UBS dissects the benefits of medical AI: AI is difficult to become a moat for insurance companies, hospitals become the biggest winners.

UBS Group AG recently released a report pointing out that Artificial Intelligence (AI) is gradually becoming the underlying core technology in the healthcare sector, but the biggest beneficiaries of this technological revolution are not health insurance companies. Instead, hospitals are expected to build a more stable long-term competitive advantage by leveraging AI. With the help of AI technology, hospitals can optimize operational processes, reduce labor costs, and explore more revenue opportunities in the increasingly complex medical insurance settlement system. Analyst A.J. Rice stated that AI is rapidly becoming the core operational infrastructure of the healthcare industry, automating administrative work, optimizing clinical diagnosis and treatment processes, and breaking down communication barriers between patients, healthcare institutions, and payers. While the operational efficiency of health insurance providers will also see a significant improvement, the report believes that these efficiency gains will eventually become widespread within the industry, making it difficult to create long-term competitive differentiation. Insurance organizations: Efficiency gains will eventually be offset by industry competition Several health insurance companies, such as UnitedHealth Group Incorporated (UNH.US), Elevance Health (ELV.US), Humana (HUM.US), Cigna (CI.US), and Centene Corporation (CNC.US), have already implemented AI in claims processing, pre-authorization, risk control, anti-fraud measures, and customer service. UBS Group AG mentioned that while these applications can reduce administrative costs and enhance user experience, their general-purpose nature makes them easily replicable by competitors. Rice believes that AI will only raise the efficiency baseline of the health insurance industry, rather than creating lasting competitive barriers for companies. The report stated, "Most administrative AI applications such as call center automation, claims processing, and pre-approval for health insurance have high replicability." The benefits brought about by cost reductions from technology will eventually be diluted through price reductions, upgraded service guarantees, and additional user support services in the industry competition. UnitedHealth Group Incorporated's Optum business may be one of the few exceptions. Leveraging its data analytics subsidiary Optum Insight, UnitedHealth Group Incorporated can offer revenue management and claims processing systems based on AI to external parties, paving the way for additional revenue channels outside of internal cost reductions. The report also points out that insurance and healthcare integrated models like UnitedHealth Group Incorporated/Optum and Humana/CenterWell have unique advantages: companies can integrate AI technology across both insurance operations and clinical services, further amplifying operational efficiency and accumulating more comprehensive, continuous patient data. Hospital Sector: Opportunity to establish long-term competitive advantage The development trends in the hospital sector are markedly different. Large for-profit medical institutions such as HCA Healthcare (HCA.US), Tenet (THC.US), and Universal Health Services (UHS.US) have already implemented AI in revenue management, claim rejections, staff deployment, and clinical documentation. UBS Group AG predicts that these institutions will continue to lead many non-profit hospitals in the coming years the latter are often constrained by budget restrictions, lengthy decision-making processes, and a generally slower pace of new technology adoption. Rice wrote in the report, "The U.S. healthcare system is primarily non-profit hospitals, and due to factors such as funding shortages and complex internal governance, these institutions generally lag behind in the adoption of technology." The gap in industry adoption rates will continue to widen, allowing hospitals that have already implemented AI to maintain a significant lead in operational performance and financial results over non-adopters. The report cited several practical examples: HCA Healthcare uses large language models to organize medical records and write appeal letters, reducing administrative work for healthcare workers and increasing the success rate of insurance claim appeals. Universal Health Services has launched the intelligent coding platform, SmarterDx, which comprehensively reviews all patient records (rather than traditional sampling audits). According to the company's estimates, this AI system helps the organization recover approximately $50 million in overlooked medical fees each year, resulting in increased revenue. Labor cost reduction is a key breakthrough in AI cost savings Labor costs account for over half of hospital expenses and are a key area where AI can add value. HCA Healthcare, in collaboration with Palantir (PLTR.US), has developed the workforce scheduling platform, Timpani, which uses predictive analytics to anticipate patient flow and enable intelligent employee scheduling. The company is also testing an AI nurse handover system in partnership with Alphabet Inc. Class C(GOOGL.US), which automatically consolidates patient information during shift changes. UBS Group AG stated that for large medical institutions with tens of thousands of healthcare workers, even a slight improvement in operational efficiency can result in significant financial gains. Expansion into other areas: Post-acute care, home healthcare, and other pathways for AI deployment The report also mentioned that AI technology is gradually permeating into areas such as rehabilitation care, dialysis services, workforce outsourcing, and home healthcare. Companies like DaVita (DVA.US), Encompass Health (EHC.US), BrightSpring (BTSG.US), and Option Care (OPCH.US) are using AI for trend forecasting, patient operations, scheduling management, collaborative diagnosis and treatment, and administrative automation. However, UBS Group AG believes that in the short term, leading companies in scale will continue to enjoy the major economic benefits of AI only large organizations have the scale, data reserves, and financial strength to fully implement AI. Investor perspective For investors, the core conclusion from UBS Group AG is that AI is expected to enhance the profitability of most sectors in the healthcare industry, but the degree of benefit varies by industry segment. While health insurance companies may benefit from reduced administrative costs, competitive pressures may weaken their ability to retain earnings. Hospitals, especially those that are quick to act and heavily invested large for-profit operators, may enjoy a longer window of opportunity for profit expansion and differentiation competition as AI becomes more pervasive in the industry.