The Winner-Takes-Most Era: Why Health Systems Are Betting on Digital Health's Power Players—And What That Means for Everyone Else
Digital health funding surged 35% to $14.2 billion in 2025, but this headline obscures a more consequential shift in health system buying behavior. Remove the top nine companies by dollars raised and total funding would fall below 2024 levels, revealing that health systems aren't just being selective about technology investments, they're consolidating around proven winners. This reflects exhausted innovation teams choosing to deepen relationships with existing vendors rather than pilot-test their way through dozens of new point solutions.
The data suggest two behavioral changes among health system executives. First, 35% of deals were flat or down rounds, with unlabeled funding rounds accounting for 35% of all transactions—evidence that mid-tier vendors are struggling to demonstrate enough differentiated value to command premium valuations. Second, growth-stage companies with fresh capital went on shopping sprees to pick up new capabilities, talent, and customers, signaling that health systems increasingly prefer consolidated platforms over best-of-breed integration nightmares. When your AI scribe vendor acquires your prior authorization solution, that's one less contract to negotiate, one less integration to maintain, and one less vendor relationship to manage.
This creates perilous dynamics for industry partners. Mega funds, a well-capitalized unicorn class, and incumbents maintained outsized influence. Translation: health systems are giving mega-funded players longer runway to prove ROI because those vendors can afford to iterate, absorb integration costs, and wait for enterprise sales cycles. Meanwhile, only 30 companies reported Series B funding through Q3 2025—half the average of 60 deals annually—because companies are having harder time hitting marks needed for their Series B raises. Health systems are no longer willing to be proving grounds for unproven vendors, which starves mid-market players of the customer traction they need to raise capital.
The implication extends beyond vendor consolidation risk. Digital health companies captured 66% of M&A deals in 2025, while private equity firms accounted for 10%—a nearly 600% increase in PE healthtech spend. This wave of roll-ups means the competitive landscape is shape-shifting mid-sales cycle. Competitors today may be acquired tomorrow by a player that already has enterprise agreements with your target accounts. Health systems know this, which makes them even more reluctant to invest integration effort in standalone solutions when those solutions might disappear, get acquired, or lose key talent to a bigger player.
Key Takeaways:
Stop positioning as “best-of-breed” unless you have clear API-first integration stories. Health systems are fatigued by integration burden—demonstrate how you plug into existing infrastructure (especially EHR workflows) or risk being passed over for more embedded competitors, even if your product is technically superior.
Reframe competitive threats to include roll-up risk, not just feature parity. In enterprise conversations, explicitly address your long-term viability strategy—are you building to scale independently, or do you have investors/partners that signal staying power? Executive buyers want to know you'll survive consolidation.
Target accounts where you solve workflow ownership problems, not workflow efficiency problems. Health systems are overwhelmed by tool sprawl. If you're improving a process by 20% but requiring staff to log into yet another platform, you're losing to 15% improvement that lives inside tools clinicians already use daily. Position around adoption and stickiness, not marginal gains.
Bottom Line: Health systems have moved from “let a thousand flowers bloom” innovation strategies to backing concentrated bets on platform players that can absorb complexity. For industry partners, this means demonstrating enterprise staying power matters as much as product superiority—and without it, you're competing for scraps in an increasingly hostile middle market.