Health Tech Investment Finds Its Floor as AI and Value-Based Care Lead Next Wave

A market reset gives way to cautious momentum

In the Health Tech sector, Health tech investing is emerging from a hard reset. After the 2020–2021 surge, capital retreated in 2022 and 2023 as rates rose, public comps deflated, and late-stage valuations recalibrated. The result: leaner rounds, tighter diligence, and a renewed premium on profitability and evidence. While the exuberance is gone, the floor is higher than pre-pandemic levels and the pipeline of experienced repeat founders is deeper.

Analysts tracking the sector describe 2023 as a year of stabilization rather than freefall, with deal volume normalizing and dry powder still ample. Global digital health funding fell sharply from 2021’s peak but showed signs of bottoming out in 2023, according to industry reports. Early 2024 activity pointed to selective reopenings at the growth stage, particularly where unit economics are clear and enterprise demand is visible.

Where capital is concentrating: AI at the bedside, ops-tech in the back office

The term “AI” appears in a growing share of pitch decks, but capital is concentrating where the path to reimbursement or enterprise budgets is shortest. In clinical settings, imaging triage, ambient documentation, and decision support are gaining traction as buyers seek measurable productivity and safety gains. The regulatory signal is increasingly constructive: the FDA’s roster of AI/ML-enabled medical devices has grown steadily, giving investors more confidence in regulated software routes to market.

On the services and operations side, investment is flowing into care navigation, revenue-cycle automation, prior-authorization tools, and clinical trial enablement—areas where workflow savings can be quantified within a budgeting cycle. Virtual and hybrid care is also in a second act: the froth of undifferentiated telehealth has faded, replaced by specialty lines (behavioral health, musculoskeletal, cardiometabolic) tied to outcomes-based contracts. Utilization has settled at a durable baseline, and the long-term spend at risk remains large—US virtual care and near-virtual models could still put a meaningful share of ambulatory spend in play, McKinsey estimates.

A third hotspot is value-based care enablement. Payer–provider platforms that take on risk and lower total cost of care—through better primary care, home-based services, and analytics—continue to attract capital. Strategic buyers have validated the thesis by acquiring assets that extend capabilities across the patient journey, from referral management to in-home diagnostics.

Exits, valuations, and the path to liquidity

The IPO window remains selective, and the playbook has shifted toward efficient growth with clear gross margins and payback periods. Until public markets fully reopen, M&A is the principal path to liquidity. Strategics have been active: Amazon’s acquisition of One Medical for $3.9 billion and CVS’s purchases of Signify Health for roughly $8 billion and Oak Street Health for about $10.6 billion underscored the appetite for primary care and home-based risk platforms that can bend cost curves. Private equity is equally influential, with roll-ups and carve-outs targeting specialty services, revenue-cycle, and provider enablement software, Bain’s 2024 healthcare private equity report shows.

Valuations have reset to reward evidence over narrative. Companies with real-world outcomes, defensible data moats, and enterprise contracts are commanding premiums, while those reliant on direct-to-consumer marketing or undifferentiated telehealth are consolidating or refocusing. For founders, the math is unforgiving but clear: demonstrate unit-level profitability, move up-market into risk or shared-savings arrangements where appropriate, and build procurement cases that withstand CFO scrutiny.

The 12–18 month outlook: disciplined growth, evidence, and AI guardrails

Policy remains a critical swing factor. Temporary pandemic-era flexibilities have been extended, and Washington has signaled continued support for access and reimbursement of remote modalities. The current HHS guidance on Medicare telehealth policy changes points to an evolving framework that reduces friction for virtual-first models while maintaining guardrails on quality and fraud.

On the technology front, buyers are leaning into AI with a checklist: proven accuracy on local data, explainability that fits clinical workflows, and governance that aligns with regulator expectations. The FDA has offered clearer pathways for adaptive algorithms and keeps updating guidance for software as a medical device, which investors monitor closely via the agency’s AI/ML pages. As guardrails mature, procurement cycles should shorten for solutions tied to hard ROI—cutting documentation time, reducing readmissions, speeding trial enrollment, and automating denials management.

Most investors expect a measured recovery in deal activity as rates stabilize and strategic acquirers continue to reshape portfolios. The winners will pair clinical credibility with operating leverage: think AI-enhanced services that improve outcomes and reduce cost of care, platforms that enable risk-bearing providers, and infrastructure that connects the home, the clinic, and the cloud. For health tech, the story is no longer “grow at any cost”—it’s “prove it, price it, and scale it.”