced legal action over alleged use of predictive models to deny patient care.

Apixio's assets were partially acquired earlier this year by Datavant and integrated with Machinify, another AI vendor. These companies have not yet commented on the lawsuit.

On the Record

“BCBSKC’s unlawful and unethical actions undermine the fundamental principle that healthcare decisions in America should be made by doctors,” the lawsuit states. “[Decisions] should not be made by auditors, accountants or artificial intelligence devices.”

The court’s decision could have far-reaching implications for how AI is used in health insurance claims across the country.