• After a slower-than-anticipated year for healthcare funding, investors expect sunnier skies in 2025.
• 13 VCs from firms like ICONIQ Growth and AlleyCorp share their predictions for digital healthcare next year.
• They expect more M&A, funding for AI agents and clinical decision support, and Medicare shake-ups.

The healthtech sector will see more private-equity-backed M&A and a fierce battle between AI-scribing startups next year, according to thirteen investors in the healthcare VC market.

At the beginning of the year, healthcare venture capital appeared poised for a rebound. Investors hoping to do deals again after a two-year funding drought watched as healthcare startups flooded back to the market to grab more cash.

Those VCs raced to break out their checkbooks for hot new AI startups in the first quarter, from scribing startups like Abridge to automated prior authorization players like Cohere Health.

A confluence of macroeconomic factors — from still-high interest rates to fundraising struggles for venture firms to the uncertainty of a looming presidential election — dampened the anticipated resurgence. 2024's funding appears to be, at best, on pace with 2023 levels, with $8.2 billion raised by US digital health startups in the first three quarters of this year compared to $8.6 billion through Q3 2023, per Rock Health.

Now, with interest rates expected to drop and a new administration on the way, VCs are anticipating sunnier skies in 2025.

A pickup in healthcare M&A and IPOs

After a slow year for healthcare M&A, investors want to see more deals in 2025.

With interest rates expected to come down — and investors facing pressure to deploy capital — private equity buyers should be more active in 2025, said .406 Ventures managing director Liam Donohue.

And Flare Capital Partners' Parth Desai said he's already seeing private-equity-backed healthcare companies looking to buy smaller startups. Their goal, as he understands it, is to make tuck-in acquisitions in 2025 that improve their growth stories as they look ahead to potential IPOs in 2026.

"Maybe they're not phenomenal outcomes, but at the end of the day, they'll create some liquidity," Desai said of those acquisitions. "I expect that to be one of the first exit windows starting to manifest in 2025."

Investors were hopeful but unsure that the IPO window would meaningfully reopen for digital health startups in 2025, despite startups like Hinge Health and Omada Health signaling their intentions to test the public markets.

Venrock partner Bryan Roberts said he expects the healthcare IPO market to remain relatively quiet. LRV Health managing partner Keith Figlioli suggested we won't see IPO activity kick off until the second half of the year after other exit windows open.

VCs said they're mostly looking for smaller deals next year, from mergers of equals to asset sales. Figlioli and Foreground Capital partner Alice Zheng said we'll see even more consolidation and shutdowns in digital health next year as startups run out of cash.

"Investors will have to make tough decisions on their portfolio companies," Zheng said. "We want to support all of them, but we can't indefinitely."

Healthcare AI competition will get fierce

Healthcare startups using AI for administrative tasks were easily the hottest area of healthcare AI investment in 2024. Investors think the crop of well-funded competitors will face increasing pressures next year to expand their product lines.

ICONIQ Growth principal Sruthi Ramaswami said she expects the group of AI scribing startups that landed big funding rounds this year, from Abridge to Ambience Healthcare to Suki, to scale significantly next year using the fresh cash as hospitals scramble for solutions to the healthcare staffing shortage.

As these startups scale, however, they'll face pressure to expand beyond ambient scribing into other product lines, like using AI for medical coding and billing, said Kindred Ventures managing partner Kanyi Maqubela. Scribing technology could become a commodity sooner than later, with many providers trying free off-the-shelf scribing software rather than contracting with startups, Maqubela said.

"It'll be a race to who can start to build other services and build more of an ecosystem for their provider customers," he said.

Some AI startups, like Abridge, have already been vocal about their plans to expand into areas like coding or clinical decision support. The best-funded AI scribing startups may be able to acquire smaller startups to add those capabilities, but other scribing companies will be more likely to get bought out, Maqubela said.

Flare Capital Partners' Desai suggested that healthcare companies already focused on RCM will try to pick up scribing solutions as the tech becomes a must-have for hospitals. He pointed to Commure's $139 million take-private acquisition of Augmedix in July.

