Healthcare Regulatory Dynamics: Advanced Insights for Technology Leaders

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Healthcare technology executives face a regulatory environment evolving faster than traditional compliance frameworks can address. If you're leading technology strategy at a regional health plan, Medicare Advantage (MA) organization, or payer, you know the basics of FDA oversight, CMS requirements, and HIPAA compliance. What you need is strategic intelligence on how regulatory authority is shifting as AI, digital health tools, and data interoperability create situations that traditional regulatory frameworks never contemplated.

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The challenge is anticipating how jurisdictional boundaries are being redrawn. When FDA and CMS can't agree on who oversees AI-driven clinical decision support, or when state insurance commissioners assert authority over utilization management algorithms, technology leaders need deeper understanding than standard compliance checklists provide.

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This analysis examines how regulatory bodies actually interact, where enforcement priorities are shifting, and what these changes mean for your technology architecture decisions over the next 18 to 24 months.

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Regulatory Authority Evolution in Digital Health (2023-2025)

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The regulatory landscape has transformed dramatically since early 2023. The acceleration of AI adoption, combined with new interoperability mandates and evolving privacy expectations, has created jurisdictional questions that existing regulatory frameworks struggle to address.

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AI and Machine Learning Regulatory Gray Areas

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Artificial intelligence in healthcare has exposed fundamental gaps in regulatory authority. Traditional boundaries between medical devices, clinical tools, and administrative systems are blurring. The FDA authorized 221 AI and machine learning-based medical devices in 2023 alone, compared to only 33 total approvals in the two decades before 2016.

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FDA's shifting approach to AI/ML as medical devices

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Rather than treating each algorithm update as a new device requiring fresh approval, FDA released an AI/ML Software as a Medical Device Action Plan in 2021 and proposed a framework for predetermined change control plans in 2023. This shift toward lifecycle oversight means ongoing algorithm monitoring and good machine learning practices are now part of regulatory expectations.

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Technology leaders need to assess AI tools against evolving agency interpretations and prepare for the possibility that tools deployed as clinical decision support might be reclassified as medical devices if FDA enforcement priorities shift.

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CMS's emerging stance on AI-driven clinical decision support

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In early 2024, CMS warned MA plans that while using AI algorithms is permissible, plans remain responsible for individual-level coverage decisions. They also cannot deny care solely due to an algorithm's recommendation. By late 2024, CMS proposed new rules requiring audits of AI for bias. Under Contract Year 2026 proposed rules, MA plans would need to regularly review automated systems to confirm non-discriminatory use.

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For multi-state payers, this creates complexity because CMS requirements may conflict with state insurance department expectations, requiring systems flexible enough to accommodate multiple oversight regimes simultaneously.

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State insurance commission authority over AI-powered utilization management

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California enacted SB 1120 in 2024, a first-in-nation law barring health insurers from using AI to make final medical necessity decisions without human clinician oversight. Effective January 2025, any AI-based denial or approval must be reviewed by a licensed physician. Maine, Illinois, Florida, and numerous others introduced similar bills to ban or restrict AI-only claim decisions.

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Architecture must support jurisdiction-specific business rules without creating entirely separate systems for each state.

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Data Interoperability Regulatory Overlaps

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Interoperability has become a regulatory priority across multiple agencies, but coordination is inconsistent, resulting in overlapping requirements.

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ASTP vs CMS authority on FHIR implementation requirements

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The agencies coordinated their 2020 final rules so that CMS adopted standards for FHIR APIs being finalized by the Assistant Secretary for Technology Policy (ASTP). Yet implementation revealed significant gaps. Six months after the CMS interoperability rule took effect, only 64 percent of health plans had stood up the required patient data APIs and just 46 percent made them openly accessible. CMS delayed strict enforcement but began auditing payer API compliance in 2022 and 2023.

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For payers operating enterprise data warehouses, FHIR implementation must accommodate both ASTP and CMS specifications while remaining flexible for future refinements. Also, make sure to accommodate the CMS Interoperability and Prior Authorization Final Rule (CMS-0057-F).

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State privacy laws vs federal HIPAA in multi-state payer operations

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By the end of 2023, 13 states had enacted comprehensive consumer privacy laws protecting personal data including health information. Washington State's My Health My Data Act, enacted in 2023, extended privacy rights to all consumer health data and created a private right of action for violations.

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This fragmentation is particularly problematic for MA payers operating nationally. Technology architecture needs configuration-driven rules engines where state-specific requirements are parameters rather than hard-coded logic.

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Recent enforcement actions revealing regulatory priority shifts

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The Federal Trade Commission took its first-ever action under the Health Breach Notification Rule in 2023, penalizing GoodRx with a $1.5 million fine for undisclosed data sharing. The same year, the FTC hit BetterHelp with a $7.8 million settlement for allegedly misusing patient data.

