This is the first in our series leading up to HLTH USA 2026, where our team will share insights on the legal and business issues facing physician innovators, healthcare leaders, entrepreneurs, and investors.
Physicians have more opportunities than ever to turn their ideas into businesses. Artificial intelligence (AI) and other emerging technologies are accelerating the development of new products, digital health platforms, and care delivery models.
But a promising innovation doesn’t necessarily translate into a sustainable business that customers will adopt, investors will finance, or buyers will want to acquire.
In our work with physician entrepreneurs, healthcare companies, medical groups, health systems, and investors, we frequently see promising businesses encounter obstacles because their ownership arrangements, regulatory structures, or commercial relationships weren’t designed to support the next stage of growth.
As we prepare to present at the Physician Innovator Series during HLTH USA 2026, I wanted to highlight three areas that can significantly affect a company’s ability to attract investment, grow, and ultimately complete a successful transaction.
1. From Clinical Innovation to a Viable Business
A physician may identify an unmet clinical need and develop a product or service that addresses it. But demonstrating that a solution works is only part of building a successful company.
Investors and strategic partners want to understand not only whether a solution works, but whether customers will adopt it, who will pay for it, whether it fits into existing clinical and operational workflows, and whether the revenue model is sustainable. As AI capabilities become more widely available, demonstrating a competitive advantage that extends beyond the technology itself is increasingly important.
Choose the right entity. A Delaware C corporation may make sense for a startup planning to raise institutional venture capital and issue stock options, while an LLC may be more appropriate for a closely held, self-funded business or a venture owned by an existing organization. A single-member LLC may be treated as a disregarded entity for federal income tax purposes, depending on its tax elections. The right choice depends on the ownership structure, financing plans, tax considerations, and anticipated exit strategy. Potential qualified small business stock (QSBS) tax benefits may also be relevant for eligible C corporation investments, although not all healthcare businesses qualify. Changing the structure later can create unnecessary costs and complications.
Equity incentives and early financing arrangements also require careful planning. Stock options and other equity awards can help attract employees and advisors, while SAFEs and convertible notes may provide flexibility when raising initial capital. But vesting requirements, dilution, valuation caps, conversion terms, and investor rights can have lasting consequences. A founder may retain majority ownership while giving investors substantial control over important business decisions.
Commercial agreements can create similar challenges. An exclusive arrangement with an early customer or strategic partner may provide needed revenue but prevent the company from pursuing a larger opportunity later.
The goal isn’t to avoid early commitments. It’s to understand how they may affect future financing, customer relationships, strategic partnerships, and exit opportunities.
2. Structuring for Investment and Growth
Healthcare companies face regulatory requirements that can significantly affect their ownership, operations, and growth strategies.
A physician developing software for hospitals may initially operate as a technology company. But the regulatory analysis can change significantly if the business begins offering clinical services, contracting with physicians, or receiving compensation tied to healthcare services.
A company may successfully launch a clinical service in one state only to discover that its ownership or management structure needs to change before it can expand into another. Similarly, an arrangement that works with the original founders may create problems when institutional investors seek governance rights or a buyer proposes an acquisition.
Corporate practice of medicine restrictions, professional licensure requirements, fee-splitting prohibitions, and federal and state fraud and abuse laws can affect how the business is owned, managed, and compensated. For businesses providing professional medical services, state law may also limit the available entity structures and who can own them.
A physician professional corporation and management services organization (PC/MSO) structure may be appropriate for certain businesses, but creating separate entities and signing a management agreement doesn’t, by itself, resolve the regulatory issues. The structure must reflect how the business operates, including who controls clinical decisions and how the parties are compensated.
Recent legislation in California and Oregon underscores the growing scrutiny of management arrangements, investor influence, and control over medical practices. These developments reinforce the importance of evaluating not only formal ownership and governance rights, but also how clinical and operational decisions are made in practice. For medical groups considering strategic investors or management partners, these considerations can be as significant as the financial terms.
Physician financial relationships present another challenge. A physician may serve as an investor, medical director, advisor, and potential referral source for the same company. Equity or other compensation may be appropriate for legitimate services or investments, but fair market value alone doesn’t eliminate potential concerns under federal or state fraud and abuse laws.
The time to evaluate these issues is before the company enters new markets, adds services, or negotiates a transaction that changes its ownership or control.
3. Protecting Enterprise Value
AI is creating significant opportunities for healthcare companies, but it also raises questions that can directly affect enterprise value.
For companies developing AI-enabled products, investors and buyers will want to understand who owns the underlying technology, what rights third-party vendors retain, whether the company has the necessary rights to use customer and healthcare data, and what restrictions apply to data retention, reuse, and model training. These issues can affect not only regulatory compliance, but also whether the company’s products can be commercialized, expanded, or acquired.
AI is also changing how founders prepare the documents that govern their businesses. We’re seeing more entrepreneurs use these tools to draft operating agreements, advisor arrangements, and financing documents. While useful, these documents may omit important protections or create obligations that become problematic during financing or due diligence.
An operating agreement may fail to address what happens when a founder leaves. An advisor agreement may not clearly assign intellectual property. A financing document may give an investor approval rights the founder didn’t intend to grant.
These problems often become apparent during due diligence, when investors and buyers examine the company’s ownership records, material contracts, intellectual property rights, physician relationships, regulatory structure, and financial arrangements.
For health systems and medical groups considering strategic partnerships, diligence may also focus on whether a technology can be implemented across the organization, whether the company has sufficient rights to use and share data, and whether the commercial relationship can support the organization’s long-term needs.
Not every issue identified during diligence has the same consequences. Some can be resolved through additional documentation or changes to existing agreements. Others, such as uncertain ownership of core technology, significant regulatory exposure, or restrictive commercial commitments, may affect valuation, require substantial restructuring, or cause an investor or buyer to reconsider the transaction.
Understanding these risks early can help companies preserve their options and negotiating leverage.
Looking Ahead to HLTH 2026
As HLTH 2026 explores the opportunities presented by intelligent healthcare, physicians will continue to play an important role in developing new technologies, improving care delivery, and building healthcare businesses.
But successful innovation requires more than a promising product or service. It requires a viable business model and the ownership, governance, regulatory structure, and commercial relationships needed to attract investment and support growth.
The decisions that make a company easier to launch aren’t always the decisions that make it easier to finance, scale, or sell. Understanding those tradeoffs early can make a significant difference in the company’s future.
I’ll be joining my Husch Blackwell colleagues at HLTH USA 2026 in Las Vegas, where we’ll be presenting as part of the Physician Innovator Series on November 15. We’ll be discussing these issues and other legal and business considerations facing physician entrepreneurs, healthcare leaders, and investors.
If you’re attending HLTH, I’d welcome the opportunity to connect, hear what you’re working on, and discuss some of the challenges and opportunities you’re seeing.