By Joseph L. Rivet, Esq. | August 11th, 2025 |

A Legal Showdown Over the Use of AI in Health Insurance Claims

In a high-stakes legal dispute, AdventHealth Shawnee Mission (Advent) has filed a lawsuit against Blue Cross and Blue Shield of Kansas City (BCBSKC), accusing the insurer of unlawfully reducing payments for hospital services using what the hospital calls “secretive and unethical” AI-driven audits. The case, filed in the Circuit Court of Jackson County, Missouri, seeks over $2 million in damages and injunctive relief.

A copy of the lawsuit filing is available here: Microsoft Word – Circuit Court Petition 4898-0622-2402 v.10.docx.

Nature of the Case

The lawsuit challenging BCBSKC’s clinical validation audit scheme that allegedly wrongfully reduces payments to Advent for hospital inpatient services. BCBSKC and its agents reject medical diagnoses of Advent’s physicians, deem them clinically invalid under undisclosed criteria, and use this process to deny, recoup, or offset millions of dollars rightfully owed to Advent.

At the heart of the complaint is BCBSKC’s use of clinical validation audits—a review process that allegedly invalidates diagnoses made by Advent’s licensed physicians using undisclosed criteria. Advent claims that these audits, conducted by third-party vendors Cotiviti and Apixio (now Machinify), override doctors’ medical judgments, leading to reduced Diagnosis-Related Group (DRG) payments.

BCBSKC, according to the complaint, systematically denied or recouped payments for hospital stays by asserting that certain documented conditions—especially those increasing reimbursement levels, such as major comorbidities and complications (MCCs)—were not “clinically valid.”

AI in the Crosshairs

A notable and troubling detail is the role of artificial intelligence. Apixio, BCBSKC’s current audit vendor, markets its services as “AI-as-a-Service,” boasting that it can conduct complex chart reviews in under 20 minutes. According to Advent, the AI-led process denies appeals almost instantly—often with no indication of human involvement or consideration of the hospital’s responses.

Apixio claims that 60% of inpatient stays it reviews contain clinically invalid diagnoses—a figure Advent argues is used to unjustly deny payment. Even worse, the hospital alleges that these decisions are often based on outdated or misrepresented clinical literature and that BCBSKC has refused to disclose the criteria behind its decisions.

Legal Arguments

BCBSKC’s clinical validation audits constitute unauthorized practice of medicine by allowing non-physicians to invalidate diagnoses made by licensed physicians. The audits violate Missouri law (RSMo § 334.010) and Kansas law (K.S.A. § 65-28,133) regarding practice of medicine. BCBSKC also violated RSMo § 376.384 by requesting refunds more than 12 months after payment.

This case is likely to draw national attention as it delves into the intersection of AI, healthcare, and insurance. If successful, Advent’s lawsuit could set a legal precedent on the limits of AI in clinical decision-making—and on how far insurers can go in challenging physician diagnoses for financial gain.