1 in 4 digital health investment dollars going to AI

A quarter of all venture capital investments in the healthcare technology market are going to companies that are infusing artificial intelligence (AI) into their solutions, according to a new report by Silicon Valley Bank (SVB).

The bank, now a part of First Citizens Bank after its spectacular collapse in 2023, reports the US AI healthcare market is on track to receive $11.1 billion in investment in 2024, far exceeding the $7.2 billion invested in the segment in 2023.

Investors are now more than 2.5 times more likely to shower their funds on AI companies as compared to traditional tech companies as they try to get in on the ground floor of the next unicorn AI brand.

“Few sectors stand to benefit more [from AI] than life science and healthcare,” said Raysa Bousleiman, VP of Healthcare Venture Capital Relationship Management at SVB. “Advancements in AI are providing value in this industry from improvements in administrative efficiency to patient outcomes and drug discovery.”

“The current and future impact AI will have on the patient journey has the potential to not only lower costs, but also improve patient outcomes. While companies may face challenges to adapt to an AI-enabled future, we have never been more optimistic about the innovations we see on the horizon.”

The report notes that clinical and administrative use cases are top of mind for investors, with administrative solutions accounting for 27% of AI-related investment and 42% of the deal volume in 2024, so far.

Clinical tools are similarly sought-after by investors, but the increased regulatory scrutiny around patient-facing products may mean a longer maturity curve and a slower return on investment.

Nevertheless, investors seem confident that the latest crop of AI-focused companies can adequately meet the growing demands for automation in both the back office and at the bedside.

Healthcare leaders are increasingly enthusiastic about the opportunities for AI automation, finds a new report released this week by Philips, which includes survey data from more than 3000 global healthcare leaders.

84% said that AI-driven automation would help to save valuable time for clinicians by reducing their day-to-day administrative burdens, while 88% think AI can reduce the pain of their workforce shortages.

Large majorities have already implemented AI automation in key areas or are planning to do so within the next three years, including 69% investing in workflow prioritization, 80% in billion processes, and 75% in clinical data entry and/or clinical documentation.

Preventive care, remote patient monitoring, and treatment planning are high priority areas for investment over the next three years as organizations seek to bridge the gaps between administrative automation and the clinical environment.

While a significant number of participants expressed concerns about ensuring that their new AI algorithms are fair and unbiased (79%), they seem to be actively implementing strategies to reduce the potential for patient safety issues or widening disparities.

Respondents cited strategies such as continuous training and education, strong governance policies, and ongoing bias detection and monitoring as viable ways to reduce the risks.

Investors should take note of these widespread concerns and ensure they are doing their due diligence around these issues before shelling out money to companies that may fall short of the high ethical and efficacy expectations of end-users.

Venture capitalists will also have to have a firm idea of how these fledgling AI companies are going to make their money in a complex reimbursement environment. While payers have been among the first to adopt AI algorithms to drive internal administrative efficiencies, they have been slower to offer reimbursement for activities on the clinical side that rely on AI tools, notes the SVB report.

Companies may have a difficult time justifying their value to payers in an increasingly crowded AI environment, especially in relatively new areas like patient diagnostic tests, the report points out.

“We believe the short-term path forward is for companies to understand who is writing the check and where payers define value. Demonstrating the cost savings for payers may help companies get the revenue to justify costs until payers broaden their perspective on paying for diagnostics,” SVB says.

With so many billions of dollars at stake, investors will need to develop a keen eye for companies that have cracked the code on trust, transparency, value, and a pathway for getting paid if they wish to see an adequate return on such large investments.

Jennifer Bresnick is a journalist and freelance content creator with a decade of experience in the health IT industry.  Her work has focused on leveraging innovative technology tools to create value, improve health equity, and achieve the promises of the learning health system.  She can be reached at jennifer@inklesscreative.com.