Medicare Tests Algorithms to Streamline Prior Authorization

Medicare is set to bring artificial intelligence (AI) into the core of its decision-making, testing whether algorithms can determine which treatments get covered in the nation’s largest public health program.

Starting in 2026, a federal pilot will examine if AI can speed up prior authorization and cut waste, a move that could redefine how millions of Americans experience access to care.

The initiative, known as the Wasteful and Inappropriate Service Reduction model, will launch in six states and apply to 17 outpatient procedures. Centers for Medicare and Medicaid Services (CMS) says AI will help flag requests, while clinicians retain the final say on denials. Supporters see the program as a way to cut unnecessary spending and reduce the 13 hours per week doctors devote to authorization paperwork. Critics, led by the American Medical Association, warn that AI is already linked to higher denial rates and harmful delays. The states in the pilot will be Arizona, Ohio, Oklahoma, New Jersey, Texas and Washington.

AI Moves From Private to Public Insurance

Private health plans already use algorithmic tools to automate prior authorization; the approval doctors must secure before patients can receive certain treatments or procedures. By adopting similar tools, Medicare is signaling that AI will become a baseline mechanism for managing coverage. With more than 67 million beneficiaries expected by the end of the decade, Medicare’s experiment could establish new norms for how care decisions are mediated across the U.S. healthcare system.

The CMS says the pilot is aimed at eliminating waste. Billions of dollars are spent each year on services with limited medical benefit, from redundant imaging to procedures with little evidence of effectiveness. According to the AMA, physicians complete an average of 39 prior authorizations each week, consuming more than 13 hours of staff time. Nearly 9 in 10 doctors report the process contributes to burnout, and more than a third say they hire staff solely to manage approvals. If AI can screen out predictable cases quickly, human reviewers can devote time to more complex requests.

PYMNTS reports that Oracle Health is deploying AI tools to reduce administrative complexity in the U.S. healthcare sector, including claims, prior authorization and eligibility workflows. Cyrus Nikou, founder and managing partner at Atar Capital, noted that beyond prior authorization, AI could transform care coordination, outcome prediction, personalized treatment planning, operational efficiencies such as scheduling, and patient engagement.

Physicians Sound the Alarm

Doctors still remain skeptical that efficiency will outweigh risks. The AMA survey found that 61% of physicians believe payers’ use of AI has increased denial rates; 93% say prior authorization has delayed necessary care, and 29% report serious adverse events such as hospitalization or permanent harm.

Insurers’ algorithms are typically proprietary, leaving doctors and patients in the dark about why requests are denied. Meanwhile, major insurers say they’ll modernize prior authorization. The Wall Street Journal reported that health plans have pledged to standardize electronic submissions by 2027 and deliver real-time responses for most requests.

Alfred Olivares, global managing partner of Healthcare and Life Sciences at HTEC, cautioned that despite advances in AI, adoption remains inconsistent because stakeholders are still navigating trust, usability and long-term value. He warned that when tools are not embedded into workflows or aligned with clinical priorities, they generate “noise” instead of clarity, and the goal should be seamless systems and better outcomes.