Ramaswami said that demonstrating a high return on investment would be critical for these startups as hospitals pick their favorites among various AI pilots.

Health insurance in flux in Trump's second term

While many VCs quietly celebrated the potential for more M&A and IPOs in 2025 following Trump's election in November, the incoming administration could bring some big shake-ups for healthcare markets.

Trump could move to boost private health insurers, including Medicare Advantage plans, in his second term, Venrock's Roberts said. That could be a boon for young insurers like Devoted Health and Alignment Healthcare fighting for Medicare Advantage market share, as well as startups contracting with insurers to improve healthcare payment processes.

He suggested the new administration may even roll back changes made in the Center for Medicare and Medicaid Services' latest reimbursement model for Medicare, which went into effect this year and resulted in lower payments for many Medicare Advantage plans in the agency's attempt to improve payment accuracy.

Brenton Fargnoli, a general partner at AlleyCorp, said he expects to see health insurers respond to these risk adjustment changes and move to control higher-than-expected medical costs over the past year by launching a bevy of new value-based care partnerships in 2025 for specialties, including oncology, cardiology, and musculoskeletal care.

Some healthcare experts are also concerned that the federal government could cut funding for Medicaid plans. These changes could force states to scramble for new strategies and potentially new partnerships to control healthcare costs for their Medicaid populations.

"If there is a significant shift in direction at the federal level, I think you're going to see certain states do much more than they have in the past to try to continue to address health disparities," said Jason Robart, cofounder and managing partner of Seae Ventures. "As it happens, that creates opportunities for private companies to leverage their innovative solutions to address the need."

Similarly, Muse Capital founding partner Rachel Springate said that while investors in reproductive health startups will be closely watching state-level regulatory changes that could impact their portfolio companies, those startups could see surges in consumer demand as founders step up to fill gaps in reproductive care access.

Some of the Trump administration's proposed moves could stunt progress for health and biotech startups by stalling regulatory oversight. Robert F. Kennedy Jr., Trump's pick to lead Health and Human Services, has said he wants to overhaul federal health agencies, including the Food and Drug Administration and the National Institutes of Health. Marissa Moore, a principal at OMERS Ventures, said the promised audits and restructuring efforts could lead to major delays in critical NIH research and FDA approvals of new drugs and medical devices.

What's hot in AI beyond scribes

In 2025, AI will be an expectation in healthcare startup pitches, not an exception, said Erica Murdoch, managing director at Unseen Capital. Startups have pivoted to position AI as a tool for improved efficiency rather than as their focal point — and any digital health startups not using AI, in turn, will need a good reason for it.

With that understanding, investors expect to see plenty more funding for healthcare AI in 2025. While many tools made headlines this year for their ability to automate certain parts of healthcare administration, .406 Ventures' Donohue and OMERS Ventures' Moore said they expect to see an explosion of AI agents in healthcare that can manage these processes autonomously.

Investors remain largely bullish about healthcare AI for administrative tasks over other use cases, but some think startups using the tech for aspects of patient diagnosis and treatment will pick up steam next year.

"We will begin to see a few true clinical decision support use cases come to light, and more pilots will begin to test the augmentation of clinicians and the support they truly need to deliver high quality, safe care," said LRV Health's Figlioli. He hinted the market will see some related funding announcements in early 2025.

Moore said she's also expecting to see more investments for AI-driven mental health services beyond traditional cognitive behavioral therapy models — "for example, just today I got pitched 'the world's first AI hypnotherapist."

Dan Mendelson, the CEO of JPMorgan's healthcare fund Morgan Health, said he's watching care navigation startups from Included Health to Transcarent to Morgan Health's portfolio company Personify that are now working to improve the employee experience with AI. The goal, he says, is for an employee to query the startup's wraparound solution and be directed to the right benefit via its AI, a capability he says he hasn't yet seen deployed at scale.

"These companies are racing to deploy their data and train their models, and we'd love to see a viable product in this area," he said.

