During the Great Depression, New York’s streets turned chaotic. Thousands of unemployed residents, desperate for work, began running unlicensed cab services in their own cars—crowding intersections and undercutting one another for fares. Safety was nonexistent, and competition was ruthless.
In 1937, the city signed the Haas Act, creating a new system that capped the number of taxis and required each vehicle to display a medallion, which granted the exclusive right to pick up passengers in New York City. This medallion system reigned for three-quarters of a century.
Then, in 2011, Uber launched in New York City and changed everything. With little regard for existing city, transportation, and labor regulations, Uber clashed with officials in New York—and in almost every city it entered. Cease-and-desist orders and lawsuits piled up. But as demand for Uber continued to surge, regulators eventually caved and created new frameworks to legitimize app-based ride services.
Uber’s entry revealed a simmering tension: regulations are designed to protect the public, but can unintentionally stifle competition and innovation. If there’s one industry that highlights these tensions better than any other, it’s healthcare, where privacy, security, and trust are paramount. Here, individual and industry activities must be strictly overseen, and a substantial web of state and federal regulations has developed accordingly. The resulting system is one that can be characterized as outrageously costly, bloated, and sclerotic.
**How can—and should—innovation in healthcare occur amid this tension?**
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## The Model That Made Uber Soar Nearly Sank Zocdoc
In many ways, Zocdoc is the Uber of healthcare. Founded in 2007, Zocdoc launched a digital marketplace that helps patients find doctors and book appointments online. Put simply: they connect consumers to doctors, just as Uber connects riders with drivers.
Zocdoc’s value proposition is straightforward: enable consumers to see real-time availability, compare providers, and schedule visits online. Its business model was initially simple too—charge doctors a fixed monthly subscription fee to be listed on the platform.
This worked at first, but as the company grew, its business model began to show strain. High-volume providers who filled many appointments got a bargain, while low-volume providers struggled to justify the fee. Over time, Zocdoc’s subscription fee led to high churn and stagnant revenue—a classic dilemma for healthcare platforms: a pricing model misaligned with value.
Zocdoc’s leadership recognized that a transactional model, where providers paid only when a patient scheduled an appointment, would better align incentives and scale efficiently. After all, this model had already worked for Uber, Amazon, and many other platforms.
“We weren’t oblivious to the fact that a per-booking model would be better. We just didn’t see a path to this when we got started,” explained Zocdoc CEO and cofounder Oliver Kharraz in a recent interview.
The reason? Zocdoc operates in healthcare. While transaction-based fees exist for back-end administrative processes like claims or e-prescriptions, they’ve been largely off-limits in clinical frontlines—specifically for patient access and care coordination. A per-booking model risked violating one of healthcare’s most powerful and long-standing laws: the Anti-Kickback Statute (AKS).
As Kharraz put it: “We got caught up in laws that were created in 1972 when the fax machine was the hot technology of the day.”
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## The Anti-Kickback Statute: Protecting Patients, Blocking Progress
Like the Haas Act of 1937, the AKS was enacted in 1972, long before the advent of the internet and modern digital technologies. The Anti-Kickback Statute is a federal criminal law that prohibits offering or receiving anything of value in exchange for referrals of services covered by federal healthcare programs such as Medicare or Medicaid. Its intent is unambiguous: to prevent fraud, overutilization, and corruption in a system where public funds and patient well-being are at stake.
The logic is sound. A specialist shouldn’t be able to pay a primary care doctor for referrals. A skilled nursing facility shouldn’t be able to pay a hospital for priority discharge placements. And no party should be incentivized to steer patients toward care that isn’t medically necessary. The statute has been an essential guardrail against abuse for decades.
But as technology has transformed how care is accessed, coordinated, and delivered, the AKS has also created a choke point for legitimate innovation.
Jonathan Bush, CEO of Zus Health, points out that the law’s rigidity is inadvertently stifling progress. “Kickbacks exist in almost all supply chains, except for healthcare,” he recently wrote. “Travel aggregators like Kayak deliver consumers to airlines in return for a small cut of the profits. Kickbacks motivate people and businesses to connect with each other.” In other words, transactional incentives are not inherently corrupt—they’re foundational to efficient markets.
Healthcare, however, is different. It’s a fragmented and heavily siloed “system of systems” where data exchange is the lifeblood of coordination: booking appointments, sending referrals, transmitting prescriptions, ordering lab tests, sharing histories. Every handoff requires trust, precision, and timely exchange. Yet the very companies that could streamline those exchanges often feel their business models are handcuffed, wary that any per-transaction payment structure could be interpreted as an inducement.
The result? Most digital health platforms default to suboptimal subscription models, which don’t align with outcomes. Others confine their models to commercially insured patients, sidestepping AKS entirely. Either way, innovation stalls. Patients lose. Providers lose. And the industry remains cut off from the efficiencies and network effects that have transformed nearly every other sector of the economy.
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## Zocdoc’s Long Road to Legal Reinvention
Zocdoc could have taken the easy route. It could have rolled out its per-booking model only for commercially insured patients, where AKS doesn’t apply. But that would have left tens of millions of Americans—and a massive segment of the healthcare market—behind.
