Federal Government Ignores For-Profit Health Startups

Why It Matters

For-profit health and medical businesses — from digital health startups to medical device manufacturers — occupy an awkward position in the federal funding landscape. A Congressional Research Service report, published June 2, shows how the federal government's health assistance architecture is built predominantly around nonprofits, leaving for-profit companies with a narrower, often misunderstood set of options.

The timing is pointed. Congress is actively debating Medicaid restructuring and federal spending cuts that could reshape the very programs this report describes.

The Big Picture

The CRS report, authored by Senior Research Librarians Kate M. Costin and Michele L. Malloy, functions as a constituent-services guide for congressional offices fielding questions about federal assistance for health businesses. But its core finding carries broader weight: the federal government generally does not award grants to start or expand for-profit businesses.

For-profit health and medical businesses, including medical equipment companies, digital health firms, for-profit health care facilities, and pharmaceutical and medical device manufacturers, can access federal grant funding primarily through research and development pathways. The Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs, administered through the National Institutes of Health (NIH) and the Food and Drug Administration, represent the most accessible grant avenue. SBIR and STTR grants provide what the report calls "non-dilutive funding," meaning capital that doesn't require giving up equity or ownership. STTR grants carry an additional requirement: partnership with a nonprofit research institution.

The report maps several other pathways. Federal contracting programs through the Small Business Administration offer set-aside opportunities for specific business categories, including the 8(a) Business Development Program for socially or economically disadvantaged business owners, the HUBZone program for businesses in historically underutilized areas, and set-asides for Service-Disabled Veteran-Owned Small Businesses. The federal government aims to direct at least 5 percent of all federal contracting dollars to the latter category, according to the Department of Health and Human Services (HHS) website per the report. Women-Owned Small Businesses and Economically Disadvantaged Women-Owned Small Businesses also qualify for certain HHS contract set-asides.

The Biomedical Advanced Research and Development Authority (BARDA) enters the picture for more established companies. BARDA partners with industry on late-stage development of medical countermeasures — covering chemical, biological, radiological, and nuclear threats, pandemic influenza, and emerging infectious diseases — through its Broad Agency Announcement funding mechanism.

For businesses seeking a foothold in federal health care markets, the report highlights Medicare and Medicaid enrollment as a critical, if often overlooked, pathway. The Centers for Medicare and Medicaid Services does not provide grants or loans directly, but the agency runs innovation models and pilot programs — including one testing healthy lifestyle interventions — that can include technology companies and other health care businesses.

Political Stakes

For the Administration

The Trump administration's restructuring of federal agencies — driven in part by the Department of Government Efficiency — has put NIH funding, HHS staffing, and BARDA's budget under scrutiny. NIH funding reductions directly compress the SBIR and STTR programs that represent the primary grant pathway for small health and medical businesses. Cuts to BARDA would narrow the main federal funding avenue for medical countermeasure development, a concern with ongoing biosecurity threats on the horizon.

HHS restructuring has involved significant workforce reductions, which could affect the operational capacity of the Office of Small and Disadvantaged Business Utilization, the HHS office that hosts the Small Business Customer Experience Portal and manages small business contracting programs described in the report.

For Democrats

The report provides a tangible framework for pushing back on funding cuts: these are not abstract bureaucratic programs but constituent-services resources that small health businesses rely on to navigate federal markets. The for-profit health sector is politically diverse and geographically dispersed, giving both parties a stake in its viability.

For the Public

The stakes connect to health care access. For-profit health care facilities, medical device companies, and digital health firms are significant providers of care and innovation. A constrained federal assistance landscape for these businesses has downstream implications for the products and services that reach patients.

The Bottom Line

The CRS report is, on its surface, a resource guide. But its central finding — that for-profit health and medical businesses are largely locked out of the federal grant system that supports their nonprofit counterparts — is a structural policy gap that Congress has not directly addressed.

The report does not advocate for expanding grant access to for-profit health businesses. But by mapping what exists — and implicitly, what doesn't — it hands Congress a clear picture of a gap that legislators, particularly those on small business and health committees, may find worth examining as the broader health spending debate continues.