State and Federal Policymakers Revisit Regulations to Meet Innovation Needs
Recent changes in the framework for telemedicine innovation show that regulatory reform requires not just strong political commitment, but also regulatory coordination between federal government and state agencies.
Cristina A.
Fernandez
11 Nov 2020

It's no secret that governments around the world have helped unleash the development and adoption of innovation. At the city level, for instance, some public offices have revisited their procurement practices to help foster the adoption of innovation. In the United States, cities like Philadelphia and San Francisco were one of the first to implement problem-based procurement programs as a means of opening up government contracts to a wider selection of businesses.

In recognition that the most innovative startups those that disrupt entire industries need to manage regulatory risk to take off, governments have also developed the so-called regulatory sandboxes in places like Singapore, Switzerland and the United Kingdom.  These sandboxes allow stakeholders to work together to explore safe ways to clear out regulatory barriers standing in the way of access to innovation. In the United States, the first regulatory sandbox emerged at the state-level. Arizona’s fintech sandbox grants approved businesses limited access to the state’s consumer market to test innovative FinTech and RegTech products and services without first having to obtain otherwise applicable authorizations to operate, such as a business license.

Then there is the more traditional path to regulatory changes, which are usually the slowest to react to the possibilities brought by innovation. It usually takes a shock for government to reconsider regulations designed with the intention to protect consumers. The COVID-19 pandemic propelled such changes in one of the most highly regulated industries in the United States – healthcare.

In response to crowded medical centers and hospitals during the pandemic, the U.S. federal government enacted changes that have unlocked a new market for young telemedicine businesses. Since March 2020, 44 million people in the Medicare program for seniors and the disabled have greater flexibility in seeking remote treatment, such as via video or telephone. More specifically, the U.S. Department of Health and Human Services (HHS) decided to waive potential penalties under the Health Insurance Portability and Accountability Act (HIPAA) during the coronavirus emergency, as long as teleconferencing tools are used in good faith. This regulatory move in effect lifted restrictions to Medicare reimbursement for remote consultations with caregivers. In addition, the Drug Enforcement Agency (DEA) relaxed requirements on e-prescriptions of controlled substances, allowing patients to stay home and limit transmission of the novel coronavirus.

Prior to the pandemic, technology-enabled remote services were slow to catch on in government-financed healthcare programs such as Medicare. As reported by Brian Gormley of the Wall Street Journal, for years regulations constrained the growth of this sector, mostly related to understandable, but often outdated, privacy and physician liability concerns. For example, the potential of telemedicine for reaching rural populations was only reflected in its adjusted regulations two years ago.

At the state level, licensing rules have restricted delivery of services across state lines. The urgency of the pandemic also opened the way for state policymakers to address state licensing restrictions, which prevent health providers from adapting to the new challenges brought on by the pandemic. Some state governments have also relaxed restrictions around online prescriptions and written consent, as well as expanding telehealth options in Medicaid programs. Many states are also mandating that private insurance plans cover and reimburse telemedicine services equal to in-person care. The matter of service parity and payment parity was recently explored in a paper published by the Kaiser Family Foundation.

Combined with trends in the pandemic-related changes in consumer preferences, these federal and state regulatory changes bode well for digital-health startups to scale quickly and sustainably. It’s a respite for telemedicine entrepreneurs who have endeavored to bring innovation to the healthcare industry, such as wearable devices that monitor key health metrics and other technologies that allow health providers to better manage patients from their homes, or medical researchers to conduct clinical trials in patients’ homes. Naturally, it also helps startups’ prospects for early-stage investment and for acquiring customers who could use their technologies well after COVID-19 is contained.

Expert consultation as part of the Index of Dynamic Entrepreneurship (IDE) 2020 report reveals that the pandemic is likely to unleash a number of other regulatory reforms around the world as governments elevate entrepreneurship and innovation on the political agenda in the medium term. Among the regulatory aspects which the IDE panel of experts mentioned were new, specific frameworks for new and young companies, revisions to bankruptcy laws, the implementation of electronic government, and the creation of favorable conditions for digital economy activities (cybersecurity, cryptocurrencies, telemedicine, etc.).

In this favorable context for sound regulatory review, the United States is in a strong position given its solid institutional capabilities to reach agreements around the required transformations. As shown by the recent changes in the framework for telemedicine innovation, regulatory reform requires not just strong political commitment to helping secure the nation’s technological future while strengthening consumer safeguards, but also regulatory coordination between federal government and state agencies.

Cristina A. Fernandez

Vice President for Policy + Research | Global Entrepreneurship Network

Cristina Fernández focuses on integrating public officials into startup ecosystems across the world, creating platforms for them to exchange ideas… More