5 Common Compliance Mistakes Healthcare Startups Make (and How to Avoid Them)

Healthcare startups are shaking up the industry, but one misstep in compliance can mean fines, lawsuits, or even shutting down. Here are five compliance mistakes that healthcare startups often face, and what you can do to stay in the clear.

1. Mishandling Patient Data: A HIPAA Problem Waiting to Happen

If you’re working with patient data, keeping it secure isn’t optional—it’s the law. Many startups overlook encryption, forget to secure their systems, or fail to train staff properly, leading to costly breaches.

Example:
Touchstone Medical Imaging paid $3 million after a data breach exposed patient health information. Their servers weren’t secured, and sensitive data was left online. (Source: HHS.gov)

How to Avoid It:

• Encrypt all patient data—whether it’s stored or in transit.

• Use HIPAA-compliant tools like Vanta or Compliancy Group.

• Train your staff regularly on data privacy protocols.

2. Breaking Stark Law: Referrals That Cost You

The Stark Law stops doctors from referring patients to entities they or their families have financial stakes in, especially when Medicare or Medicaid is involved. Ignoring this can lead to lawsuits and hefty fines.

Example:
Piedmont Healthcare settled for $16 million after billing Medicare for services linked to improper referrals. (Source: DOJ)

How to Avoid It:

• Review your referral practices with a compliance expert.

• Audit financial arrangements with referring providers.

• Educate your team about referral laws and red flags.

3. Getting Tangled in Kickback Scandals

Kickbacks—offering or receiving payments to influence patient referrals—are illegal and can lead to criminal charges. Too often, startups enter questionable deals without fully understanding the risks.

Example:
Fifteen doctors in Texas paid over $2.8 million to settle allegations of receiving illegal kickbacks for lab test referrals. (Source: DOJ)

How to Avoid It:

• Put clear anti-kickback policies in place.

• Regularly audit partnerships and vendor agreements.

• Be transparent about payments and avoid quid pro quo arrangements.

4. Billing and Coding Errors That Trigger Audits

Billing mistakes might seem small, but they can lead to audits, fines, and strained relationships with payers. Whether it’s unintentional upcoding or sloppy documentation, the consequences can be huge.

Example:
A medical group was fined $1.7 million for improper coding that led to overpayments from Medicare.

How to Avoid It:

• Train your billing team on current coding standards.

• Use reliable billing software to reduce errors.

• Schedule regular internal audits to catch mistakes early.

5. Failing to Keep Licenses and Credentials Up-to-Date

Operating without the proper licenses or hiring uncredentialed providers is a surefire way to get into legal trouble. This mistake can also erode patient trust.

Example:
A Florida healthcare company was fined $500,000 for employing unlicensed staff, jeopardizing patient safety and compliance.

How to Avoid It:

• Set up automated reminders for credential renewals.

• Verify all provider licenses and certifications during onboarding.

• Stay current on licensing laws in every state you operate in.

How to Stay Ahead

Compliance might not be glamorous, but it’s essential for building a successful healthcare startup. By taking proactive steps—like auditing your processes, training your team, and using tools designed for healthcare compliance—you can protect your business from costly mistakes.

Need help setting up your compliance framework? We can help!