Morgan Stanley Research reports that the expansive adoption of artificial intelligence (AI) across the U.S. healthcare system holds the potential to generate trillions of dollars in savings by 2050, offering a crucial countermeasure to rapidly escalating medical costs.
U.S. healthcare spending is currently rising on an unsustainable trajectory, outpacing increases seen in other developed economies. The scope of the issue is significant: U.S. healthcare spending reached about 18% of GDP in 2023, compared to an average of 11% for a group of the country’s peers. This trend is expected to continue as the population ages. If the current linear growth path persists, healthcare spending could reach 25% of GDP in 2050.
The scale of the financial challenge is massive, requiring gross annual savings on the order of $2.3 trillion to $4.6 trillion to keep healthcare costs at 20% of GDP in 2050, rather than climbing higher. According to Morgan Stanley Research, the application of AI in drug discovery, hospitals, value-based care, and other areas could potentially create savings ranging from $400 billion to $1.5 trillion.
Terence Flynn, who leads coverage of U.S. Pharma and Biotech at Morgan Stanley Research, notes, “We believe the diffusion of AI through select segments of the U.S. healthcare ecosystem will drive disruption and cost savings that can help to counter rising costs due to demographic trends.”
Policymakers and investors are focusing on two primary areas where AI is likely to have the most significant impact: speed to market in drug development and efficiencies in healthcare facilities.
In drug development, AI holds enormous promise. Although the cost of medicines represents a modest slice of U.S. healthcare spending, around 9% of the total, newly launched drugs have previously contributed to an 11% to 16% reduction in hospital stays. Flynn explains that “AI has the potential to improve drug design by more precisely predicting the molecular structures and the interactions between drug candidates and the target,”. If AI successfully drives an increase in the number of approved medicines, the resulting savings in hospital care and clinical services could be meaningful, potentially generating between $100 billion and $600 billion by 2050.
In hospital and physician care, AI can improve hospital efficiency by optimizing staffing and patient scheduling, and by improving supply chains and drug management. Hospitals are the single largest category in U.S. healthcare spending, and AI-related cost savings of 10% to 20% should be achievable in this sector. AI tools leading to hospital care savings could amount to as much as $900 billion by 2050.
Morgan Stanley experts caution that the impact will not be immediate. Flynn states, “It will likely take at least five years for AI to start having a significant impact on drug discovery, and research shows that an additional period of time passes before the impact of new drugs can be seen in hospital and clinical care costs,”.
However, Erin Wright, who covers Healthcare Services for Morgan Stanley Research, remains optimistic about the long-term outlook: “It will take years to fully implement AI solutions across these various areas, but when we look out to 2050 and estimate the gross cost savings that could be possible, the numbers are really meaningful,”.