Breaking into Digital Health: Factors Companies Must Consider

By on September 13, 2018

Companies looking to enter the digital health field face myriad legal implications unique to doing business in this sector. Whether emerging or established, companies exploring health care opportunities benefit from careful planning around complex issues such as pace of development, reimbursement systems, strategies for responsible data collection and use, and effective corporate compliance programs. In this podcast, McDermott partners Sarah Hogan, Lisa Schmitz Mazur and Dale Van Demark take a closer look at these and other important factors companies should review when contemplating a move into the digital health ecosystem.

Q. What issues should companies consider before they enter today’s digital health care market?

DV: The first and perhaps most important thing to focus on is the business plan. A lot of business plans that may work in other service sectors may not work in the health care industry because of the way that it is structured or because of consumer expectations.

Beyond that, there are real cultural differences that we see technology companies come up against when they enter into the health care market. Frequently, technology companies are used to a very fast pace. They are used to making mistakes and learning from them, and evolving and developing to move forward. The health care industry has traditionally been much slower and more deliberative, with the goal of getting it right the first time being predominant. That cultural difference can cause problems in building relationships and setting expectations for both pace and service levels.

Finally, understanding the complexity of health care infrastructure is very important. Understanding how the health care system works and how your product, service and business plan work within that ecosystem is critical to establishing the relationships you want and really selling into that marketplace.

Q. When we talk about things like business planning and partnerships, most companies know they need to call their analysts or investors. Why is it also important that they discuss these issues with their legal advisers?

DV: In each of the categories on the business plan, there is a reimbursement structure in the United States that has legal and regulatory requirements. There are restrictions in terms of what people can pay for, and those things significantly determine business plans, particularly cash flow issues and whether it’s a health system, an insurance company or a managed care company.

SH: It is also helpful to talk to your legal advisers because we see these issues  from different perspectives and can help bridge the cultural divide between companies based on our previous experience  in the tech space, or with pharmaceutical companies or health systems. We can help with understanding what the other side is thinking about when entering into a partnership.

LSM: Sometimes the lawyers end up almost being translators.

Q. Tell us what issues you are seeing around data governance, ownership and use.

SH: When companies from the non-traditional health care side look at dealing with health care data, they understand that it is regulated and they often have a very HIPAA-centric view. But there are also thousands of state laws that govern data collection and use. Companies need to take a more holistic approach and ask themselves, “What kind of data are we collecting, and what kind of data do we need?” You need to ensure you have the right to collect it and to use it in the way that you’re using it.

Q. Besides data governance, what other regulatory concerns should companies consider?

LSM: Health care is heavily regulated, and what might be permissible in another industry might not be permissible in health care. That can be a bit of a shock. A great idea in the automobile or the banking industry, for example, may not work in health care because of fraud and abuse laws. A health care company could have a great solution to a problem, but the ways in which they want to implement that solution directly contradict or implicate fraud and abuse laws. That may require tweaking the solution and its revenue model.

There is also a body of consumer protection law. We advise digital companies to review the . Our recommendation is that digital companies, at the earliest stage possible, implement a corporate compliance program that reflects the different laws and regulations that apply to their solution in an appropriate way.

DV: Another frequent challenge is that the functionality being offered is outside of the business relationship or operating model that was contemplated at the time the laws and regulations were established. There is often a gray area and a degree to which you need to accept some risk if you want to proceed. It is a difficult environment to work in, and it highlights the need to work with advisers, including legal advisers, who understand those consequences as they may roll out.

Q. What two questions would you put on a list for non-health-care companies moving into the health care market? What do they need to think about before they make the decision to jump in?

DV: The first question I would ask is, “What is it that I actually do well?” In an area like health care, you don’t have much room for error, and you don’t have much room to learn by doing. You have to be good at what you do to enter into that market and get some traction.

The second question I would ask myself is, “Am I committed for a long-term venture?” Some initial investors and digital health companies that were unfamiliar with the health care marketplace got burned because they thought that these technology companies would have the same sort of runway as in the traditional marketplace. You need to be realistic about the timelines so that you’re not going in expecting the improbable result of fast and massive financial success. You have to commit yourself to really getting ingrained in the health care industry in order to make it work.

SH: I would ask, “What is your plan for corporate compliance?” It looks very different for a Fortune 500 company than it does for a baby startup. You need to have that plan in place so that when your investors come in, they see this as a less risky investment, and so that when the regulators come in, they see that you have all the pieces in place, that you’ve been responsible and you’ve been ethical.

Second, “what is your data strategy?” It may involve buying data, so you may need to partner with others to get the data that you need in order to have a successful product.

LSM: “Is there a problem that your solution addresses, so that you’re not a solution in search of a problem?” It is incredibly important that there is a focused issue that your solution will address, especially given the amount of competition and the degree of innovation that’s happening in the market.

Second, “Can you get paid in conjunction with solving that problem, and how do you get paid?” Sometimes a company will have a great idea, but they find out that they’re actually competing with their customers. Those are issues that we think are really important as you develop your business model and the company grows over time.




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