Digital health companies face a complicated regulatory landscape. While the opportunities for innovation and dynamic partnerships are abundant, so are the potential compliance pitfalls. In 2018 and in 2019, several digital health companies faced intense scrutiny—not only from regulatory agencies, but in some cases from their own investors. While the regulatory framework for digital technology in health care and life sciences will continue to evolve, digital health enterprises can take key steps now to mitigate risk, ensure compliance and position themselves for success.

1. Be accurate about quality.

Ensuring that you have a high-quality product or service is only the first step; you should also be exactingly accurate in the way that you speak about your product’s quality or efficacy. Even if a product or service does not require US Food and Drug Administration clearance for making claims, you still may face substantial regulatory risk and liability if the product does not perform at the level described. As demonstrated in several recent public cases, an inaccurate statement of quality or efficacy can draw state and federal regulatory scrutiny, and carries consequences for selling your product in the marketplace and securing reimbursement.

Tech companies and non-traditional health industry players should take careful stock of the health sector’s unique requirements and liabilities in this area, as the risk is much higher in this arena than in other industries.

2. Factor the regulatory environment into your business plan.

The regulatory landscape has meaningful implications for business planning—both for securing initial funding and for growing revenues over time. Early-stage companies face mounting pressure to demonstrate growth and revenue, but doing so at the expense of careful legal and regulatory compliance is a dangerous approach.

For example, if a business plan inadvertently relies on illegal referral patterns, the company can run into substantial problems with regulators, and potential investors or acquirers may decide the investment is not worth the risk. To avoid these pitfalls, make sure your business plan takes full account of today’s legal, regulatory and reimbursement realities.

3. Implement—and update—robust oversight structures.

It is difficult to overstate the importance of oversight in today’s environment. A little bit of careful planning goes a long way toward ensuring a growing and viable business that will attract investors. From day one, digital health companies should have structures in place to provide serious compliance and governance oversight, and these structures should be updated as the company grows and its operations evolve.

If a digital health company enters into a partnership, for example, oversight structures should be enhanced to address the changing business model. The importance of robust oversight in partnership arrangements was demonstrated in 2018, in a widely publicized US Department of Justice investigation of a telemedicine and e-prescribing arrangement that resulted in a multi-million dollar settlement.

Effective reporting mechanisms as part of an overall oversight program can help digital health companies avoid problematic relationship and referral arrangements.