Some of the most promising advances in AI have been in the field of healthcare. However, these advances are also drawing some of the loudest criticisms of AI. Those who are developing healthtech AI startups might want to carefully consider some of the legal challenges faced by similar companies in their field, as this could help them avoid some of the same issues in the future. Legal consulting could be a critical initial step before healthtech AI entrepreneurs take their startups out of stealth mode and actually start assisting patients. This might be something that a technology lawyer in the United States can assist with.

Clinic Accused of Using AI to Record Patient Conversations Without Permission

In December of 2025, Health Exec reported that a San Diego-based health clinic had been sued for recording patient conversations without permission. The clinic was allegedly using an AI tool that recorded these conversations despite the patients never providing their consent.

The plaintiffs claim that if the patients had given their consent, use of the AI tool would have been legal. However, the clinic allegedly never even bothered to ask patients whether they were okay with the recording software.

The software in question is a relatively simple note-taking tool. Like countless other AI tools, the software is capable of recording human conversations before turning the audio into written notes. Doctors can then use these notes to review information and update medical records as needed.

AI Notetaking Tool Had No Filter

One might argue that the tool also would have been legal if used more selectively by doctors. However, the AI software doesn’t seem to have an “off switch,” instead recording every word spoken by patients and doctors in the exam room without any filter. This subsequently led to countless Health Insurance Portability and Accountability (HIPAA) violations. The tool has been in use for most of the year since April 2025.

The AI tech startup responsible for developing this recording software also seems to have downloaded the audio. It is not clear whether the tech startup ever had permission to access these confidential conversations or whether the health clinic allowed the downloads. In any case, patients were not thrilled to find out that private discussions about their health were in the hands of a tech startup that had no real authority to “listen in.”

Sensitive Information and AI Tool “Hallucinated” Patient Consent After the Fact

Sensitive Information under many state privacy regulations requires an informed Opt-In, like the GDPR model.  In this case their was no notice of the AI’s use or informed consent. As if that wasn’t bad enough, Health Exec notes that the AI software seems to have hallucinated verbal permissions provided by the patients. In other words, the transcripts seemed to indicate that the doctors had verbally asked their patients whether they consented to the use of the recording software. But these verbal interactions never actually occurred, and the AI software added in these exchanges after the fact.

It’s not clear whether the AI startup programmed the software to add in falsified consent, or whether the program simply “decided” to do it without guidance. Whatever the case may be, this isn’t the first time AI hallucinations have caused considerable legal issues for startups.

AI in Healthcare: Too Much, Too Fast?

This lawsuit also illustrates the risks faced by healthcare organizations when they adopt AI solutions. Many of these healthcare organizations do not understand how AI programs work, and they make no effort to learn more about them before implementing them at scale. Many only seem concerned with the potential results and cost-saving offered by AI, and they are not worried about how the software actually delivers these benefits.

Many critics believe that healthcare organizations are adopting AI solutions too quickly. These critics say that AI has the potential to endanger patients, and some of these predictions have already come true. For example, a person might describe the obvious symptoms of a heart attack to an AI chatbot, and the chatbot might tell them to lie down and rest.

Although most healthcare providers are wary about relying entirely on AI for diagnoses and other high-stakes medical processes, even basic administrative tasks could also cause issues when AI steps in. The health clinic that implemented the note-taking tool probably couldn’t have imagined how such a basic program could cause patient harm. But it did.

Trump Signs Executive Order to Fast-Track AI Adoption in Healthcare

The United States government seems unperturbed by critics who say health organizations are adopting AI at an unsafe pace. Instead, the Trump administration is taking steps to block court orders that would have slowed down this mass adoption of AI healthtech solutions. Perhaps the greatest concern has to do with the use of AI in health insurance. Specifically, critics are concerned that people are being denied health insurance by AI programs without any human oversight on the final decisions.

While modern startups may face fewer barriers when bringing their services to the healthcare industry, this lack of government regulation does not necessarily protect against future lawsuits. As a result, it might make sense to take a more gradual approach to AI healthtech implementation, even if startups are not legally obliged to be cautious.

One might argue that the end winners in the fight for dominance in the healthcare industry will be the companies that prioritize safety and regulatory compliance. On the other hand, those who rush their products to markets might lose the trust of healthcare providers and their patients. As a result, they might also lose their market share.

Can a Technology Lawyer Help AI Healthtech Startups?

With a rising number of lawsuits for AI healthtech startups, legal consulting could be particularly important in the future. Entrepreneurs should keep a watchful eye on the kinds of legal issues that healthtech startups are currently facing, as these cases might provide clues on how to properly adjust products before they hit the market. Aside from concerns about recording patient conversations or accessing sensitive data without permission, healthtech startups might also face various lawsuits regarding the ethics of AI in healthcare. Although this field could be risky, it could also be incredibly rewarding for startups that keep legal compliance in mind. Contact John P. O’Brien today at 732-219-6641 to continue this conversation in more detail.