Dive Brief:

• Healthcare AI startups received $4 billion in funding last year across 367 deals, according to intelligence platform CB Insights. That's a nearly 50% jump in cash from 2018, which saw almost $2.7 billion across 264 deals.
• Healthcare saw the most frenetic activity out of all U.S. industries, leading the finance and insurance sector ($2.2 billion across 198 deals) and retail and consumer-packaged goods ($1.5 billion across 159 deals).
• Activity was hottest in the third quarter, which saw $1.6 billion across 117 deals. Health AI startups netted $610 million across 92 deals in the first quarter, $1.1 billion across 83 deals in the second and $742 million across 75 deals in the fourth, according to CB Insights.

Dive Insight:

Artificial intelligence startups had record funding last year in general. Emerging AI players netted $26.6 billion in funding in 2019 across 2,235 deals, up from $4.2 billion across 581 deals five years prior, CB Insights found.

But AI continues to saturate healthcare as the once staid and paper-rife industry increasingly adopts 21st century tech to solve its many problems, including waste, clunky administrative functions and billing, error-prone patient matching, among other challenges.

Half of healthcare organizations using AI expect a positive return of investment in fewer than three years, according to UnitedHealth Group's health services arm Optum. And senior health leaders plan to increase their investments in AI-related projects to $40 million over the next five years, according to the same report.

Some new entrants have become flush with cash. Of the 24 companies raising more than $100 million in a single round in 2019, one is in the healthcare industry: London-based Babylon Health, which provides remote consultations with doctors via text and video messaging through a mobile app, raked in $550 million in a Series C round in August, propelling it to unicorn status with an over $1 billion valuation.

M&A activity was also rife in the sector. Healthcare received second place after the sales and customer relationship management sector in terms of AI startup acquisitions last year, with 17 M&A deals and two IPOs. Across all industries, there were 231 M&A deals and 10 IPOs.

Some prominent groups are calling for more stringent guidelines over the use of AI in healthcare, especially diagnostics, as evidence mounts the intelligent tech can detect diseases from medical imaging with comparable accuracy to a human clinician.

But that hasn't stopped corporations, including Amazon, Google, Intel and Microsoft, from leveraging their AI capabilities and looking for partnerships in healthcare.

Google Health, the medical division of the internet giant, sees AI as a key weapon in its arsenal. For example, its sister AI business DeepMind has developed an algorithm that reportedly spots acute kidney disease two days before clinicians, and it's partnered with Suki, an AI-powered voice digital assistant for physicians.