2024 outlook: Health IT investment, M&A and AI

Investment in health IT will start to bubble up, generative AI may turn hype into reality, and mergers and acquisitions will become a path for many startups in 2024, according to Cheryl Cheng, CEO and founder of Vive Collective.

Vive Collective is a new investment platform to build, fund and scale the next-generation digital health and health tech companies. The company aims to provide a flexible partnership approach to back high-growth, disruptive digital health companies with a network of healthcare and technology experts and partners.

Healthcare IT News sat down with Cheng to get her expert opinions on the year ahead.

Q. You suggest IT investment is one area healthcare CIOs and other health IT leaders should keep an eye on next year. What’s up?

A. Payers, health systems and key healthcare stakeholders will start buying software again. After a difficult period characterized by layoffs and reorganizations, the dust will begin to settle and companies will realize they need to use software to help fill the gaps that have resulted from the reduction in employees.

Don’t expect a dramatic opening of the flood gates with investment dollars flowing across the entire industry, but the purse strings will begin to loosen and wallets will start to open. For large acquiring companies, this development will represent an opportunity to rebuild and plug some gaps in IT stacks. For startups, it represents a good sign for the future.

Q. Artificial intelligence has been hotter than fire this past year. You see lots of activity ahead.

A. For generative artificial intelligence, 2024 may be the year when reality catches up to the hype. Certainly, there will be continued investment in generative AI and its applications, but much of the early excitement surrounding the category will wane as regulators and end-users increasingly focus on what’s inside the “black box,” such as data sources, compliance considerations and guardrails for responsible application of AI tools.

It’s becoming more accepted across healthcare that generative AI will deliver improvement to numerous processes, including billing, patient communications and administration. But how the industry will resolve questions around patient privacy and patient data-sharing still remains unclear.

Policymakers are scrambling to keep pace with the latest developments in this rapidly changing field of technology, and that is likely to continue for the foreseeable future.

To create new generative AI applications, large health systems with substantial resources will increasingly move development in-house to take advantage of internal expertise. This will further the divide between the haves and have-nots of large and small health systems’ clinical and operational capabilities.

Q. You say mergers and acquisitions will be an important area to watch. What do you see happening in 2024?

A. As venture capital funding for digital health continues to trend downward compared to years past, mergers and acquisitions will become a natural path for many startups. We expect the deal market will be “barbelled” with a few blockbusters on the high end, and the majority of the rest falling on the smaller side.

For early to even some mid-stage startups that cannot raise additional funding, smaller exits may be a reality in 2024. As the market has reset to valuing actualized revenue over contracted revenue and multiples have contracted, exit valuations will not be as high as in previous years.

However, there is still a need for strong engineering and operations talent, especially from companies that know how to navigate the healthcare system.

For some midsize startups that have well-developed point solutions, we expect consolidation into platforms or mergers of multiple point solutions to create more robust platforms. Buyers have long lamented the desire to buy fewer point solutions and the reduction in resources on the customer side will accelerate this trend.

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