Tech-Enabled Healthcare Services Will be the Winners of the AI Era

Alyssa Jaffee is a Partner at 7wire Ventures, a venture capital firm focused on digital health companies that empower individuals to take an active role in managing their health.

In 2022, we published an original piece in defense of tech-enabled services, arguing that it will persist as the dominant business model in digital health. Now that we are fully in the AI era of healthcare – with use cases present across all facets of the industry, and with startups and venture capitalists alike trying to build enduring companies amidst the excitement – I continue to hold this belief, and will be doubling down. In fact, I foresee our original predictions, including tight bundling of software with services to enhance adoption, pushes to address the totality of a patient’s needs, and increases in margins and LTVs, accelerating in the face of AI enablement. 

In health AI, we see a few primary strategies at work. 

Workflow automation and provider replacement startups are building AI tools with an eye to selling them into health systems, payers, and life sciences organizations. Provider enablement or tech-enabled services startups already own the care delivery, and they will be using AI to make their own providers more efficient. VCs are already investing and will continue to invest more into the first bucket of tools. I will be investing in the latter, as I believe these companies continue to be positioned to win in the long run.  

Allow me to make the argument. I’ll acknowledge here that I do have a bias in that my fund, 7wire Ventures, invests heavily in tech-enabled services (and openly acknowledges that this is our focus). But that very same bias gives me a first-hand perspective. I have seen many of these companies adapt to an AI era as they scale and find new efficiencies, so I’ll pepper in those anecdotes and case studies throughout. 

AI-native tech-enabled services companies will experience major lifts from the perspective of their unit economics. As these startups lean into more AI use – for example, scribes to reduce the time spent writing notes, AI-generated treatment plans, or patient engagement tools that help draft personalized messages to each member – they will be able to reach very different margin profiles. NOCD, which is a platform for complex psychiatric conditions where I sit on the board, has been able to use its internal AI platform to save their therapists two to twelve hours each week on administrative tasks like scheduling and drafting notes. In a 40-hour work week, this is extremely valuable. Not only does this free up time that therapists can instead spend in clinical sessions by upwards of five additional hours each week, but it focuses therapist time where it matters most. As a result, NOCD has seen improved per-therapist revenue, driving a more favorable economic profile. This is particularly important given the finite pool of providers.

There’s also a big opportunity here to transform care without waiting for a three-year sales cycle and implementation process. It’s my view that tech-enabled services businesses will be able to drive better clinical outcomes and, therefore, push payers to secure more favorable rates over time. One company we know used AI to create a “digital twin” of both the provider and the patient, which was then integrated into its clinical training process. This approach significantly reduced the cost of training while, more importantly, helping providers deliver higher-quality care and achieve better outcomes. With stronger outcome data in hand, the company was able to go back to payers and more than double its reimbursement rates. In practice, this translated into a dramatic increase in revenue per visit with top-line increases of over 200%.