AI leads the way in H1 digital health funding alongside rapid AI adoption

The Buzz This Week

Last month Rock Health released its digital health funding report for the first half of 2025 and found that, for the first time, artificial intelligence (AI)-enabled startups received the majority of funding. These startups brought in nearly $4 billion—62% of all venture capital funding poured into US-based digital health startups so far this year.

This sector of venture capital funding has remained robust, reaching $6.4 billion in H1 2025, up from $6 billion in H1 2024 and $6.2 billion in H1 2023. Despite the increased funding, there were fewer deals, with just 245 deals in H1 2025 compared to 273 during the same period last year. According to Rock Health, this trend could yield the lowest overall deal count since 2020.

Investor excitement about healthcare AI is driving the market. Startups that use AI, machine learning, and/or deep learning as a core part of their product or offerings are raising, on average, $34.4 million in funding per round. In comparison, their non-AI-enabled counterparts averaged $18.8 million. Nine of the 11 mega deals, which raised funds over $100 million, were for AI-enabled startups.

The top-funded value propositions of H1 were non-clinical workflow ($1.9 billion), clinical workflow ($1.9 billion), and data infrastructure ($893 million), all of which are being transformed by AI-enablement and automation.

In addition to funding success and several IPOs, digital health merger and acquisition (M&A) activity has also increased this year. With 107 M&A deals closed in H1 2025, this year is on track to quickly surpass and possibly double the 121 M&A deals recorded in 2024.

The increased interest and investment in AI-enabled startups and digital health come during a time of regulatory and economic disruption. The Trump Administration has made clear its intentions to accelerate AI advancement, including:

An executive order to deregulate AI. This includes the AI Action Plan, which makes 90 policy recommendations to expand the use of AI across multiple sectors, including healthcare. It also recommends convening healthcare experts to accelerate the development and adoption of AI and testing AI system pilots in real-world settings across healthcare.
The Health Tech Ecosystem Initiative. The administration is partnering with 60 healthcare technology organizations to create a modern health data exchange and expand use of and access to personalized digital health tools.

Some healthcare IT leaders seem optimistic about the administration’s direction on AI, calling it the “clarity that innovators have been waiting for.” The CEO of patient enablement platform Ford Health stated, “This comprehensive approach accelerates the transition from experimental pilots to meaningful implementations at scale, particularly in critical areas like care coordination, risk adjustment, and population health management.”

Others are more skeptical, noting that AI has incredible promise, but it’s paramount to balance innovation with thoughtful regulation regarding the new, immense risks that accompany AI (e.g. hallucinations, cybersecurity, bias/ethical, agentic, etc.). Specifically, concerns have been raised that the administration’s plan “is broad and lacks any specific initiatives.” Dr. Jay Anders, CMO of data analytics company Medicomp Systems stated, “Building more infrastructure has nothing to do with creating AI transparency or reliability of predictive large language models.”

In the absence of final federal AI regulations, 45 states have introduced more than 250 healthcare AI bills addressing mandatory disclosures, human oversight, and legal violations. Although uncertainty exists around AI policy, health systems have the opportunity to lead by adopting governance practices already emerging as state-level best practices.

Why It Matters

Healthcare providers are eager for additional regulatory clarity, with a recent survey by the American Medical Association (AMA) reporting almost half of physicians surveyed said increased oversight was the most important regulatory action to build trust and continue AI adoption. But AI technology is still rapidly gaining traction, driven by its potential to enhance efficiency, streamline operations, and improve patient outcomes. Many providers recognize that waiting for complete regulatory clarity could mean missing out on significant competitive advantages.

AI, especially recent iterations of generative AI, is showing promise as a tool to help solve systemic issues that traditional solutions and approaches cannot. Successful integration of AI in healthcare can free up provider time through a multitude of avenues, including administrative automation, supply chain management, and clinical decision and diagnostic support. It can also improve the patient experience and increase engagement.

Despite historical hesitation around integrating nascent, early generation tools into their practice, providers have begun swiftly adopting more established AI. Ambient documentation and medical reference solutions are among the tools being more widely employed. Implementation rates for ambient documentation hover between 30% and 40% across physician groups, with some leading hospitals reporting utilization as high as 90%. The AMA survey of nearly 1,200 physicians found that 66% were using healthcare AI in 2024, up from 38% in 2023.

Digital health is entering a new phase of adoption and impact with AI. While regulatory clarity will be essential to ensure patient safety, ethical use, and public trust, providers who strategically plan for and implement AI solutions now stand to gain significant operational and clinical advantages.

Early adopters also have the opportunity to develop the programmatic infrastructure to understand how to evaluate, implement, and scale AI technologies. By proactively experimenting with AI, investing in organizational readiness, and leveraging technology partnerships, health systems can take advantage of the transformational technology while developing new capabilities. In so doing, they will also position themselves to help shape the standards and best practices of AI in healthcare.