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The Office for Civil Rights (OCR) enforcement has moved beyond traditional HIPAA violations. In 2023, HHS reported 52 enforcement actions under the Right of Access Initiative, making up 30 percent of all HIPAA enforcement that year, signaling that patient-facing data systems must have robust record request workflows and audit trails.

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Behind-the-Scenes Regulatory Coordination and Conflicts

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Understanding healthcare regulation requires examining how agencies actually interact. Regulatory coordination ranges from collaborative to antagonistic, creating unpredictability that directly impacts technology strategy.

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Inter-Agency Dynamics You Don't See

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Multiple federal and state agencies claim jurisdiction over healthcare technology. When authorities overlap, coordination inconsistencies create strategic challenges.

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How CMS and FDA coordinate (or don't) on digital therapeutics

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Historically, FDA approval did not guarantee Medicare coverage, often leading to a lag of 9 to 17 months or more while CMS conducted evidence reviews. The Medicare Coverage of Innovative Technology (MCIT) rule in early 2021 aimed to automatically cover FDA-designated breakthrough devices for four years. However, CMS repealed the MCIT rule by late 2021, citing concerns about patient safety and insufficient real-world evidence.

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This reveals a conflict: FDA focuses on safety and efficacy in controlled trials, whereas CMS looks at clinical benefit and cost-effectiveness. Recognizing this, the agencies formed a joint task force on AI in health products in 2023, and CMS is piloting a Transitional Coverage for Emerging Technologies pathway.

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Information Blocking: Mandate vs. EHR Reality

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The federal directive to eliminate information blocking is now a high-stakes legal battleground. For tech leaders, the tension between interoperability and EHR data control is a primary strategic risk.

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The Legal Front Line (2026)

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Three pivotal cases are currently defining the boundaries of data access and vendor competition:

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• Particle Health v. Epic - Now in discovery (SDNY). The court is weighing if Epic suppressed competition in the "payer platform" market.
• CureIS v. Epic - Recently transferred to Wisconsin. This case targets "Epic-first" policies that allegedly pressure customers to abandon third-party tools.
• State of Texas v. Epic - A state-led enforcement action filed in late 2025. It alleges Epic’s software restricts parental access to minor records.

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The EHR Defense

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In January 2026, Epic sued Health Gorilla. They claim "bad actors" exploit data frameworks to fraudulently monetize patient records. This highlights the primary defense: data restrictions are security safeguards, not anti-competitive tactics.

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Strategic Implications

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ASTP has officially begun issuing "notices of investigation" for information blocking.

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• Contracts - Define data access rights to mirror 2026 HTI-1/2 requirements.
• Architecture - Use FHIR-based, vendor-agnostic stacks to avoid being caught in the crossfire of ongoing EHR litigation.

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State vs federal jurisdiction battles in telehealth regulation

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The telehealth flexibilities of the early 2020s were largely temporary. By 2026, the core conflict has shifted to the physical location of both the doctor and the patient.

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The IMLC now covers 42 states plus DC, but this does not grant universal practice rights. A provider in Texas still needs a separate active license for a New York patient. The compact affirms that medicine is practiced at the patient's location. This subjects remote physicians to boards and malpractice laws of states they may never visit.

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The DEA has added another layer. In early 2026, a fourth temporary extension was issued through December 31, 2026. It allows controlled substance prescribing via video without an initial in-person visit. But some states have enacted stricter in-person baseline requirements that override federal posture. 

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For CTOs, software must geofence prescribing capabilities based on federal waivers and state board rules.

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Nine states explicitly ban telemedicine for medication abortion despite FDA approving a telehealth dispensing pathway. These conflicts make single-rule-set compliance impossible for multi-state operators.

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Political and Policy Influences on Regulatory Approach

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Regulatory agencies don't operate in vacuums. Political pressures and congressional oversight influence how agencies exercise authority.

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How administration changes affect enforcement priorities

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The past Biden administration's FTC made digital health privacy a priority. In 2023 alone, the FTC brought at least four major health data enforcement actions, whereas no similar cases were pursued a few years prior. Administration changes create uncertainty, making adaptable systems that can accommodate different regulatory intensities essential.

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Industry lobbying impact on regulatory guidance development

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Pharmaceutical and health product companies spent a record $387.47 million on federal lobbying in 2024 alone, and the broader health sector regularly exceeds $700 million per year. This lobbying often translates into pressure on regulators to soften or delay rules. When ASTP and CMS issued interoperability rules, hospital and EHR vendor associations lobbied intensely, prompting HHS to extend certain deadlines.

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Congressional pressure points affecting regulatory timelines

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In 2023, a U.S. Senate subcommittee investigation revealed how some MA plans were using AI algorithms to prematurely cut off patient coverage. This bipartisan scrutiny, including a Senate Finance Committee hearing, helped propel CMS's proposal to ban algorithmic discrimination in MA plans. Monitoring congressional activity provides early warning of potential regulatory changes.

