Menlo Ventures' inaugural 2025: The State of AI in Healthcare Report

Menlo Ventures' inaugural 2025: The State of AI in Healthcare Report finds that the healthcare industry has shed its "laggard" status and is now adopting AI 2.2x faster than the broader economy, driven by a need to combat a cost crisis and staff shortages.

The report, based on a survey of over 700 healthcare executives, highlights an explosive growth in spending and a critical shift from piloting to production deployment.

Key Findings of the 2025 Report

Surging Spending and Adoption: Total AI spending in healthcare is set to reach $1.4 billion in 2025, nearly tripling the total from the previous year. 22% of healthcare organizations have now deployed domain-specific AI solutions, marking a massive 7x increase over 2024.

The Pilot Phase Is Over: The vast majority of the $1.4 billion spend is flowing into production deployments, not just proof-of-concept pilots. Providers account for 75% ($1 billion) of this total spending.

Top Use Cases: The largest spending categories are those that address acute operational pain points and offer clear ROI:

Ambient Clinical Documentation ($600M): This reduces physician burnout by automatically generating clinical notes.

Coding and Billing Automation ($450M): This recovers revenue lost to errors and denials.

Fastest-Growing Categories:

Patient Engagement is growing at +20x year-over-year.

Prior Authorization is growing at +10x year-over-year.

Acceleration by Providers, Caution by Payers:

Health systems and outpatient providers are dramatically shortening their buying cycles (by 18% and 22%, respectively) to capture operational gains quickly.

Payers (insurers) are proceeding more cautiously, as they fear AI tools used by providers to optimize billing may lead to a surge in claims volume and increased medical costs.

Startups vs. Incumbents: Startups currently capture 85% of the healthcare AI spending. However, customers report a slight preference for buying AI from their incumbent EHR providers (like Epic and Oracle Health) for critical functions, indicating a future battle for market share.

Life Sciences Focus: Pharma and biotech companies are prioritizing building or fine-tuning proprietary models(66%) for R&D data analysis (63%) to accelerate the costly drug discovery lifecycle.

This report confirms that AI is becoming an essential part of the operational and clinical workflow, no longer an experimental technology.

Source: https://menlovc.com/perspective/2025-the-state-of-ai-in-healthcare/