Scaling Digital Health Companies: An Execution Strategy is Required

As digital health companies scale—even as the federal government and most states have embraced telehealth—there remain obstacles to quick adoption. One key obstacle is the requirement that licensed providers be licensed in the state where a patient is located, which is further complicated by the fact that the licensure process and requirements for each licensed provider type (e.g., physicians, physician assistants, nurses, physical therapists) may differ. In addition, companies often need several entities through which to provide services due to state corporate practice of medicine (CPOM) restrictions, shareholder-type restrictions and limitations on foreign authorization of professional entities. 

Throughout the COVID-19 Public Health Emergency (PHE), many states waived licensure requirements. Some states issued broad waivers that allowed providers in good standing to provide care in-state without obtaining a license, while others required registration with the state and/or created more unique allowances (e.g., allowing telehealth services without an in‑state licensure for continuity of care). Some states had more limited waivers for non‑physicians.

While all states have rolled back the PHE waivers and flexibilities, some implemented—and others continue to implement—different approaches to facilitate practicing telehealth across state lines. These include:

• Interstate compacts. Interstate compacts create an expedited licensure pathway for licensed providers to deliver either in-person or telehealth services in more than one state.
  • IMLC: The Interstate Medical Licensure Compact (IMLC), created in 2014, established an expedited (although not automatic) pathway for physicians who are licensed in a member state to obtain licensure in other member states. More than 37 states and territories are current members of the IMLC; however, two of the most populous states—New York and California—do not yet participate.
  • Nurse Licensure Compact: The Nurse Compact is a multi-state compact that allows any nurse who has a compact license to practice in any state that is a member of the compact.
  • PSYPACT: Psychology Interjurisdictional Compact (PSYPACT) is an interstate compact that allows the practice of telepsychology and temporary in-person practice of psychology across state boundaries without requiring full licensure in the state where the patient is located.
• Licensure by endorsement or reciprocity.
  • Licensure by endorsement is a streamlined application process that is available to individuals who are already licensed in other states and have certain qualifications (e.g., have held an active license continuously for a set number of years). This approach makes it easier for physicians to apply for a full-state license that would allow them to provide either in-person services or telehealth services in the endorsing state. Hawaii and Virginia have established licensure by endorsement requirements.
  • Licensure by reciprocity is a streamlined application process that allows a physician in a certain jurisdiction to practice in another jurisdiction without obtaining a licensure in the second jurisdiction. Neighboring states are the typical utilizers of licensure reciprocity, as it allows physicians to see patients in any of the included states without obtaining a license in that state. This is particularly relevant in the context of telehealth, where a patient may live in one state and travel to a physician’s office in another state for in-person visits, but conduct telehealth visits from a different jurisdiction. DC, Maryland, and Virginia have established licensure reciprocity between their jurisdictions.
• Specialty purpose telehealth registries or licenses. Specialty purpose telehealth registries or licenses are specific to telehealth and allow licensed providers that are in good standing in one state to practice in other states specifically through telehealth. Florida was one of the first states to establish this process for health care practitioners.
• Exceptions to in-state licensure requirements. Exceptions to in-state licensure requirements allow a provider to practice telehealth across state lines under certain and specific circumstances (e.g., in the case of emergency).

A majority of states prohibit regular business corporations from practicing medicine and employing physicians (known as the corporate practice of medicine (CPOM) doctrine). A smaller subset of states impose the same prohibition against the practice of other licensed professions such as nursing and social work. Often the prohibition is based on very old case law, and sometimes the scope of the prohibition is unclear. However, we have seen some renewed interest in some states proposing to tighten the laws to close certain CPOM workarounds. In states with a CPOM prohibition, digital health companies must ensure licensed professional services are provided through a professional corporation or association or other permitted entity (“professional entity”).

Often states that require the use of a professional entity also require the shareholder of that entity (even if formed in another state) be a physician also licensed in the state where the professional entity is seeking foreign authorization. A few states do not permit foreign authorization of professional entities at all, thus requiring a company providing services across multiple states to have several professional entities.

Also relevant to scale is assessing which states may have coverage and payment parity for commercial insurance and/or Medicaid and for which provider types and telehealth modalities.

Digital health companies focused on expanding provider licensure coverage should consider:

1. Determining organizational strategy related to growth: is a national footprint needed and how quickly? Would a regional approach make more financial sense at the outset? In creating their strategy, they should consider where and who are their customers, what is the competition in the region, where is there a need for more telehealth and where might be a lower barrier to entry considering all of the regulatory factors impacting operations.
2. Identifying the corporate structure necessary to operate in prioritized states: are the states members of the IMLC, PsychPact, etc.? Have they implemented telehealth registries?
3. Exhibiting patience: Scaling 50-states takes time given the myriad of considerations and the speed at which states enable licensure. If the digital health company desires to participate in Medicaid or commercial insurance, enrolling Medicaid or becoming credentialed takes time (and may have its own barriers).
4. Ensuring on-going compliance: as a digital health company scales requires a review of the relevant state legal and regulatory frameworks regarding telehealth delivery, including consent, disclosures, prescribing, and documentation standards that a state may require of all of its licensed providers or that may be unique to those providing telehealth.

Note: This blog adapts some content from the American Medical Association and Manatt’s telehealth licensure issue brief.