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Emerging Regulatory Trends Affecting Technology Strategy

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Several regulatory trends are gaining momentum that will reshape compliance requirements over the next 18 to 24 months.

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New AI Governance Requirements

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AI governance is moving from theoretical discussion to concrete regulatory requirements.

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Recent FDA guidance on AI transparency requirements

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By June 2024, FDA released guiding principles on Transparency for Machine Learning-enabled Medical Devices in collaboration with international counterparts. These principles call for AI developers to supply health providers with meaningful details about training data, performance benchmarks, and situations where AI may not perform well.

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Technology leaders should assume that any AI tool influencing clinical or coverage decisions will eventually require documentation of training data sources, performance validation, and ongoing monitoring.

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CMS proposed rules on algorithmic bias in coverage decisions

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In proposed rules for Contract Year 2026, CMS stated MA insurers must ensure AI tools don't produce inequitable outcomes and that services are provided equitably. This implies health plans may soon need formal AI ethics and audit programs.

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Testing algorithms for bias requires access to demographic data that organizations may not currently collect or maintain. Technology architecture needs to support comprehensive audit trails and demographic analysis capabilities.

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State-level AI audit requirements for healthcare applications

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A fierce jurisdictional battle is now erupting over AI oversight. In early 2026, the federal government launched a "preemption initiative" to block a 50-state patchwork of AI laws. An AI Litigation Task Force was created to challenge state rules that supposedly stifle innovation.

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Despite this, states like Colorado are pushing forward with enforcement of their AI Acts. These laws mandate annual bias audits for "high-risk" healthcare algorithms. 

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For CTOs, this creates a compliance split. Systems must support deep audit trails for state-heavy regions while leveraging federal deregulation elsewhere.

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Evolution of Privacy and Security Standards

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Privacy and security requirements are expanding beyond traditional HIPAA compliance.

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Beyond HIPAA: State privacy law compliance for multi-state payers

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State comprehensive privacy laws like California's CPRA and Virginia's CDPA include healthcare-specific provisions that impose obligations beyond HIPAA. Washington State's My Health My Data Act requires opt-in consent for collecting consumer health data with steep fines for unauthorized disclosure.

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Technology leaders need data governance frameworks that can accommodate varying rights by jurisdiction. Member portal architecture might need to support different data access capabilities depending on the member's state of residence.

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New cybersecurity requirements for medical device manufacturers

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As of March 2023, FDA now requires medical device manufacturers to demonstrate cybersecurity safeguards to obtain approval. Under Section 524B of the FD&C Act, any new cyber device must include a cybersecurity plan in its FDA premarket submission, with plans to monitor and address postmarket vulnerabilities, ensure devices can be updated with security patches, and provide a software bill of materials. Beginning October 2023, FDA expects all new device 510(k) applications to meet these requirements.

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State-level cybersecurity enforcement is also intensifying. In 2022, New York's Department of Financial Services fined EyeMed $4.5 million for failing to implement adequate email security measures under state rules.

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Data residency requirements affecting cloud strategy

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While the U.S. has no blanket data localization law, certain government healthcare contracts and state policies are effectively pushing for domestic data residency. Defense and veterans health systems require cloud providers to keep data on U.S. soil and under U.S. jurisdiction.

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Technology leaders need clear data classification frameworks that identify which data has residency restrictions and technical controls that enforce those restrictions.

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Strategic Regulatory Intelligence for Technology Planning

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Effective technology leadership requires treating regulatory intelligence as a strategic capability, not just a compliance function.

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Anticipating Enforcement Trends

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Regulatory enforcement follows patterns that technology leaders can learn to recognize.

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Analysis of recent regulatory enforcement actions

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In June 2023, a nationwide DOJ takedown charged 78 individuals in schemes that led to $2.5 billion in false Medicare claims. The DOJ specifically pointed out that over $1 billion of fraud losses were tied to telemedicine arrangements. The FTC's active pursuit of digital health privacy cases suggests that consumer-facing health apps should expect regulators to audit their data flows.

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Warning signs that indicate shifting regulatory priorities

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Regulators often telegraph future enforcement through bulletins or guidance. OCR's guidance in late 2022 about tracking pixels on hospital websites was a strong signal before any fines were issued. By 2023, multiple class-action lawsuits against hospitals for pixel use emerged, and OCR launched investigations.

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When FDA's Director of Digital Health repeatedly emphasizes concerns about adaptive AI or lack of transparency, it signals the FDA will soon issue rules or start scrutinizing those aspects. CMS officials began mentioning concern over algorithmic bias in public forums in 2022, and by 2024 concrete rules were proposed.

