Healthcare AI Dominates Digital Health Funding in 2025, Driving Industry Growth and Innovation

The digital health market has witnessed a robust start to 2025, with artificial intelligence (AI) emerging as the primary driver of investment and innovation. According to Rock Health's mid-year funding report, digital health venture capital funding reached $6.4 billion in the first half of 2025, with AI-enabled startups capturing a staggering 62% of these funds.

AI-Enabled Startups Lead the Pack

AI-enabled digital health companies have not only secured the majority of venture capital but are also commanding significantly larger investments. These startups raised an average of $34.4 million per round, an 83% premium compared to their non-AI counterparts. The impact of AI is particularly evident in early-stage funding, with AI-enabled startups securing average Series A and B rounds of $24.4 million and $54.8 million, respectively, far outpacing non-AI companies.

The dominance of AI in digital health is further underscored by the distribution of mega deals—fundraises over $100 million. Of the 11 mega deals recorded in the first half of 2025, nine went to AI-enabled startups. Notable among these was Abridge, an AI scribe startup, which raised $550 million across two rounds in just four months.

Provider Adoption and Market Maturity

The surge in AI investment coincides with unprecedented adoption rates of AI tools by healthcare providers. Medical ambient documentation tools, in particular, are being implemented at a pace unmatched by any recent technological innovation in the healthcare sector. The Peterson Health Technology Institute (PHTI) reports adoption rates between 30% and 40% across physician groups, with some leading hospitals achieving utilization as high as 90%.

This rapid adoption is driven by the technology's potential to reduce burnout and improve workflows, addressing critical challenges in the healthcare industry. As Megan Zweig, Mihir Somaiya, and Tiffany Marie Ramos of Rock Health noted, "Investor confidence in healthcare AI startups grows along with providers' rapid adoption of AI tools and validation of the technology's strong outcomes and impact."

M&A Activity and Market Consolidation

The digital health sector is also experiencing a surge in merger and acquisition (M&A) activity. With 107 M&A deals in the first half of 2025, the industry is on track to nearly double the 121 deals recorded in 2024. Digital health companies themselves are the most frequent acquirers, accounting for 63% of all deals.

A notable trend in M&A strategy is the emergence of AI-native startups combining with legacy healthcare players. Private equity firms are capitalizing on this trend, with companies like New Mountain Capital leading the charge. Their strategy involves merging established distribution networks and trusted services of legacy companies with cutting-edge AI technology to drive efficiency, margin, and scale gains.