Private Equity Doubles Down on AI to Curb Runaway Lab Test Costs

NEW YORK, NY – January 12, 2026 – In a significant move highlighting the growing influence of technology in managing healthcare costs, private equity firm WindRose Health Investors has announced a major investment in Avalon Healthcare Solutions. Avalon, a technology company specializing in the management of diagnostic lab testing, also received an additional investment from its existing backer, Francisco Partners, a global technology investment firm.

The combined investments are set to accelerate Avalon's mission to rein in the complex and often-overlooked world of laboratory spending for health insurance plans. Using a proprietary technology platform that integrates clinical science and data analytics, Avalon aims to ensure that the millions of lab tests ordered daily are both medically necessary and cost-effective.

This infusion of capital comes at a critical juncture for the U.S. healthcare system. While diagnostic testing accounts for a small fraction—roughly 2-3%—of total healthcare expenditures, it influences an estimated two-thirds of all clinical decisions. With the advent of personalized medicine and an explosion in complex genetic testing, payers are grappling with soaring costs and a lack of standardized oversight. Industry research suggests that as much as 30% of all lab tests may be unnecessary, contributing to billions in wasteful spending and potential patient harm.

Avalon's CEO, Bill Kerr, who will continue to lead the company, emphasized the strategic importance of the new partnership. "We are grateful for Francisco Partners' continued support and are excited to partner with WindRose and begin this next chapter," said Mr. Kerr. "We believe WindRose is a perfect additional partner to support the Company's growth strategy of delivering an end-to-end lab benefit management platform. With the help of WindRose's investment and strategic involvement, Avalon will continue to drive meaningful efficiencies on behalf of its health plan clients."

The Tech-Fueled War on Wasteful Spending

Avalon operates in the burgeoning field of Lab Benefit Management (LBM), a market dominated by a few key players, including Optum and eviCore, who are all racing to provide solutions for overwhelmed health plans. What sets Avalon apart, according to its backers, is its purpose-built technology platform.

The system automatically reviews lab test claims in real-time, cross-referencing them against a vast, constantly updated library of evidence-based clinical policies. This allows for the automated enforcement of guidelines, flagging tests that may be redundant, inappropriate for a given diagnosis, or less effective than a cheaper alternative. The company claims its approach can save health plans between 7% and 12% on their outpatient lab spend—a figure that translates into massive savings when scaled across millions of members.

"Avalon has built a leadership position as a preferred partner to health plans that seek operational efficiencies while managing increasingly complex lab benefits," noted David Pontius, a Partner at WindRose. "Avalon's purpose-built lab insights platform uniquely combines lab benefits management, clinical science, and analytics to deliver value to its clients. We are thrilled to partner with Bill and the team to scale the business and continue to support product innovation."

The challenge is immense. The number of available genetic tests alone has surpassed 70,000, with new, highly specialized assays entering the market constantly. This rapid innovation, while promising for personalized medicine, creates a significant knowledge gap for both payers and providers, making it nearly impossible to keep up without sophisticated technological assistance.

A Strategic Bet by Healthcare's Financial Architects

The dual investment from WindRose and Francisco Partners is more than just a financial transaction; it represents a calculated bet on the future of healthcare administration. Both firms have a history of investing in companies that leverage technology to solve entrenched problems in the healthcare sector.

WindRose, a New York-based firm managing approximately $7 billion, specifically targets companies that deliver cost-effective solutions to the healthcare industry. Its portfolio strategy focuses on identifying "thematic shifts" and backing businesses in areas like outsourced payer services and tech-enabled solutions. Avalon fits squarely within this thesis, offering a clear path to reducing payer costs through automation and data intelligence.

Francisco Partners, a technology-focused giant with over $50 billion in raised capital, has a track record of scaling tech-enabled businesses. Its continued support for Avalon, alongside its investments in other health data companies like Merative (formerly IBM Watson Health), underscores a deep belief in the power of data to transform healthcare operations. The potential synergies are clear: Avalon's specialized lab data could be integrated with broader health data platforms to create more powerful analytical tools for payers and life sciences companies.

"Avalon has evolved into a differentiated, mission-critical partner for health plans by combining deep clinical expertise with a highly scalable technology platform," said Ezra Perlman, Co-President of Francisco Partners. "We are excited to continue supporting Bill and the Avalon team as they invest in new product capabilities and drive meaningful impact for payers navigating an increasingly complex diagnostics landscape."

Navigating the New Frontier of Diagnostic Management

While the primary beneficiaries of Avalon's services are health plans seeking to control costs, the ripple effects extend to both patients and providers. Proponents argue that effective lab benefit management leads to better medicine. By steering away from unnecessary tests, patients are spared needless anxiety, potential complications from sample collection, and the cascade of follow-up procedures that can result from a false positive. Furthermore, ensuring the right test is ordered can lead to faster, more accurate diagnoses and better health outcomes.

Avalon has highlighted programs where its analytics identified patients at high risk for kidney disease, enabling early intervention and improved population health management. This demonstrates a potential beyond simple cost-cutting, moving toward a more proactive and data-driven model of care.

However, the rise of LBMs is not without friction. For healthcare providers, these platforms can represent another layer of administrative burden. The need to secure prior authorization for certain tests can interrupt clinical workflow and, in some cases, lead to delays in care. Striking the right balance between robust oversight and clinical autonomy remains a central challenge for the entire LBM industry. The success of platforms like Avalon will ultimately depend not only on the sophistication of their technology but also on their ability to seamlessly integrate into the clinical environment without becoming an obstacle to high-quality patient care.