Healthcare organizations are rapidly accelerating their use of artificial intelligence, with spending projected to reach $1.4 billion in 2025 roughly 2.2× faster growth than other industries.
Rapid Adoption Outpaces Other Industries
A new report from Menlo Ventures shows the healthcare sector is adopting AI at a much faster rate than most industries. Healthcare providers, payers, and startups are investing heavily, pushing AI from pilot projects into everyday operations.
In 2025, total AI spending in healthcare is expected to reach $1.4 billion, nearly triple the amount from 2024.
Providers Lead the Charge
Roughly 75% of AI investments in healthcare — about $1 billion — come from providers. The biggest spending areas include:
- Clinical documentation: ~$600 million
- Coding and billing automation: ~$450 million
Meanwhile, patient-engagement tools and prior-authorization systems have exploded in growth — up 20× and 10×, respectively, compared to last year.
Healthcare providers are also moving faster than ever, with adoption cycles now 18–22% quicker than before. Payers, however, remain more cautious.
Startups and Pharma Drive Innovation
Startups account for 85% of all healthcare AI spending, signaling a shift toward agile, specialized vendors. Yet established EHR (electronic health record) companies still maintain a foothold thanks to easy integrations and trusted reputations.
In the pharmaceutical and biotech sectors, about two-thirds of companies are now in experimental phases, developing proprietary AI systems for drug discovery, automation, and analytics.
Workflow Integration Is the Next Big Challenge
The challenge for most healthcare organizations isn’t building powerful AI models — it’s integrating them into complex medical workflows.
Menlo Ventures partner Derek Xiao explains:
They’re product and workflow problems… integrating AI into a busy hospital or embedding agents in wet-lab processes for drug discovery.
Why It Matters
- The healthcare sector’s rapid AI uptake signals a transformative moment: AI is shifting from experimental to operational scale.
- Because healthcare involves life-and-death workflows and regulatory complexity, how AI is adopted, integrated, and governed matters more than in many other industries.
- With billions flowing into AI, startups and established vendors alike will compete for healthcare opportunities — reshaping the vendor landscape and driving consolidation, partnerships, or exits.
What to Watch
- First large-scale outcomes studies showing measurable ROI (e.g., cost reductions, improved patient outcomes) from AI deployments.
- How vendors address workflow and usability challenges, especially for legacy health systems and outpatient providers.
- Regulatory and ethical frameworks evolving around AI use in healthcare, including patient data, transparency, and safety.
- Whether provider budgets keep shifting from pilot projects to full enterprise-wide AI adoption — and how that affects startup funding and vendor strategy.