• Donald Trump will decide whether to renew subsidies that make the ACA marketplaces more affordable.
• Biden's enhanced ACA subsidies, which lowered premiums for the middle class, will expire in 2025.
• Ending the subsidies would save the government money, but increase premiums for many Americans.

Federal subsidies meant to make health insurance more affordable for low- and middle-income Americans could be on the chopping block when Donald Trump returns to the White House.

President Joe Biden's enhanced version of the Affordable Care Act subsidies — which provide lower premiums and reduced out-of-pocket costs for lower-earning Americans who don't get health insurance subsidized by their employer or a government program like Medicaid — are set to expire at the end of 2025. At some point next year, Trump and a Republican-led Congress will decide whether to renew or end the subsidies.

Ending the subsidies would save the government money but restrict healthcare options for the people and families who rely on them. If the subsidies are allowed to expire, the Congressional Budget Office estimated that nearly 4 million people would drop coverage in 2026. 

The president-elect has been inconsistent with his support for the Affordable Care Act and has previously proposed cuts to healthcare programs like Medicare and Medicaid. The Trump transition team did not respond to BI's inquiry about ACA subsidies but previously shared a statement that Trump would "protect Medicare" as president.

Trump has not publicly said whether he plans to let the enhanced ACA subsidies expire, but he has made cost-cutting a cornerstone of his second-term promises.

The Affordable Care Act — also known as Obamacare — was passed in 2010. The law introduced the ACA marketplaces, which were meant to make health insurance more affordable for lower-earning people whose incomes would be too high to qualify for Medicare and Medicaid. It also requires insurance companies to cover preexisting conditions, like diabetes and heart disease.

Biden's expansion increased the financial assistance for people already on ACA plans and lifted the income eligibility cap for those benefits. Some middle-class families had previously been priced out of health insurance.

Since 2020 — the year before the subsidies went into effect — the number of people with ACA marketplace coverage has grown by 88%, to 21.4 million people from 11.4 million, per KFF.

Gary Young, the director of Northeastern University's Center for Health Policy and Healthcare Research, told Business Insider that the ACA subsidy debate underlines a growing problem: America's healthcare costs are ballooning, and it's taking a toll on people's finances and federal budgets.

"We are having this debate at the same time that we are beginning to see healthcare costs ramp up," Young said.

How ending ACA subsidies would impact Americans and government spending

Ending subsidies would be cheaper for the government and taxpayers. Some Republicans like Vice President-elect JD Vance have said they want to inject needed competition into the health insurance marketplace. Young said a more robust marketplace could lead to more diverse insurance plans being available, allowing people to choose coverage that best fits their needs without the government footing the bill.

"There's concerns about whether the subsidies maybe went too far," Young said. "They're providing people with financial resources to purchase more extensive insurance than they otherwise would purchase, and it's not necessarily an efficient way of using federal resources."

Still, Young said letting the ACA subsidies expire would probably make healthcare more expensive for millions of people. Nearly all Americans on ACA plans would pay higher premiums, he said. KFF reported that low-income people would see the steepest increase in healthcare costs relative to their income.

Any move by Trump to change ACA policies would need congressional approval. Because insurers have to submit their plan proposals next summer for the 2026 enrollment period, Trump will probably need to decide early in his term whether to extend the enhanced ACA subsidy.

Trump's 2nd term has a cost-cutting agenda

The US government spent $6.75 trillion total in fiscal year 2024, which resulted in a national deficit. At $912 billion, the Department of Treasury reported that healthcare — programs like Medicaid, the Children's Health Insurance Program, the Centers for Disease Control and Prevention, and more — is a top government expenditure behind Social Security. Medicare costs add another $874 billion. If the enhanced ACA subsidies were to become permanent, the Congressional Budget Office and Joint Committee on Taxation estimate that it would cost $335 billion over the next 10 years.

Tesla CEO Elon Musk and former GOP presidential candidate Vivek Ramaswamy were tapped by Trump to co-lead a new Department of Government Efficiency. The pair plans to propose cuts for the government's most costly programs, but it's not yet clear if that will include healthcare programs.

