‘Moving fast and breaking things’ is a bad idea for health tech startups | Foley & Lardner LLP

]This article was originally published in TechCrunch on May 12, 2022 and is reprinted with permission.

It may seem counter-intuitive, but one of the reasons some entrepreneurs are drawn to healthcare is regulations. No industry outside of defense is so scrutinized, and for good reason: when dealing with people, extra caution is essential.

Rules, requirements, and regulatory complexity can be barriers to entry into the world of digital health startups, but they also present opportunities.

Founders often find creative ways to balance the extra oversight, like saying their launch is just a proof of concept, or that they can’t justify the cost of spending hundreds of thousands of dollars a month on advertising. to attract new users.

When venture capital funding was scarce, it was imperative to prioritize speed and maximize the lead offered by small seed rounds. The environment, however, has changed – growing investor interest and an abundance of available capital have meant that there is an even greater need to allocate a significant budget to compliance.

Speed ​​and efficiency can be essential for startups, but regulatory compliance doesn’t have to be a bottleneck or a financial drain.

If compliance isn’t a consideration from the start, founders will sooner or later find themselves in a situation where they have to scramble to fix things behind the scenes, spending huge sums of money on legal fees – and c is the best case scenario. In the worst case, a deal can blow up.

It is understandable that these concerns may be overlooked at first. There is a certain amount of creativity and dissatisfaction with the status quo necessary for founders to conceive of building something that does not already exist.

But when you build a digital health business, the ultimate end user is someone in need of medical care. The stakes are higher than creating the next puzzle game or food delivery app.

“Move fast and break things” is a glorified strategy in startup culture. But healthcare entrepreneurs have a responsibility – both ethical and legal – to the patients who will use their products and services.

What should you prioritize?

First, businesses must involve legal. They must insist that lawyers measure twice and cut once so that the architecture of the business model is built to scale.

Terms of service and privacy policies may seem boilerplate, but given that for every telemedicine company they are the basic contract with customers, there is a surprising amount of customization required.

That doesn’t mean developing something more specific has to blow your budget. This means that instead of copying and pasting, you should take the time to ensure that the main contract between the patient and the company actually reflects all of the business practices that the company intends to pursue.

Small precautions, like well-written policies and customer communications, can help avoid surprises from federal agencies like the Federal Trade Commission or Health and Human Services. Regulatory intervention can mean steep fines, lingering embarrassment and lasting damage to your public image. For just one of many recent examples, look at the outrage that followed after Flo, an app that tracks menstrual cycles, sold users’ data without their consent.

Undisclosed settlements with regulators are actually not what companies should be focusing on. No matter how law abiding your company is, someone who knows what they’re doing will eventually take a look under the hood. In fact, it’s entirely possible for a digital health startup to go through its entire life without government intervention – even if it’s non-compliant.

Harder to avoid, however, is investor scrutiny. Investors know what to look for, and with so much money at stake these days, due diligence is impossible to dodge.

By thinking ahead and avoiding shortcuts, founders can create a sustainable model for investors and patients.

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