An analysis of venture capital deals quantifies the hype that artificial intelligence has received in the last three years.
Venture capital firm Flare Capital analyzed healthcare AI venture capital deals from 2014 to 2023 — more than 4,000 in total — to better understand the investment landscape. The firm looked at different categories of AI startups seeking to attract health system, insurer and life sciences customers. Flare has invested in companies such as clinically focused SmarterDx and documentation company Suki.
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Flare also examined what parts of the AI category have been adopted and scaled by many organizations and what functions are largely in the pilot phase. The aim is to help buyers and developers make better decisions when building solutions, said Parth Desai, Flare Capital partner.
“We did research because we were thinking, ‘Where is AI immature? Where is it more mature?’ and ‘Where does it have the greatest potential to create value?’ The end result was this, which we're hoping is going to be a road map for enterprise buyers and also builders that want to target different areas of these enterprises to build new AI companies,” Desai said.
Here are five takeaways from the analysis.
1. Funding has jumped
Of the $60 billion invested by venture capital firms into healthcare AI companies since 2014, more than half has come since 2021 and 70% in the last five years. The increase is due to favorable capital market dynamics, advances in AI and increasing technology needs fueled by the COVID-19 pandemic.
2. Clinical care startups receive most of the money
There were 324 clinical care AI startups that raised $11.5 billion — the most of any category examined.
Most health systems continue to pilot clinical AI in various areas of the hospital other than for imaging, which is widely used within radiology to help detect and diagnoses diseases.
“The data tells us that investors haven’t been scared away,” Desai said. “They continue to be enthusiastic about it.”
3. Financial-focused AI is a more mature space.
After clinical care AI, funding was led by 86 financial-focused companies that raised $6.1 billion and 255 patient engagement-focused companies that received $3.1 billion. Companies that can automate revenue cycle management operate in a more mature space and represent short-term budget priorities for health systems, the analysis said.
In patient engagement, a lot of wearable companies have not raised later-stage funding rounds. That inactivity, along with slow adoption among health system buyers, is potential proof that the technology is better as a feature for a broader clinical care product than as a standalone company, Desai said.
4. Care management dominates health plan AI funding
From 2014 through 2023, AI startups selling to health plans received $13.4 billion in investments. Most of the companies have been focused on care management tasks such as utilization management and prior authorization. There have been 61 care management companies that have received $9.5 billion.
5. Claims processing lags behind
Only 13 companies that help payers automate claims processing received funding of $150 million in the past decade.
“Claims operations mirrors the provider’s revenue cycle management process very closely,” Desai said. “There are a lot of basic, research-based workflows where you're looking up like a coverage or a benefit policy, or you're looking at some piece of clinical literature to validate a clinical decision. Those are all steps and activities that lend themselves incredibly well to AI and especially to large language models.”
Many payers are developing these capabilities internally, which may explain why there aren’t a lot of standalone companies, Desai said.