Trump's nominees for the top healthcare positions are Robert F. Kennedy Jr. leading the Department of Health and Human Services and Dr. Mehmet Oz leading the Centers for Medicare and Medicaid Services. Neither Kennedy nor Oz has outlined a specific plan for affordable healthcare in 2025, and neither responded to a request for comment.

In an opinion piece published in 2020 on Forbes, Oz said he supports a universal healthcare plan, but the stance is likely to be at odds with the Trump administration's cost-cutting agenda.

Are you doing anything to prepare your finances or healthcare plan for Trump's second term? If so, please reach out to this reporter at [email protected].

Correction: December 2, 2024 — An earlier version of this story misstated who is eligible for the enhanced Affordable Care Act subsidies. The subsidies apply mostly to people who purchase health insurance on the Affordable Care Act marketplaces. Some Medicare recipients are also eligible, but not Medicaid recipients.

• President-elect Trump has tapped Dr. Mehmet Oz, tv celebrity and surgeon, to run the agency.
• Trump said Oz will "cut waste and fraud" in the agency that oversees Medicare and Medicaid.
• Oz ran for Senate in 2022 and does not have experience leading a large government bureaucracy.

President-elect Donald Trump has named Mehmet Oz, a television personality and surgeon, to run the Centers for Medicare and Medicaid.

"He will also cut waste and fraud within our Country's most expensive Government Agency, which is a third of our Nation's Healthcare spend, and a quarter of our entire National Budget," Trump said in a statement announcing the pick on Tuesday.

Trump said that in his role, Oz will work closely with Robert F. Kennedy Jr., whom the president-elect has chosen to lead the Department of Health and Human Services.

Oz unsuccessfully ran for a Pennsylvania Senate seat in 2022 but has no experience leading a large government bureaucracy. The CMS oversees Medicare and Medicaid, among other services.

Dr. Oz demonstrated broad appeal as a TV host

As a cardiothoracic surgeon, Oz gained prominence with prestigious research awards and multiple patents for surgical methods and devices related to heart transplants.

Oz catapulted to fame in 2009, first as an expert voice on Oprah Winfrey's show "Oprah," then as the host of his own Emmy Award-winning "The Dr. Oz Show."

Oz captured millions of viewers with a variety of segments.

He hosted the then-First Lady Michelle Obama in one segment — they learned dances and spoke about her efforts to get America moving — and students of Sandy Hook Elementary School in another.

He also spoke about chemicals in food and natural methods to lose weight and whiten teeth.

Shortly before his show went on air, and became an instant success, Esquire named Oz "the most accomplished and influential celebrity doctor in history."

He has faced criticism in healthcare

Oz has previously come under scrutiny for some of the advice on his TV show, including weight loss supplements and diet plans.

His statements about garcinia cambogia, a supplement derived from the rind of a tropical fruit, led a class action lawsuit alleging that Oz misrepresented the products as a "revolutionary fat busters" and "miracles in a bottle." The suit resulted in a $5.25 million settlement.

Oz attracted a backlash from medical professionals during the height of the COVID-19 pandemic when he appeared to suggest that re-opening schools might be "worth the trade-off" if it increased mortality by 2-3%, or a few thousand deaths according to one estimate. He later walked back the comments, saying he misspoke.

Also during 2020, Oz promoted the anti-malaria medicine hydroxychloroquine as a treatment for COVID-19, attracting the attention of then-President Trump. Studies at the time the drug was effective in coronavirus patients.

Oz continued encouraging the White House to push the treatment. Financial disclosures later showed he had a financial stake in two companies that supply hydroxychloroquine (worth at least $615,000 in one company and between $15,001 and $50,000 in the other, according to the disclosures).

During his Senate run in 2022 against stroke survivor John Fetterman, Oz said his opponent would never have had a stroke had he "ever eaten a vegetable in his life," prompting more than 100 doctors to organize against his political campaign.

Columbia University, where Oz previously served as a vice chair of surgery among other roles, removed him from its website and cut ties in 2022.