Health care companies are looking more like tech companies

The last jobs report showed the U.S. labor market has dramatically slowed down. Revised numbers reveal the economy lost jobs in June, the first decline since December 2020. The report heightened concerns about a cooling labor market but also showed one bright spot: the health care sector added jobs.

“So far in 2025, the economy has added an average of about 74,000 private-sector jobs a month, according to the Labor Department, a step down from last year’s average gain of about 130,000 jobs. Take away the roughly 64,000 jobs that health services have been adding each month, though, and the remainder of the private sector has been contributing only about 9,400 jobs a month.” (Wall Street Journal)

When health care is adding jobs, it’s good news and bad news.

• Good news: Job growth is always good, right?
• Bad news: Job growth in health care is typically associated with an aging population, lower productivity, and lower growth. The most frequent job profile in the health care sector is home health aid. A critical job, yes, but not one that suggests our economy is growing quickly, advancing technologically, or growing in strategic sectors like construction and manufacturing.

Since health care is seen as a slow-moving, unproductive sector, the jobs report was met with more concern than it otherwise would have been. Concerns about the job market are fair, but I think the health care sector is unfairly maligned by this perception, which, by only observing jobs data, fails to see where the sector is actually investing. If you look at a full picture of where health care businesses are actually spending, you see a fast-changing sector rapidly adopting new technology, with relatively modest headcount growth. In other words, real, productivity-enhancing investments that may improve patient care.

First, let’s overlay labor market data with Ramp corporate spend data. Over the last two years, the health care sector has grown headcount 8.1 percent. Over the same period, corporate spend on Ramp (essentially all spend except for payroll) has grown 27 percent.

So health care is actually growing faster outside of labor. It’s an incomplete assessment to write-off the sector as simple growth in home health aids when the fastest area of growth is non-payroll costs.

But it’s more than that. This isn’t just growth in administrative costs or overhead. When you go category-by-category, you see the health care sector is specifically increasing spending in high-tech categories that could boost productivity, specifically AI and software.

So now we see two main trends: First, that health care non-payroll spend has far outpaced headcount growth. Second, that the fastest-growing categories are AI and software, not generic overhead. That’s an operational bet that new tools can raise throughput and quality without proportionate hiring.

These are not the spending habits of an aging, unproductive industry. Instead, I see a health care sector that is modernizing.

So how should we judge whether this is modernization or just a bigger bill? Two tests over the next 12 months:

• Efficiency. Administrative hiring should slow where software/AI spend surged. If it doesn’t, it means we’re layering admin on admin.
• Outcomes. Process metrics (denials, documentation time, scheduling delays) should improve, though much of this will be tracked at the firm-level and will not necessarily appear in aggregate economic data.

Solely focusing on job growth in the health care sector fails to tell the full story of how the sector is changing. And while I understand, and in many ways, agree with other economists concerned about a cooling job market, our impressions of the health care sector may be outdated. A modernizing health care sector is a good thing. Now, let’s watch to see if the shift to software delivers productivity gains.

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