AI Use Will Drive Health Care and Life Sciences Investment

J.P. Morgan & Co.’s annual health care conference last month generated cautious optimism that 2026 will be a breakout year for investment in the health care and life sciences industries—particularly with artificial intelligence’s role in encouraging investment in the health ecosystem.

In our conversations in San Francisco, we explored the regulatory, Food and Drug Administration, and compliance issues that could affect the outlook for health care and life sciences companies this year and beyond. Here are our top takeaways.

The regulatory environment and cost considerations are driving AI use. The US Department of Health and Human Services and its subagencies are leveraging AI for a variety of uses—from FDA reviews of new drug applications to rooting out fraud and abuse in federal payor programs—effectively normalizing AI use in health care and life sciences.

Federal agencies are creating policies to encourage adoption of AI, with the FDA publicly promoting an AI-friendly environment for drug discovery and research and for capturing efficiencies in drug manufacturing. Recent deregulatory developments involving clinical decision support tools, and release of HHS AI governance principles, are creating openings for digital health innovation in health care services.

Trump administration policies such as Medicaid cuts, most-favored nation drug pricing, and tariffs have increased financial pressures in both life sciences and health care, making it crucial to identify cost savings like those AI promises to offer. However, these forces could produce substantial investments in health care and life sciences in the near term.

The value of AI is tied to compliance. Thoughtful consideration of what AI can (or can’t) do for a company has become an expectation for investment.

Companies with management and advisers who are well versed in data governance and related regulatory developments will stand out, as investors are getting smarter about AI and asking more nuanced questions to assess value and risk.

In life sciences, support tools for later stage drug development are of great interest. These include data mining applications for generating real world evidence and support tools for clinical trial recruitment and management. Earlier stage drug discovery, modeling, and application in manufacturing and quality control (such as process monitoring technologies) are gaining greater attention as well.

In health care, ambient listening tools coupled with clinical decision support software can help physicians practice more effectively and better oversee the professionals they supervise. Tools to help improve accurate coding and reimbursement, as well as other administrative functions, continue to present opportunities.

Although federal initiatives are encouraging greater adoption of these technologies, there is a growing awareness of the potential legal and regulatory pitfalls pertaining to data governance, FDA, fraud and abuse compliance, agency expectations, evolving state law requirements, and legal obligations in international markets.

Digital health is getting renewed interest. Telehealth is here to stay and promises to be enhanced through increased integration with digital health.

Although Medicare telehealth flexibilities were set to expire on Jan. 30, they are now extended through the end of 2027, with the passing and signing of an amended appropriations bill on Feb. 3. Existing telehealth flexibilities for prescribing controlled medications have been extended through 2026.

Despite the uncertainty over telemedicine, emerging technologies along with normalization of remote care will only increase as the US wrestles with rural health, shortages of health care providers persist, and patients and providers enjoy the convenience offered by digital health technology. Put simply, voters won’t graciously accept returning to physician waiting rooms.

Among the FDA’s recent changes are updates to enforcement discretion policies, expanded categories of wellness and low-risk devices it won’t actively regulate, updated clinical decision support guidance, and the announcement of a pathway to relax FDA standards on a case-by-case basis for technologies that help manage certain diseases remotely. These developments are giving a green light to innovators commercializing health tech.

Other HHS initiatives to center health care in the home instead of the clinic could create strong tailwinds in the space. These include the Centers for Medicare and Medicaid Services’ ACCESS program, aimed at increasing coverage for remote monitoring and wearables, and potential expansion of consumer-directed health care dollars.

The promotion of individual autonomy over health continues. In keeping with the growing movement to take charge of one’s own health, innovations such as functional medicine addressing the root cause of disease, concierge medicine provided via digital platforms, and incorporation of hormone lab tests for personal care could ride the broader digital health wave.

With the deregulation of laboratory developed tests last year and the administration’s focus on personalized medicine, there is talk of growing partnerships between the lab industry and pharmaceutical industry to develop companion diagnostics and approach the concept of pharmacogenomics again, despite historical headwinds.

Apprehension lingers. The 2025 regulatory climate was unlike any we’ve seen before. There has been substantial turnover in senior management throughout HHS, overturned policies, and decision-making that eschewed bureaucratic norms.

The presence of CMS Administrator Mehmet Oz and his senior leaders in San Francisco during the conference sought to quell concerns about Medicaid cuts. And reports by some companies suggest perceived regulatory alignment with the FDA regarding ongoing product development programs.

But there are still more concerns than in the past about traditional health services models and in certain areas of biotech—most notably vaccines.

Proactive sell-side diligence is a differentiator. HHS has opened the door for commercializing new technologies, which would provide more options for investment.

Ideal targets for investors across health care and life sciences sectors are those that offer a clear value thesis and a road map illustrating sophistication and understanding of the current regulatory landscape.

Being realistic about regulatory risks and thoughtful about mitigation strategies will be a crucial differentiator both in fundraising and for preparing for exit.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

James A. Boiani is an FDA and life sciences attorney in Epstein Becker Green’s Washington, DC, office.

Amy K. Dow is a life sciences attorney and health care and life sciences practice chair in Epstein Becker Green’s Chicago office.

Megan Robertson is a health care and life sciences attorney in Epstein Becker Green’s Washington, DC, office.

Ann W. Parks contributed to this article.

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