Regulatory Compliance Issues In Healthcare & How To Navigate Them

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Everyone should be looking at healthcare regulations and compliance strategies, regardless of level. Regulatory compliance is absolutely critical in the healthcare industry, as it helps cultivate a certain standard of patient care. From a financial or deal-based perspective, it comes into play when exiting an existing investment via a forthcoming liquidity event or other method. The first step when looking at a compliance overview is to understand all the regulatory bodies and laws businesses must navigate to ensure they are in sync.

 What are compliance issues in healthcare?

Compliance issues in healthcare involve ensuring that healthcare organizations adhere to laws and regulations that govern patient privacy, data security, billing practices, and relationships between healthcare providers and entities. These regulations aim to protect patient safety, ensure accurate billing, and maintain the integrity of healthcare services. The most important regulations and oversight bodies in the healthcare industry are listed below: 

HIPAA (Health Insurance Portability and Accountability Act)Ensures the protection of patient health information and privacy.
FDA (Food and Drug Administration)Oversees the safety and efficacy of pharmaceuticals and medical devices.
CMS (Centers for Medicare & Medicaid Services)Regulates billing practices and quality of care standards.
OSHA (Occupational Safety and Health Administration)Ensures workplace safety in healthcare settings.
Stark LawProhibits physician self-referral for Medicare and Medicaid patients if the physician has a financial relationship with the entity.
Anti-Kickback StatuteProhibits the exchange of remuneration for referrals for services covered by federal healthcare programs.

Examples of compliance issues in healthcare 

Compliance issues in healthcare involve ensuring that healthcare organizations adhere to a complex array of legal and regulatory standards designed to protect patient safety, privacy, and the integrity of healthcare operations. Some of the most important are as follows: 

Privacy and security

The Health Insurance Portability and Accountability Act (HIPAA) mandates the protection and confidential handling of individuals’ health information by healthcare providers, and data protection is of paramount importance. Healthcare providers must make sure they implement things like encryption, firewalls, and 2-factor identification to guard against data breaches, particularly as more and more patients have supersensitive personal biological data such as genome sequences and DNA registered in systems with healthcare providers that are susceptive to data breaches and hacking.

Eliminating healthcare fraud through billing practices 

Accurate billing and above-board financial practices are extremely important to prevent fraud, abuse of billing, and general negligence that might result in a lawsuit or penalty. Upcoding and unbundling, common fraud practices to overbill for procedures or manipulate billing systems, can be detrimental from both a business and regulatory standpoint. 

Quality of care and patient safety 

In the healthcare industry, quality of care should be the ultimate focus for any business. Businesses should focus on adhering to patient safety requirements, complying with CMS quality standards, and making an all-out effort to prevent anything that would be considered malpractice or negligence. 

Workplace safety

Just like the majority of workplaces in the United States, OSHA is the regulatory body that governs businesses in the healthcare space as well. The impact of COVID-19 changed the game in healthcare, resulting in the necessity of businesses and employees to comply with. As a result of COVID-19, the healthcare industry continues to implement enhanced infection control protocols, such as rigorous use of personal protective equipment (PPE), regular health screenings, and increased sanitation measures.

Drug and device regulations

Compliance with FDA guidelines for pharmaceuticals and medical devices is essential for patient safety, and managing drug recalls and adverse events requires attention to regulatory requirements and how to comply with them. 

Navigating regulatory compliance challenges 

Navigating compliance challenges in healthcare transactions is a significant hurdle. Compliance issues and potential reputational concerns are the primary reasons why deals fall through. The uncertainty surrounding compliance, including the severity of penalties from regulators, whether discovered or self-disclosed, creates significant risk for the business as well as its equity holders.  From a deal perspective, extreme penalties can cripple institutions, particularly in the hospital sector, and lengthy timelines to ascertain these penalties can further deter buyers. 

Balancing compliance programs with operational efficiency is another significant challenge that should be attacked head on. Healthcare organizations must ensure that compliance efforts do not hinder their ability to provide efficient and effective patient care, which is the main focus of healthcare. The risk of whistleblower complaints and internal reporting can pose a challenge; employees may report suspected non-compliance, leading to investigations and potential penalties. Organizations need to foster a culture of transparency and accountability to address compliance issues proactively.

