Cybersecurity in Digital Health: Why HIPAA Compliance Alone Is Not Enough for M&A Success

In today’s health care landscape, cybersecurity is not only an operational concern — it is quite literally a dealbreaker in corporate transactions. For digital health companies eyeing growth through mergers and acquisitions (M&A), cybersecurity due diligence is now a deal-defining factor. Increasingly, buyers are demanding rigorous proof of HIPAA compliance, a mature cybersecurity program, and an articulate explanation of any cybersecurity incidents and how the target handled them. Weaknesses in any of these areas can quickly turn a promising opportunity into a missed one.

Cybersecurity Due Diligence Is Now Deal Diligence

A company’s cybersecurity posture directly impacts valuation, closing timelines, and integration. Buyers are not only reviewing documentation, they are assessing historical vulnerabilities, breach response protocols, and the strength of cybersecurity governance. If risks surface late in the due diligence process, deals can fall through or valuations may be significantly reduced. Worse still, buyers may inherit undisclosed weaknesses, exposing these buyers to post-close litigation, regulatory fines, and reputational damage.

Forward-thinking CEOs are responding by proactively preparing for digital health M&A readiness — conducting internal audits and penetration testing, strengthening their HIPAA compliance, and demonstrating a culture of security through strong governance and stakeholder involvement.

Showcase Incident Response to Build Buyer Confidence

One of the most overlooked yet powerful messages that buyers and sellers overlook is the target company’s track record when responding to past incidents. If properly managed and documented, a prior data breach or threat event can become a credibility builder as opposed to a red flag. 

Buyers want to see:

• A clear, documented, tested, and up-to-date incident response plan
• Timely HIPAA breach notifications and regulatory compliance
• A thorough assessment of any incidents that were not treated as breaches (e.g., where individuals or regulators were not notified)
• Evidence of remediation, including system hardening and employee training
• Board and leadership involvement in crisis management

Showcasing your health care data incident response process, whether through tabletop exercises or past real-world events, signals operational maturity and reduces buyer uncertainty. One certain red flag for data intensive or heavily regulated targets is the lack of a breach history. Sellers routinely dealing in large volumes of personally identifiable information or HIPAA-protected health information that allege to have never experienced a data breach may be viewed skeptically by prospective buyers that understand the low probability of this. 

Beyond HIPAA: Cyber Risk Management as a Strategic Imperative

HIPAA compliance remains essential, but it’s no longer sufficient for true cybersecurity readiness. HIPAA was not designed to account for today’s attack vectors — ransomware, API vulnerabilities, or third-party SaaS breaches. A narrow focus on the HIPAA Security Rule misses the broader challenge of managing cyber risk across an expanding digital ecosystem.

Digital health CEOs must adopt a risk management strategy that evolves with their platform. This includes:

• Conducting dynamic, scenario-based risk analyses and assessments
• Embedding security into product development and data infrastructure
• Treating cybersecurity as a board-level and investor-facing priority
• Investing in modern threat detection, zero-trust architectures, and breach containment protocols
• Identifying and partnering with incident response firms and forensic investigators during peacetime so that those partners can promptly assist in the wake of an incident.

In short, HIPAA compliance helps avoid penalties, but true cyber risk management builds trust, partnerships, and company value.

What CEOs Should Be Doing Now

More than a defensive posture, cybersecurity is now a source of strategic differentiation. Enterprise clients, payors, and health systems increasingly make cybersecurity maturity a precondition to doing business. Pre-go-live audits by payors and health systems are now common occurrences. 

Preparing for cybersecurity scrutiny has become foundational. Whether planning for M&A, raising capital, or entering payor-provider partnerships, strong cybersecurity maturity is now table stakes.

To get there, companies should prioritize the following action items:

• Conduct a comprehensive, enterprise-wide HIPAA security risk analysis and cyber risk audit and update those audits regularly
• Enforce due diligence across all third-party vendors — it is not enough to simply sign business associate agreements (BAAs)
• Encrypt protected health information (PHI) maintained in all environments, from app to cloud to mobile
• Train your workforce to recognize and engage, through role-based security simulations, such as red-team penetration tests 
• Regularly run incident response drills to prove real-world readiness
• Establish an insurance program that accounts for the risks the company may face
• Review past incidents and breaches for lessons learned

Looking Ahead

With AI-powered diagnostics, remote monitoring platforms, and interoperable patient engagement tools on the rise, cybersecurity risk in digital health will only become more complex. Companies that bake security into their DNA — not just their IT stack — will earn trust, win contracts, and scale responsibly. If you have any questions on cybersecurity readiness or incident response strategies, please contact any of the authors or any of the partners or senior counsel in Foley’s Cybersecurity and Data Privacy Group or Health Care Practice Group.