When Going Big Means Going First

The idea seems brilliantly simple: Create a digital health marketplace to connect doctors and patients online and streamline access to care.

Brilliant? Yes. Simple? No.

In 2007, when the Zocdoc cofounders came up with this concept, it was game changing. And in practice, by breaking new ground in the highly regulated healthcare industry, it was also fraught with legal and logistical complexity.

FAST TAKE

Making the right moves

By 2016, to accelerate growth and expand access to care, Zocdoc wanted to shift its business model from flat-fee subscriptions to variable pricing (charging providers per patient booking). But the change risked violating the federal Anti-Kickback Statute – which could have forced the company to exclude Medicare and Medicaid patients, among others, from its services.

McDermott helped Zocdoc design a compliant pricing structure and secured two favorable Advisory Opinions from the HHS Office of Inspector General that validated the model and protected it from regulatory scrutiny.

This proactive legal strategy enabled Zocdoc to expand its provider network and patient access while maintaining compliance. The bottom line? When you make the right moves, legal complexity can become competitive advantage and fuel mission-driven business growth.

FULL STORY

From regulatory risk to business win

The situation: Digital health revolution, company evolution

As an innovator, Zocdoc faced the early challenge of establishing practical, compliant privacy practices for both the services it provides to patients (its consumer users) and the services it provides on behalf of healthcare providers (its customers). McDermott's privacy and data security team helped Zocdoc develop, implement, and update this dual-facing model.

With that foundation firmly in place, Zocdoc achieved brand recognition and significant revenue by 2015. However, its business model – based on a flat annual subscription fee for providers – limited Zocdoc's business growth. The one-size-fits-all fee meant that some providers saw tremendous value, and others saw too little value, given the naturally unequal distribution of patient demand and bookings. This inequality also led to high churn, with many providers who received too few bookings – based on their specialty or geography – leaving the platform almost as quickly as Zocdoc could onboard new ones.

Limitations of the business model also constrained the supply of care and options for patients: Fewer providers on Zocdoc meant fewer options for patients seeking easily accessible care on their own timelines.

The challenge: Overcome regulatory uncertainty to keep serving all patients

In 2016, to supercharge growth and fulfill its mission to serve patients and support providers – and under the direction of Zocdoc's founder and newly appointed CEO, Oliver Kharraz – Zocdoc set its sights on a variable pricing model (charging providers for each new patient booking it facilitated, instead of a flat fee).

This new model would align more closely with the way other internet-based marketplaces operate, and help attract more providers, expanding access to care for patients.

But it had a downside, too. In healthcare, this shift raised the potential for serious legal challenges under the federal Anti-Kickback Statute (AKS), a law written before the internet existed. The regulatory framework had not anticipated digital marketplaces, and without formal clarity, Zocdoc's new variable model could be deemed noncompliant with rules regulating federally funded healthcare programs (such as Medicare and Medicaid) – threatening its future and disrupting how millions sought medical care.

The easy and common path for companies facing similar complications would have been to disable Zocdoc's service for federally funded beneficiaries, to avoid this ambiguity entirely. However, it was critical to Zocdoc's mission, and to its business, to continue to serve all patients seeking care. To move forward, the company needed to know with certainty that all patients would be allowed to use its services under the new model.

Our objective: Build a legal launchpad for Zocdoc

Zocdoc turned to McDermott for guidance to proactively protect the business as it prepared to shift to its new model. Together, their goals were to:

• Assess and mitigate legal risk in a way that aligned with Zocdoc's mission and evolving business needs
• Secure a formal Advisory Opinion (AO) from the Department of Health and Human Services, Office of Inspector General (OIG) affirming the legality of the new variable model
• Build a legal foundation that could support long-term innovation and growth

The outcome: Business game-changer

Zocdoc worked closely with McDermott's healthcare regulatory team to design an AKS-compliant pricing model that balanced innovation with defensibility. Embracing a creative mindset and a business and legal collaboration, the teams came together for whiteboarding sessions and iterative legal analysis that focused on what was possible, not what was proscribed.

A key part of this process was customized risk calibration. The McDermott team didn't just identify general regulatory risks, it helped Zocdoc understand how those risks applied to its business, and which ones demanded proactive regulatory engagement.

Underlying this approach was McDermott's sophisticated understanding of the regulatory environment, the policy purposes behind that environment, and how to structure a first-of-its-kind variable pricing model and supporting legal arguments to pass muster. All of their efforts were focused on how best to address the regulatory issues, and then advocate for the new model, to achieve Zocdoc's business objectives.

The result was a favorable AO from the OIG in 2019, followed by a second one in 2023. These opinions validated Zocdoc's new variable model and protected it from future regulatory scrutiny under the AKS. After changing its pricing structure accordingly, Zocdoc expanded its provider network, reaching underserved communities, improving patient access to care, reducing healthcare costs, and propelling the company's growth and profitability.

With that groundwork laid, the model proved resilient when it faced qui tam claims in court. In response to the challenge, a McDermott litigation team coordinated with Zocdoc's long-standing healthcare regulatory team to mount a robust defense, securing a complete victory – dismissal with prejudice.

Ultimately, the court's ruling vindicated Zocdoc's new variable model and set a powerful precedent: that proactively seeking and following an AO can serve as a strong defense. It affirmed Zocdoc and McDermott's strategic foresight in pursuing regulatory clarity before scaling a novel business model – and demonstrated the strength of a legal partnership that spans both advisory and litigation excellence.

Key takeaways

1. Legal strategy = business game changer

Zocdoc's growth demonstrates how a proactive, business-minded legal strategy can drive innovation.

By embedding McDermott's counsel into its business planning – from early brainstorming to regulatory submissions and courtroom defense – Zocdoc turned legal complexity into a competitive advantage. The partnership enabled Zocdoc to evolve from a startup into a profitable, mission-driven platform that now serves a broader, more diverse patient population and puts providers' access to modern technology on more equal footing with that of other industries.

2. Cross-practice collaboration = business strength

McDermott's ability to integrate regulatory foresight, litigation strength, and risk calibration ensured not only that Zocdoc could innovate within the law – but that it could defend that innovation when challenged.

As Zocdoc expands its offerings and impact, it does so on a foundation of legal clarity, strategic foresight, and trusted partnership.

3. Outside counsel = business growth

As Zocdoc continues to find ways to break through barriers in creating a more efficient and well-functioning US healthcare system – whether through services such as its Zo AI Phone Assistant, telehealth services, or policy advocacy – McDermott remains a critical partner.

The firm continues to help Zocdoc navigate ambiguity, anticipate regulatory shifts, and shape the future of digital healthcare.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.