Paxton Launches Investigation Into Blue Cross Blue Shield Over Alleged Delays and Denials of Urgent Care as AI Healthcare “Arms Race” Drives Costs Higher

Texas Attorney General Ken Paxton announced Monday that his office has launched an investigation into Blue Cross Blue Shield of Texas over allegations that the insurer denied or delayed urgent and medically necessary care, as a separate national debate intensifies over the use of artificial intelligence by both hospitals and insurance companies.

According to the Texas Attorney General’s Office, the investigation covers Blue Cross Blue Shield of Texas, its parent company Health Care Service Corporation, and related entities. Investigators are examining the companies’ claim-review procedures and prior-authorization requirements.

Paxton’s office said it had received reports alleging that medically necessary or urgent procedures were delayed or denied.

In one particularly serious allegation, the Attorney General’s Office said a newborn needed urgent treatment and a transfer to another medical facility, but administrative denials and potentially improper utilization-review procedures allegedly delayed approval.

“Blue Cross Blue Shield has a responsibility to put patients before profits and ensure that Texans receive the care they need,” said Attorney General Paxton.

“When a newborn baby or any other Texan urgently needs medical treatment, an insurance company’s priority should be helping provide that care to the best of its ability—not searching for ways to delay or deny it. I will wage a relentless legal battle against any insurance company that fails to protect health and safety of Texans.”

Paxton also announced the investigation on X:

BREAKING: I am investigating Blue Cross Blue Shield insurance company over denials and delays of urgent and medically necessary care. pic.twitter.com/6826b3Pnpr

— Attorney General Ken Paxton (@KenPaxtonTX) September 28, 2026

The Texas investigation comes just days after the Blue Cross Blue Shield Association released its own analysis raising concerns about an entirely different side of the healthcare payment system: hospitals using artificial intelligence to identify additional billable diagnoses.

According to Blue Cross Blue Shield Association’s September 24 analysis, increasing coding intensity was associated with an estimated $942 million in additional spending for Blue Cross companies between 2023 and 2025. Roughly $653 million was linked to secondary diagnoses that moved patients into higher-reimbursement categories.

BCBSA said more than 60% of hospital systems now use AI-enabled technology capable of scanning laboratory results, medical records and clinical documentation for secondary diagnoses.

The association’s analysis found that the percentage of inpatient cases categorized as medically complex increased from roughly 37% in early 2023 to 40% by the end of 2025.

At the same time, BCBSA said it found no corresponding increase in treatment that would indicate patients were actually receiving substantially more complex care.

Luke Chalker, BCBSA’s senior vice president of product and data science, summarized the group’s conclusion:

“AI is identifying more billable conditions, not sicker patients.”

But the AI fight cuts both ways.

Healthcare industry reporting indicates that insurers are also deploying artificial intelligence to scrutinize medical charts and challenge claims.

McLaren Health Care’s chief financial officer recently said insurers use AI to scan records for claims they can deny while hospitals examine those same records to maximize reimbursement.

“All the insurers are using A.I. to scan our charts to look for claims to deny. For the same reason, we’re looking at the same charts today,” Dave Mazurkiewicz, the CFO of McLaren Health Care, told the NY Times.

That developing technological arms race has created a striking dynamic: hospitals can deploy algorithms to identify diagnoses that generate higher reimbursement, while insurers can use their own automated tools to challenge whether those claims should be paid.

Hedgie Markets summarized the controversy on X, arguing that patients ultimately bear the financial consequences through premiums and other healthcare costs.

Florida Gov. Ron DeSantis also weighed in, according to the statement provided for this report:

“Both Big Hospitals and Big Insurance are using AI tools to either seek more reimbursements or to deny more claims. The result: AI providers make a lot of money, individuals pay higher premiums and have more denials, and nobody gets healthier.”

BCBSA itself says its estimated $942 million increase ultimately puts upward pressure on premiums and out-of-pocket costs for families, employers and taxpayers.