Health insurers can't rely on AI to decide Medicare coverage, according to new federal guidelines

Patients under Medicare Advantage (MA) plans have more protection from the threat of AI-related bias, according to new rules from the Centers for Medicare and Medicaid Services (CMS), the federal agency tasked with overseeing Medicare, Medicaid, the Children's Health Insurance Program, and the Health Insurance Marketplace.

In a policy memo sent to insurers on Feb. 6, the CMS prohibits health insurance companies from relying entirely on any AI or algorithmic systems to determine patient care or coverage, or to shift coverage criteria over time. The agency defined AI as "a machine-based system that can, for a given set of human-defined objectives, make predictions, recommendations, or decisions influencing real or virtual environments," and warns insurers against using an "algorithm that determines coverage based on a larger data set, instead of the individual patient's medical history, the physician’s recommendations, or clinical notes."

In November, two patients filed a lawsuit against the health insurance provider Humana, alleging that its use of an AI model (known as nH Predict) to determine care was fraudulent and overrode physician recommendations and disproportionately harmed elderly beneficiaries. The patients were covered under the Medicare Advantage Plan. A similar lawsuit involving the same AI model was issued against the UnitedHealth insurance group.

"An algorithm or software tool can be used to assist Medicare Advantage plans in making coverage determinations," explained the agency in the recent memo, "but it is the responsibility of the MA organization to ensure that the algorithm or artificial intelligence complies with all applicable rules for how coverage determinations by MA organizations are made." Further, "for inpatient admissions, algorithms or artificial intelligence alone cannot be used as the basis to deny admission or downgrade to an observation stay; the patient’s individual circumstances must be considered."

Medicare Advantage is an additional federal insurance option that allows contracted, Medicare-approved private companies to provide health insurance benefits to individuals who qualify for Medicare.

In Nov. 2023, members of the House of Representatives issued an open letter to the CMS asking the agency to monitor the use of AI and algorithms in guiding coverage Medicare Advantage decisions, citing continued issues with prior authorization reporting under Medicare. The letter argues that the use of AI and algorithmic software has exacerbated these problems.

"Medicare Advantage plans are entrusted with providing medically necessary care to their enrollees. While CMS has recently made considerable strides in ensuring that this happens, more work is needed with respect to reining in inappropriate use of prior authorization by MA plans, particularly when using AI / algorithmic software," the House members wrote. 

Medical and insurance associations have explored the potential of AI across the industry, including enhanced AI-powered tools that can help patients find and purchase health care plans, predict patient health outcomes for Medicare beneficiaries, and fast track payment and services. But concerns about unavoidable bias and inconsistency have led many observers to call for more scrutiny.

"Furthermore, we are concerned that algorithms and many new artificial intelligence technologies can exacerbate discrimination and bias," the CMS wrote in its memo. "We remind Medical Advantage organizations of the nondiscrimination requirements of Section 1557 of the Affordable Care Act, which prohibits discrimination on the basis of race, color, national origin, sex, age, or disability in certain health programs and activities. Medicare Advantage organizations should, prior to implementing an algorithm or software tool, ensure that the tool is not perpetuating or exacerbating existing bias, or introducing new biases."