Strategies for effective regulatory compliance

Developing comprehensive policies and procedures is fundamental to effective regulatory compliance, which should clearly define the roles and responsibilities of staff members and ensure accountability at all levels. Compliance issues often play a pivotal role in determining whether a deal will progress. In-depth due diligence is critical to uncover potential compliance risks, such as billing and coding errors or violations of Stark Law. Missteps in these areas can lead to significant financial penalties, drastically impacting a business’s valuation and feasibility.

Training and education on compliance programs 

Regular training for staff on compliance issues and best practices as well as keeping them up to date on trends. For example, good billing standards are crucial to avoid issues where physician practices mistakenly believe they are billing correctly, only to discover they have used incorrect modifiers or failed to stay updated with changing billing rules. 

Internal audits and monitoring

Internal audits and monitoring are crucial in healthcare mergers and acquisitions for ensuring compliance and minimizing risks. For instance, many hospitals set up comprehensive audit systems that periodically review various aspects of their operations. Regular internal audits can uncover discrepancies and potential compliance issues early, allowing for time to change course and rectify the problems. 

Leveraging compliance technology

Hospitals increasingly leverage AI and digital solutions to streamline compliance processes. For instance, electronic health record (EHR) systems provide accurate, up-to-date patient information, reducing the risk of human error and ensuring consistent regulatory adherence. Additionally, AI-powered tools, such as virtual assistants and chatbots, can aid in maintaining compliance by offering real-time insights and recommendations, ultimately improving healthcare operations’ overall efficiency and effectiveness.

Seeking outside experts 

Engaging compliance experts or legal advisors is crucial in healthcare transactions. External audits provide an unbiased review of compliance efforts, identifying areas for improvement and ensuring regulatory adherence.

Example 1: Hospital faces a problem with billing 

One real-life example dealt with a large urban healthcare provider who faced significant compliance issues related to billing practices. In order to correct said issues, they engaged specialized billing experts and conducted comprehensive audits. The audits revealed numerous discrepancies, including incorrect use of billing codes and non-compliance with typical ethics and standards as stipulated in Stark Law. In the end, the hospital was able to change its billing practices completely, which resulted in the avoidance of significant penalties that would have been received down the road. This not only stabilized their financial situation but also improved their reputation within the community, leading to better patient trust and increased service utilization.

Example 2: Hospital discovers issues via outside experts 

A second example is a rural community hospital that was struggling with outdated compliance practices and facing potential fines for non-compliance with anti-kickback statutes. The hospital brought in external legal advisors who performed a thorough compliance review, making sure that all boxes were ticked. The review highlighted several areas of risk, including improper physician compensation arrangements and inadequate documentation practices. By implementing the advisors’ recommendations, this hospital updated its compliance program, conducted staff training, and established regular internal audits. These actions reduced the risk of fines and ensured the hospital’s operations were aligned with federal regulations.

In both cases, the hospitals not only avoided potential fines and legal issues but also achieved long-term benefits. The first hospital’s proactive measures in addressing billing inaccuracies and regulatory compliance resulted in a significant improvement in its financial stability and patient satisfaction. Similarly, the second hospital’s overhaul of its compliance practices led to better risk management and operational efficiency.

What does the future hold for compliance and healthcare? 

The healthcare industry is always in flux, from new technologies that are changing the way the industry is run on a management and execution level to how valuations are conducted along with compliance-related due diligence.  New regulations will focus on data privacy, cybersecurity, and value-based care, necessitating compliance with HIPAA, the Stark Law, and the Anti-Kickback Statute. Additionally, the rise of telehealth and digital health services is introducing new regulatory terrain. 

Technology, especially AI and machine learning, is automating compliance processes, enhancing data security, and ensuring that reporting is as accurate as possible.  AI can identify patterns indicative of compliance risks, while machine learning algorithms improve their accuracy over time. For instance, the collaboration between Google Cloud and Mayo Clinic to develop a generative AI search tool enables healthcare companies to create personalized chatbots. This collaboration illustrates the importance of ensuring compliance with regulations such as HIPAA, as AI systems handle sensitive patient data.


Compliance is important as it’s a preventative measure and not a reactive one. Proactive compliance in healthcare is essential for building patient trust, ensuring legal safety, and maintaining a strong organizational reputation; therefore, healthcare organizations should prioritize regulatory compliance and develop effective strategies to navigate regulations, ensuring successful exit planning. From a deal perspective, compliance mishaps are one of the number one reasons that companies can be turned down during the due diligence process. 

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