Below, Polsinelli Shareholder Adam Hull and Gray Reed Senior Counsel Matthew Lipton summarize their Dallas Startup Week discussion titled “Stay out of trouble! Securities and health care laws you must know when running a health start-up.”
1. Health care start-ups need to understand the regulatory environment in which they will conduct business. Depending on the nature of the company’s business and revenue model, it may be subject to multiple regulatory agencies or other legal requirements, including state-specific corporate practice of medicine rules, Stark and anti-kickback laws, FDA approval requirements, HIPAA, and other data privacy laws related to protected health care information.
2. It’s also important for health care start-ups to understand who their paying customer is, for purposes of establishing the company’s business model. Often, this isn’t who it might first appear to be. The person to whom the company is providing services often isn’t who is paying for those services. If your start-up’s product or service requires payment by, or reimbursement from, an insurance company, your company might not be able to generate revenue if the product or service is not yet covered by insurance. This disconnect can prove to be an existential problem for your start-up, especially if your company’s product or service can’t be shown to fall within an existing reimbursement category.
3. Establishing the start-up’s ownership of its intellectual property is crucial. The first step is to make certain that everyone who has ever been involved in the creation, development, or modification of the company’s intellectual property has signed an agreement confirming the company’s ownership of the resulting IP and assigning to the company any rights that individual might have to that intellectual property. This includes the founders.
4. Founders of any start-up need to think of their company’s organizational documents as a pre-nup. At the outset, the founders should address how to unravel their relationship without killing the company. This is only possible before substantial money is involved.
5. Take negative feedback about your company seriously. Start-ups don’t work unless the founders drink their own Kool-Aid (at least a little), but that shouldn’t mean that they should ignore constructive criticism. If someone doesn’t agree with or understand what you are doing, there may be legitimate issues with the concept. If not, there may at least be problems with the way you are presenting the idea.