Digital Health Blog

Pennsylvania has filed suit against Character Technologies, Inc., the operator of Character.AI, alleging the unlawful practice of medicine in violation of Pennsylvania’s Medical Practice Act. The action is the first of its kind brought by state regulators against a developer of chatbot for the unlicensed practice of medicine.

The complaint alleges that Character.AI permitted chatbot “characters” to hold themselves out as licensed physicians in conversations involving diagnosis, assessment, and treatment with users in Pennsylvania. Responding to input from state investigators the chatbot affirmatively represented that it was a licensed psychiatrist in both the United Kingdom and Pennsylvania, even providing a fictitious Pennsylvania license number.

This complaint comes against a backdrop of expanding civil litigation exposure for developers targeting not only Character.AI, but OpenAI’s ChatGPT and Google’s Gemini. The plaintiffs in these cases assert theories of defective design, failure to warn, and negligent deployment of emotionally interactive AI systems that contributed to user self‑harm and suicide, and which had significant impact on minors and other vulnerable users.

Together, these developments underscore the accelerating regulatory and litigation risk for AI platforms as they toe the line between general information tools and regulated professional services, particularly in health care and behavioral health contexts. Companies deploying generative AI in consumer‑facing environments should carefully reassess marketing claims, output controls, and professional disclaimers, and should anticipate increased from state regulators.

The Department of Health and Human Services (HHS) along with the American Society of Nephrology (ASN) announced the 2026 KidneyX EMPOWER Prize Challenge, a $4 million competition to accelerate innovation supporting living organ donation through digital health and other tools. In addition, ONC also announced it would work with the nephrology community on data standardization and health information technology (HIT) improvements across the kidney care ecosystem to support these efforts.

The Centers for Medicare and Medicaid Services (CMS) released a proposed rule which would build upon the previously finalized Interoperability and Prior Authorization proposed rule by including drugs in the scope of the requirements. Under the proposal, impacted plans must support electronic prior authorization of drugs starting on October 1, 2027. CMS also proposes to update prior authorization metrics for both drugs and non-drug items and services. The proposed rule includes a series of requests for information (RFIs) including those on step therapy and cybersecurity. Comments are due June 15, 2026.

The CMS announced the first wave of HealthTech Ecosystem tools designed to accelerate the transition to a fully digital, patient-centered health care system. The launch brings together new CMS infrastructure, a Medicare App Library, and an initial set of patient-facing digital applications that allow individuals to securely access, share, and use their health information through trusted technologies. The initiative aims to reduce administrative burden, replace paper-based processes like clipboards and fax machines, and improve care coordination through interoperable, standards-based tools supported by public- and private-sector partners.

In a new data brief, the Office of the National Coordinator for Health Information Technology (ONC) shows that behavioral health providers have largely adopted electronic health records (EHRs)—68% use EHRs exclusively, with another 25% combining EHRs and paper records—marking strong progress in digitization. However, use of EHRs for care coordination and data exchange remains limited: only 19% of facilities participate in a health information exchange (HIE), and many report low awareness of HIE options. Adoption also varies widely by ownership, with state-run facilities significantly trailing federal and private providers, highlighting ongoing gaps in interoperability and infrastructure.

On April 14, Nebraska enacted LB 525, the Conversational AI Safety Act, making it the fourth state this year to regulate the use of chatbots in health care. The law requires any conversational AI service to disclose to users that they are interacting with AI rather than a human, and prohibits the service from representing itself as designed to provide professional mental or behavioral health care. It also imposes a specific disclosure obligation when the user is a minor.

Maine has enacted LD2082, legislation that prohibits any person from providing, advertising, or offering therapy or psychotherapy services to the public unless those services are delivered by a licensed professional. Both laws are part of a significant expansion of legislative interest in conversational AI platforms, particularly those with clinical or mental health functionality, that have followed the enactment of Illinois’s Wellness and Oversight for Psychological Resources Act in August 2025, one of the first laws to explicitly prohibit the use of AI in mental health and therapeutic decision-making.

On April 20, 2026, the Utah Medical Licensing Board sent a letter to the Utah Office of AI Policy strongly recommending suspension of the state’s pilot program with Doctronic. This program, the first in the country to authorize autonomous AI-driven prescription renewals, has been in operation since January 2026. Under terms of the regulatory mitigation agreement with the Utah Office of AI Policy, the program allows patients to use the Doctronic platform to refill 30-, 60-, or 90-day supplies of medications for chronic conditions, such as diabetes and hypertension, that were previously prescribed by a licensed provider. The Medical Licensing Board argues that it is best positioned to assess the whether the decision to refill a prescription meets the standard of care and to act in the interest of patient safety. In its response letter, the Office of AI Policy declined to suspend the pilot, finding that Doctronic’s platform is “operating safely at the standard of care,” noting that the current phase of the program involves oversight by licensed physicians and regular model performance reporting. The Office of AI Policy also reports on its website that Doctronic’s submission of case-level analyses comparing system outputs against supervising clinician decisions, categorized using a published medical risk framework, indicates that reported incidents have been of “no risk,” “minor risk,” or “minor-to-moderate risk” to patient safety.

This dispute may foreshadow similar interagency tension in other states with active regulatory sandbox programs, including Arizona, Delaware, and Texas, where oversight authority over AI-driven clinical tools remains unsettled.

The Department of Health and Human Services announced it would reverse changes made during the Biden Administration and realign its health technology leadership to strengthen data sharing, affordability, and responsible use of artificial intelligence across the health care system. The change reverts the name of the technology agency back to the Office of the National Coordinator for Health IT (ONC) and moves some of its leadership back to previous departments within HHS, namely, the Office of the Chief Information Officer (OCIO). The move seeks to restore a unified, department wide technology model by returning enterprise IT, data, and AI leadership to the OCIO, while refocusing the ONC on interoperability, standards, and data liquidity. HHS officials say the changes will improve coordination between policy and operations, support secure and scalable technology platforms, and help accelerate innovation that lowers costs and improves care for patients.

On April 3, The Trump Administration released its Fiscal Year (FY) 2027 budget request. HHS also released its Budget in Brief document, which included Office of the National Coordinator for Health Information Technology (ONC) proposals. The budget includes an ONC FY 2027 budget request of $50 million (-$19 million below FY 2026) and ONC collaboration efforts, such as ONC working with CMS to draft rules updating payment policy/programs and working with HHS’s Office of Civil Rights (OCR) to ensure secure patient access to electronic health information. As a reminder, the President’s budget request is a framework and not binding.

The California Attorney General filed an amicus brief in a pending California Court of Appeal case, Art Center Holdings, Inc., et al. v. WCE CA Art, et al., reaffirming the state’s long-standing ban on the corporate practice of medicine. The brief supports a trial court ruling that contractual provisions allowing a private equity–backed management services organization (MSO) to replace a physician-owner or otherwise exert excessive control over an affiliated medical practice violate California law, underscoring that MSOs are limited to administrative support. In announcing the filing, the AG emphasized the state’s commitment to protecting independent medical judgment—particularly as private equity investment in health care expands. The brief marks the latest signal of heightened state scrutiny of PC–MSO arrangements, alongside recent legislative activity, including California’s passage of SB 351 and Oregon’s passage of SB 951.