Goodwin recently held the last of its three seminars during J.P. Morgan week in San Francisco, focusing on hot topics in healthcare regulation for healthcare IT and digital health. The beginning of 2018 seemed like the ideal time for this seminar with numerous outlets reporting that 2017 was a banner year for digital health investing. For example, Mercom Capital Group, LLC reported a 42% increase in venture capital funding (from $5.1 billion to $7.2 billion) and a 47% increase in total corporate funding (from $5.6 billion to $8.2 billion) of digital health companies in 2017 as compared to 2016. The panelists were: Joe Mayer, Managing Director, Diagram Healthcare; Dan Gebremedhin, principal, Flare Capital Partners; and Gil Addo, CEO and co-founder, RubiconMD. Goodwin partner Roger Cohen moderated the panel and Goodwin partner Stu Rosenthal provided introductory remarks.
Key takeaways included:
1) Numerous Changes to Regulations Affecting Digital Health and Healthcare IT Companies Due to 21st Century Cures Act. The 21st Century Cures Act contains numerous provisions that affect digital health and healthcare IT companies, therefore, digital health and healthcare IT companies should become familiar with these provisions. For example, the 21st Century Cures Act (i) prohibits the blocking of electronic health information and authorizes the Office of the Inspector General of the U.S. Department of Health and Human Services, or HHS, to impose civil penalties of up to $1 million per violation; (ii) imposes new electronic health record interoperability requirements and authorizes the Secretary of the HHS to take action to encourage compliance with such requirements; (iii) encourages partnerships between healthcare providers, health plans, healthcare networks and other appropriate entities with the goal of offering patients access to their electronic health information in a single longitudinal format; (iv) requires that the Centers for Medicare & Medicaid Services and the Medicare Patient Advisory Committee submit information to Congress regarding telehealth coverage and the potential expansion thereof; and (v) codifies current FDA policy by identifying five categories of medical software that will not be regulated as medical devices if certain conditions are met.
2) Digital Health and Healthcare IT Companies Must be Cognizant of Regulations. Participants in the digital health and healthcare IT industry need to understand and adhere to the relevant provisions of current laws and regulations that cover the industry. Failure to adhere to applicable laws and regulations can lead to government prosecution as evidenced by eClinicalWorks’ entry into a $155 million settlement agreement of a False Claims Act case in May 2017. The government alleged that eClinicalWorks fraudulently obtained certification for its electronic health records software by falsely attesting entity that its complied with the requirements for certification. Allegedly, as a result, eClinicalWorks caused users to submit false claims for federal incentive payments based on the use of its software. Panelists also noted that digital health and healthcare IT companies should keep abreast of proposed changes to laws and regulations covering the industry, as they will affect the likelihood of success of certain digital health or healthcare IT ventures.
3) Seek Guidance from Experienced Counsel as Regulations are Complicated. The laws and regulations covering the digital health and healthcare IT industry are complicated, therefore, it is important to seek counsel from an experienced regulatory attorney early in the company lifecycle to avoid potential missteps. For example, determining whether certain medical software will be regulated as a medical device by the FDA is very fact intensive and requires input from an experienced regulatory specialist as there are dire consequences for making the wrong determination. Gil Addo noted that the complexity of the regulatory landscape is the reason RubiconMD’s first hire was a general counsel, an unusual step for a nascent company.
4) Additional Regulatory Relief is Needed in order to Advance Certain Digital Health and Healthcare IT Companies. Regulatory relief is needed if certain sectors of the digital health and healthcare IT industry are to scale. For example, the differing licensing requirements for medical professionals from state to state create challenges for telemedicine companies in scaling their business models. If a telemedicine company wants to operate throughout the United States, it may be necessary to perform a 50-state survey to understand the myriad licensing requirements and then implement a system to ensure that it is in compliance.
5) Hot Topics in Digital Health and Healthcare IT Industry.
- Interoperability. Panelists noted that lack of interoperability between electric health records software remains a major issue, however, they believe that interoperability is a business problem as opposed to a technical problem. Stakeholders are hesitant to provide competitors with unfettered access to the health information they maintain.
- Artificial Intelligence in healthcare. Panelists noted that although there has been limited adoption of artificial intelligence in healthcare to date, they do expect that artificial intelligence will eventually catch-on in healthcare as it could help healthcare providers make better medical decisions. Therefore, it is an area to pay attention to in the future.