“We took the hard way,” said Kharraz. “We could have said, ‘We’ll only do this for commercially insured patients, and the regulatory environment would’ve been dramatically easier.’ But we wanted to make the tools available for all.”
So Zocdoc did something almost unheard of in digital health: it went straight to Washington. Unlike Uber, which fought regulators, Zocdoc decided to work with them. The company undertook a formal, collaborative process to gain approval for a new kind of business model.
Zocdoc engaged with the Department of Health and Human Services’ Office of Inspector General (OIG) to request a formal Advisory Opinion—a process allowing organizations to ask, in advance, whether a proposed business model would violate AKS. This was a first for a digital health marketplace.
What followed was nearly two years of legal review, iterative design, and the addition of structural safeguards to ensure compliance. The outcome was transformative. In an Advisory Opinion issued in 2019, OIG formally approved Zocdoc’s shift from a flat subscription model to per-booking and per-click fee structures, finding that the design, with strict safeguards, did not pose a significant risk under AKS.
Four years later the OIG revisited the model to assess new features, such as “spend caps,” which prevent providers from buying their way to the top of search rankings. The agency again found the structure compliant, underscoring that Zocdoc’s model preserved patient choice and fairness. The rulings didn’t change the law, but set a powerful precedent for others to follow.
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## What Zocdoc’s Approval Actually Means
OIG advisory opinions apply only to the party that requests them. But in practice, they function as guideposts for the entire industry, showing what’s possible under existing law.
Zocdoc’s favorable opinions made one thing clear: it is legally permissible for a digital platform to charge per-referral or per-booking fees, as long as key safeguards are in place. Those include:
– **Preserving patient choice**: The platform cannot steer or recommend providers.
– **Ensuring fair market value**: Fees must be flat, pre-set, and not tied to downstream revenue.
– **Maintaining transparency**: Paid placements must be clearly labeled as “sponsored.”
– **Displaying multiple options**: Patients must always see comparable providers.
– **Preventing inducements**: No payments can flow to referring parties such as primary care providers or hospitals.
It’s a narrow path—but a transformative one. By demonstrating that transactional monetization can coexist with AKS compliance, Zocdoc effectively rewrote the playbook for healthcare marketplaces. The implications extend far beyond appointment scheduling.
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## The Market Opportunities Now in Play
Just as Uber’s regulatory challenge created a massive new market for on-demand platforms like Lyft and DoorDash, Zocdoc has paved the way for healthcare innovators.
Zocdoc’s regulatory success reveals a broader truth: transactional, outcome-aligned models are not only possible in healthcare, but essential for scaling access and efficiency. Across multiple healthcare segments, similar structures could unlock enormous value if built with the right guardrails:
### 1. Patient Appointments
Each year, the U.S. sees more than one billion outpatient visits, according to the CDC. Yet patients often face long waits and limited transparency, while providers grapple with underutilized capacity. A compliant, pay-per-booking structure—mirroring Zocdoc’s model—could align fees directly with value, promoting fairness, scalability, and sustained patient autonomy.
### 2. Specialist Referrals
Roughly 100 million specialist referrals occur each year, but nearly half are never completed. Manual processes, fax-based communication, and poor tracking result in lost patients and fragmented care. A neutral platform could charge receiving providers (e.g., specialists) a flat fee per confirmed visit, without any payment flowing to the referring party—improving coordination while complying with AKS.
### 3. Care Coordination and Post-Discharge
The U.S. sees about 35 million hospital discharges annually, with nearly half under value-based arrangements. Yet transitions to skilled nursing facilities, home health, and primary care often break down, causing costly readmissions. A legally structured platform could coordinate these transitions and charge downstream providers per completed handoff—again, with no inducement or referral fees. The result: better outcomes and stronger economic alignment.
### 4. Diagnostics and Clinical Trials
Americans undergo about 14 billion lab tests annually, with millions more diagnostic scans and clinical trial enrollments. Delays and low trial enrollment are common. Platforms could enable diagnostic centers or research sponsors to pay per scheduled or completed appointment, provided they preserve choice, neutrality, and fair-market-value pricing. The same compliance principles could unlock a new frontier for precision medicine and research.
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## Innovation Within the Rules
Entrepreneurs don’t need to break healthcare’s rules to modernize the system. Understanding how technology and consumer expectations have advanced beyond some outdated regulatory constraints—and learning to work within those constraints—can create new opportunities.
Zocdoc’s model shows that with the right safeguards, transactional incentives can coexist with patient protection. It gives regulators a roadmap: innovation can be encouraged, not penalized, when it serves the public interest.
For digital health entrepreneurs, the implications are profound. We may well look back on Zocdoc’s advisory opinions as a quiet inflection point that brought healthcare into the age of consumerization—with enhanced patient access, efficient care coordination, and seamless information sharing.
Just as Uber forced cities to redefine transportation, and Plaid helped banks rethink data sharing, Zocdoc has shown that paradigm shifts are possible even in the most tightly regulated markets.
https://bitcoinethereumnews.com/finance/uber-zocdoc-and-the-art-of-innovation-within-healthcares-regulatory-limits/
