The healthcare AI investment landscape is poised for significant transformation in 2026, according to leading venture capitalists who are predicting a strategic shift away from AI scribe startups toward more sophisticated, transparent AI solutions. After a banner year in 2025 that saw AI-powered healthcare startups like Abridge and Ambience Healthcare secure massive funding rounds with valuations of $5.3 billion and $1.25 billion respectively, investors are now looking toward different profiles of healthcare AI companies.
The competitive landscape intensified dramatically when medical records giant Epic announced its own AI tools in August 2025, including clinical documentation capabilities that directly compete with startup partners. This move, combined with tech giants like OpenAI developing healthcare AI solutions, has prompted VCs to recalibrate their investment strategies. Dan Mendelson, CEO of Morgan Health (JPMorgan’s healthcare investing arm), emphasized that “AI now needs to show savings to payers by helping consumers make good choices and reducing the burden on clinicians.”
Transparency and data quality are emerging as critical investment criteria for 2026. Sapphire Ventures partner Cathy Gao predicted a conscious shift away from “black box” AI models, calling them “uninvestable” in high-stakes healthcare settings. She advocates for “glass box” platforms where the core product is the digital paper trail, stating: “Any engineering team can build an AI that fills out a medical form. The real opportunity is building the governance layer that proves why the AI made that decision.”
Investors anticipate a healthcare AI arms race between providers and insurers. While 2025 saw AI investment surge for administrative burden solutions in health systems, 2026 is expected to bring insurers contracting with specialized AI platforms trained on complex clinical data. Todd Cozzens of Transformation Capital noted that many insurers have already partnered with organizations like Palantir and Anthropic, calling it “a zero-sum game” where “doing nothing is no longer an option for either side.”
Tech-enabled healthcare services are making a comeback, according to 7wireVentures partner Alyssa Jaffee, who declared “tech-enabled services is coming back, baby.” This resurgence is supported by successful IPOs from Hinge Health and Omada Health in 2025. Investors are also watching for increased M&A activity, particularly from private equity firms looking to acquire AI assets to enhance their legacy healthcare platform companies. New Mountain Capital led this trend in 2025 with several AI acquisitions.
Key Quotes
AI has diffused nicely for passive listening in clinical settings, and administrative simplification. AI now needs to show savings to payers by helping consumers make good choices and reducing the burden on clinicians.
Dan Mendelson, CEO of Morgan Health (JPMorgan’s healthcare investing arm), articulated the evolving expectations for healthcare AI, emphasizing that the technology must move beyond documentation to deliver tangible financial benefits and improved patient outcomes.
The next healthcare unicorns will be ‘glass box’ platforms where the core product is the digital paper trail. Any engineering team can build an AI that fills out a medical form. The real opportunity is building the governance layer that proves why the AI made that decision.
Cathy Gao, partner at Sapphire Ventures, highlighted the critical importance of AI transparency and explainability in healthcare, predicting that opaque “black box” AI models are “uninvestable” and that future success will depend on demonstrable decision-making processes.
It’s a zero-sum game in the end, but like with the nuclear weapons arms race, a lot of money is going to be spent here, and doing nothing is no longer an option for either side of the battle.
Todd Cozzens, cofounder and managing partner of Transformation Capital, described the escalating competition between healthcare providers and insurers deploying AI systems, suggesting that both sides must invest heavily in AI capabilities or risk falling behind competitors.
We have a number of those companies in our portfolio that have really hit their stride. It’s just a meatier business, and I think we’re going to get a lot of interest from later-stage investors coming in to support those kinds of companies.
Alyssa Jaffee, partner at 7wireVentures, explained the resurgence of tech-enabled healthcare services companies, noting that those which survived the post-2021 funding drought have emerged with stronger business models and durable customer relationships that are now attracting significant investor interest.
Our Take
This investment shift reveals a critical inflection point for healthcare AI: the technology is moving from novelty to necessity, but with heightened scrutiny on transparency, data quality, and measurable outcomes. The emphasis on “glass box” AI over “black box” models isn’t just about investor preference—it reflects regulatory realities and the high-stakes nature of medical decision-making where errors can cost lives.
The provider-versus-insurer AI arms race is particularly fascinating, as it could fundamentally reshape healthcare economics. If both sides deploy sophisticated AI systems, the real winners may be the AI platform companies supplying both camps. However, the ultimate impact on patient care and costs remains uncertain. The return of tech-enabled services, combined with AI to reduce administrative overhead, suggests a more sustainable path forward than pure-play AI tools that lack defensible business models or clear paths to profitability.
Why This Matters
This shift in healthcare AI investment strategy signals a maturation of the industry from flashy administrative tools to mission-critical, transparent systems that can withstand regulatory scrutiny and deliver measurable cost savings. The move toward “glass box” AI models addresses one of healthcare’s most pressing concerns: accountability and explainability in high-stakes medical decisions.
The emerging AI arms race between healthcare providers and insurers represents a fundamental restructuring of how healthcare economics will function in the coming years. With billions of dollars flowing into AI solutions on both sides, the technology could either streamline healthcare delivery or create new friction points in an already complex system.
The return of tech-enabled services and the emphasis on lower-cost care settings paired with AI suggests investors are prioritizing sustainable business models over pure technology plays. This pragmatic approach, combined with anticipated M&A activity from private equity and strategic buyers, indicates the healthcare AI sector is transitioning from experimental innovation to established infrastructure that will shape patient care for decades to come.
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Source: https://www.businessinsider.com/healthcare-vc-predictions-2026-more-ai-acquisitions-few-ipos-2025-12