The medical claims cost reduction startup Bluespine Inc. believes it has hit upon a viable solution to the problem of overbilling after raising $7.2 million in seed funding from Team8.

Bluespine says its artificial intelligence-powered platform can help employers and other healthcare insurance plan sponsors to reduce costs and protect themselves from “financial leakage” without skimping on the quality of healthcare provided.

The startup says medical overbilling is a big aspect of the $300 billion fraud, waste and abuse healthcare crisis. It’s also one of the main reasons why employer’s health-related expenses have increased by 14% on average in the past two years.

The challenge stems from errors in medical billing. According to Bluespine, up to 80% of all medical bills are estimated to contain some kind of error, which increases costs for employers. As such, there’s a desperate need for improvements in the way self-insured employers can identify, recover and prevent overbilled claims.

The solution, it would seem, involves automation and that’s why Bluespine is looking to AI. Its medical billing costs review platform uses a proprietary AI model that can analyze 100% of medical claims with extreme precision. To scan each claim, it relies on an evidence-based approach that incorporates concepts from the anti-fraud and cyber domains, leveraging multiple data sources including carrier billing guidelines and summary plan documents to ensure each review is tailored to the employer’s specific health plan and coverage terms.

The idea is that employers can use Bluespine to review every single claim they process to ensure no savings slip through the cracks. Its proprietary algorithm is designed to pinpoint any and all errors that creep into medical bills and go further by recovering unwarranted charges without interrupting members or benefits.

Traditional, manual auditing methods are unable to catch these errors, as it’s only possible to review about 1% of high-cost claims because of the enormous workload involved, Bluespine adds.

Co-founder and Chief Executive David Talinovsky said his company has the potential to transform the way self-insured employers manage their healthcare costs. “Our goal is to fundamentally transform how companies approach healthcare benefits, leading to better outcomes and reduced costs for self-insured employers and employees,” he said.

The savings Bluespine says it can generate appear quite significant. In a case study involving a midsized employer that provides healthcare plans to more than 12,000 workers, Bluespine said its software helped to analyze more than 130,000 claims valued at more than $43 million to check for coding errors, and found that 9% of that value, or $3.9 million, was erroneous.

Bluespine says its product has already gotten the attention of a large number of employers in the U.S., including the insurer DavidShield Insurance Company Ltd. and the toy manufacturer Mattel Inc. In addition, it’s partnering with medical insurance brokers such as Alliant Insurance Services Inc. to enhance its service offerings.

Team8 Managing Partner Rakefet Russak-Aminoach said solving the financial dimension of healthcare won’t fix everything that’s wrong with the industry, but it will result in efficiencies that can ultimately help to improve patient care.

“Bluespine is initially focused on helping self-insured employers reduce costs and improve employee well-being, but that’s just the tip of the iceberg,” he said. “With hundreds of billions lost to medical overbilling across sectors, we see a tremendous opportunity for Bluespine to transform the market.”

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