North Carolina Bill Targets AI-Driven Medical Billing Inflation

North Carolina moves to restrict AI in healthcare billing

North Carolina lawmakers are advancing legislation that would prohibit artificial intelligence systems designed to inflate medical billing codes, marking one of the first state-level attempts to regulate AI's role in healthcare reimbursement.

Senator Amy Galey introduced the amended House Bill 565 to the Senate Health Committee on Wednesday, focusing specifically on AI systems that maximize billing rather than the transcription tools many physicians already use for clinical documentation. The bill would ban software developers from creating or training AI systems that "promote, incentivize or result in upcoding"—the practice of selecting higher billing codes than medical services warrant.

According to NC Newsline, which first reported the committee hearing, Galey warned that manipulated coding algorithms could drive up costs at a time when the state faces a billion-dollar Medicaid rebase. "If we don't get a handle on controlling these costs that are generated by a computer billing system which has an inherent bias in favor of higher bills, then we're just not going to be able to afford it," Galey told the committee.

Why it matters

This legislation represents an early regulatory response to AI's expanding role in healthcare administration, where automated systems increasingly handle functions that directly affect patient costs and insurer payments. As AI tools move beyond documentation into diagnosis, prescription, and billing decisions, states face pressure to establish guardrails before widespread adoption makes oversight more difficult. The debate also highlights tensions between cost control imperatives and concerns about regulatory overreach that could stifle beneficial AI applications.

Enforcement questions divide lawmakers

The bill's requirement that doctors submit annual AI compliance attestations to the state attorney general drew criticism from Senator Gale Adcock, a family nurse practitioner. She questioned why new reporting mechanisms were necessary when existing Medicaid provider agreements already prohibit fraudulent billing practices.

Senator Julie Mayfield raised concerns about whether the legislation adequately distinguished between intentional manipulation and unintentional coding errors, asking if developers could face penalties for accidental outcomes.

Healthcare providers expressed worry that the bill's language could expose physician judgment to legal challenges. Ryan Blackledge of Cone Health said the upcoding provisions need refinement to ensure professional medical decisions aren't treated as unfair trade practices. Galey countered that the bill targets computer code design, not clinical judgment.

Broader AI transformation in healthcare

Senate Health Committee Chairman Jim Burgin, who serves on a national AI healthcare task force, described the technology's rapid advancement during recent meetings with major medical associations and insurers. He predicted patients will soon interact with AI bots as their first point of contact with Medicare and Medicaid.

"There are companies developing technology that not only scribes, it diagnoses, it prescribes, it does all of that," Burgin said, adding that human oversight is diminishing rather than expanding as AI capabilities accelerate.

Senator Gladys Robinson noted that her local hospital system uses AI only for documentation, not billing optimization, and questioned whether the legislation unfairly targets healthcare providers.

Despite objections from Adcock, who argued the bill rests on a "dangerous premise" that providers intentionally overbill, House Bill 565 advanced on a voice vote. The legislation now moves to the Senate Judiciary Committee for further consideration.

Details of the committee hearing were reported by NC Newsline.