Cash-pay digital health companies face regulatory risk from all-payor laws

Cash-pay digital health companies may face civil, criminal, and professional liability if they compensate referral sources to steer patients. This risk is driven by state all-payor fraud and abuse laws, which prohibit compensation for referrals regardless of whether the company accepts insurance. Unlike federal Anti-Kickback and Stark laws, which apply to federal program business, all-payor laws focus on protecting patients from clinical decisions based on financial incentives.

Many early-stage companies launch as cash-pay businesses to avoid the complexity of insurance reimbursement. They often structure compensation or partnerships with referral sources, such as influencers or sales personnel, to generate patient volume. However, these arrangements can trigger all-payor laws in states like California, which prohibits licensed professionals from receiving compensation for referring patients to any person, regardless of whether the person is referred to a licensed professional.

Beyond the regulatory penalties, these arrangements create operational risks. Improper referral arrangements complicate the transition to accepting insurance or national expansion. They also create issues during investor due diligence for fundraising rounds, mergers and acquisitions, and IPOs.