Longevity: Can AI counter the conun­drum of healthcare costs?

Key Insights on how AI can help mitigate healthcare costs:  

1. The healthcare sector has been at the forefront of adopting AI technologies, leveraging them to enhance efficiency and outcomes.
2. As life expectancy increases, healthcare costs in industrialized nations are rising sharply. AI-driven efficiency gains can offer a promising solution to this challenge.
3. AI is in our view showing significant potential in areas such as early disease detection, drug research and development, and clinical trial optimization.

What kind of company is more valuable on the stock market than the largest pharmaceutical giants combined, invests hundreds of millions in the healthcare sector itself – and yet explicitly does not want to be considered a healthcare company?

The question is quickly answered: Nvidia has quietly become a major player in the healthcare sector. Known primarily as a leading manufacturer of high-performance chips, the U.S. company has emerged as a key technology supplier for AI applications in healthcare.

This shift is becoming increasingly visible. Recently, Nvidia partnered with U.S. pharmaceutical giant Eli Lilly to invest $1 billion in a new research lab in California. The lab will focus on training AI systems for applications in the biotech sector, further solidifying Nvidia’s role in revolutionizing healthcare through AI.

AI applications in the healthcare sector: accelerating progress

This shows that AI has not only firmly established itself in the healthcare sector but that the industry is also at the forefront of applying this future technology. In the United States, for instance, the number of AI applications in healthcare is growing at three times the rate of the overall economy. This rapid adoption underscores, in our view, the potential of AI to revolutionize healthcare delivery and management.

Companies with commercial licenses for AI applications in the USA (share in %)

From a sustainability perspective, the opportunities that technology offers to address a pressing problem associated with demographic developments, particularly in industrialized countries, are striking. We are convinced that innovations like AI will be crucial in countering the looming explosion in healthcare costs.

As we have already discussed, the link between increasing longevity and rising healthcare costs is undeniable. Healthcare expenditures in OECD countries currently account for 8% to 18% of GDP, as estimated by the international organization in 2024. With the oldest baby boomers now entering their 80s, these costs are expected to rise further. Simultaneously, declining birth rates and insufficient immigration are leading to a shrinking workforce, exacerbating the challenge of financing healthcare systems.

Longevity is profoundly changing our society

As people age, the prevalence of chronic diseases and age-related conditions increases, further driving up healthcare costs. Paradoxically, advancements in medical care have extended life expectancy, but the healthspan – the period of life spent in good health – has not kept pace. This gap underscores the urgent need for innovative solutions to enhance healthcare efficiency and affordability.

AI as a driver for efficiency gains in healthcare

The need for action is clear, and many experts view AI as a critical tool for addressing the economic and societal challenges posed by rising healthcare costs. For example, the Washington D.C.-based think tank Paragon Health Institute highlighted in a study from July 2024 the potential of AI to significantly reduce healthcare expenditures. This is in light of the looming burden on the state and American households: According to U.S. government estimates, healthcare costs could account for 20.3% of GDP by 2033, underscoring the urgency of leveraging AI to mitigate this trend.

While AI is not yet a definitive "silver bullet" for the healthcare cost crisis, its practical applications show immense promise in driving efficiency gains. From an investment perspective, these advancements are particularly exciting. As part of Swisscanto Healthy Longevity investment strategy, healthcare efficiency has been identified as a key area of focus, with AI serving as a central driver of potential future returns.

The focus is on the following application areas:

• Early detection of diseases: AI algorithms can significantly improve the analysis of medical image data from sources such as ultrasound, MRI, or CT scans. According to a report published in the scientific journal "Nature" in 2020, AI detects an average of 95% of all cases of breast cancer when evaluating mammograms. In contrast, human radiologists achieve a rate of 88%.

• Drug research and development: AI is already achieving remarkable results in the analysis of extensive data sets to identify potential active ingredients: according to a report in the business magazine “The Economist”, molecules identified using AI have a success rate of 80 to 90% in early-stage studies, compared to a historical average of 40 to 65%.

• Clinical trial design: AI collects historical and real-time data to design smarter clinical trials. According to the company IQVIA, this has made it possible to halve the duration of some trials – from an average of six to seven years to just two to four years.

• Regulatory documentation: When submitting drug documentation for regulatory approval – according to the pharmaceutical company Roche, an average of 1 million pages are required by the US Food and Drug Administration (FDA) – AI can save time and reduce errors.

• Use of robots in care: AI-supported robots and other technical aids can help older people maintain their independence for longer. This could at least mitigate the further consequences of demographic change: according to the WHO, there is likely to be a global shortage of 13 million care workers by 2030.

Examples of companies applying AI to increase efficiency in healthcare

In line with the "Sustainable Purpose & Quality" approach applied in the strategy, these fields are not only screened for companies with high growth potential. Equally important is the quality of the companies and, in particular, whether they can earn their cost of capital. Under these conditions, the following companies appear exemplary of the opportunities offered by the application of AI to increase efficiency in healthcare:

• IQVIA: A U.S.-based company providing software and analytics tools for the life sciences industry. Leveraging one of the most comprehensive proprietary health data collections, IQVIA collaborates with technology leaders like Amazon AWS and Nvidia to develop AI tools that drive efficiency in research, development, and healthcare delivery.
• Qiagen: A Dutch leader in molecular diagnostics and pharmaceutical research technologies. Qiagen offers AI-powered solutions to assist medical laboratories in interpreting diagnostic results, enabling early disease detection and optimized treatment.
• GE Healthcare: A global leader in medical technology, the U.S. enterprise provides advanced imaging devices (MRI, ultrasound, CT scanners) and patient monitoring systems. The company’s AI-driven predictive algorithms in medical imaging enhance precision in disease detection and treatment planning.
  
  

Our conclusion on the application of AI in the healthcare sector:

The widespread adoption of AI in healthcare is not just an opportunity but a necessity to address the escalating costs associated with aging populations. From early disease detection to drug development and caregiving, AI is driving efficiency gains that could revolutionize the sector. For sustainability-focused investors, this presents a unique opportunity to align financial returns with positive societal impact. We have identified healthcare efficiency, powered by AI, as a cornerstone of our Healthy Longevity investment strategy, offering significant potential for long-term growth and innovation.

As the healthcare sector continues to embrace AI, its role in shaping the future of medicine and addressing the economic challenges of aging societies cannot be overstated. While the full potential of AI in healthcare is yet to be realized, its trajectory is clear: it is set to become part of the future of sustainable healthcare systems worldwide.

Investment theme «Healthy Longevity»: Insights