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Geographic variations in regulatory interpretation and enforcement

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California, New York, and Massachusetts tend to be first movers on new technology regulations. Organizations operating in these states need technology architecture that can accommodate more stringent requirements. Many insurers chose to implement New York's NYDFS cybersecurity practices enterprise-wide because it's efficient to have one high standard.

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Building Regulatory-Resilient Technology Architecture

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Technology architecture choices made today determine how easily you can adapt to regulatory changes tomorrow.

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Technology design principles that adapt to regulatory evolution

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Modularity allows updating specific components without wholesale redesign. Claims processing systems with configurable business rules could accommodate the No Surprises Act quickly, whereas those with rigid code had much heavier lifts. Comprehensive audit trails provide evidence of compliance regardless of how requirements change. Configuration-driven rules allow non-technical staff to modify business logic as regulatory requirements change. API-first design supports integration flexibility.

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Compliance automation strategies for changing requirements

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Automated compliance testing should be integrated into development and deployment pipelines. Some healthcare organizations now integrate compliance management tools that scan cloud infrastructure against frameworks like HIPAA and NIST. Automated monitoring identifies compliance issues before they become violations. If your system already logs every access of patient records along with reason, you can pull a report in minutes rather than scrambling to compile logs.

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Vendor selection criteria that account for regulatory uncertainty

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Vendor roadmaps should demonstrate awareness of regulatory trends and commitment to future compliance. Many healthcare organizations favor vendors that undergo third-party audits and certifications like SOC 2, HITRUST, and ISO 27701. Contract terms should address regulatory change management, clarifying who bears the cost when new regulations require vendor product modifications.

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Regulatory Risk Assessment Framework for Healthcare Technology

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Systematic risk assessment helps technology leaders make informed decisions about regulatory exposure and mitigation strategies.

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Evaluating Regulatory Risk in Technology Decisions

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Every technology decision carries some regulatory risk. The question is whether that risk is acceptable given the benefits and what mitigation is appropriate.

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Risk assessment methodology for emerging technologies

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Using a structured approach like NIST's AI Risk Management Framework, released in 2023, can help organizations map out reasonable foreseeability of risks including regulatory and legal risks. Assess regulatory trajectory rather than current state. Where do enforcement patterns and agency statements suggest regulations are heading? Plan for stricter rather than more permissive oversight. Consider the cost of adaptation if regulatory requirements change.

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Cost-benefit analysis of early adoption vs regulatory wait-and-see

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Quantify the business value of early adoption. For example, a health insurer might predict that using AI for claims triage will save $5 million a year, but there's a 20 percent chance new regulations will require an external audit costing $500,000 annually. Factoring that risk, the expected benefit is still $4.9 million. Consider phased or pilot approaches that limit exposure while building organizational capability.

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Building regulatory change management into technology roadmaps

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Technology roadmaps should explicitly account for regulatory change as an expected event. Allocate budget for regulatory adaptation as part of annual technology planning. Organizations that assume stable regulatory environments consistently face unplanned expenses. Budgeting 10 to 15 percent of technology spending for regulatory adaptation provides cushion for unexpected requirements.

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Establish cross-functional regulatory intelligence processes that connect compliance, legal, and technology functions. Technology leaders who participate in regulatory monitoring can anticipate technical work required by upcoming changes.

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Working with Regulatory Bodies: Advanced Strategies

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Sophisticated organizations don't just react to regulatory requirements. They proactively engage with regulators to shape policy development and gain advance insight into enforcement priorities.

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When and how to engage directly with regulators

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For software/medical device companies, FDA's Q-Submission process offers pre-submission meetings where you can ask questions about how your novel device or software will be regulated. In 2022, FDA's Digital Health Center of Excellence reported significant increases in pre-submission requests for AI and software. Companies that utilized these had smoother approval processes.

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Seek clarification when guidance is ambiguous and stakes are high. Engage during comment periods on proposed regulations. Well-crafted comments that identify practical implementation challenges can influence final rule language.

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Industry association participation for regulatory influence

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Trade associations like AHIP and industry groups like HIMSS maintain ongoing relationships with regulatory agencies. Groups like HL7 for data standards and the CARIN Alliance for payer data sharing frequently interface with regulators. By having your organization's experts join workgroups or leadership of these bodies, you can stay on top of regulatory trends and even steer them.

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Building relationships that provide regulatory intelligence

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Some large health organizations bring on advisors who are former regulators. These individuals can provide interpretation of ambiguous requirements or heads-up about what's coming. Networking with compliance professionals at other organizations provides early warning of enforcement trends. When multiple organizations receive similar audit requests, it signals shifting enforcement priorities.

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Final Takeaways

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Healthcare regulatory dynamics in 2025 require technology leaders to move beyond checkbox compliance toward strategic regulatory intelligence. The jurisdictional gray areas created by AI, interoperability mandates, and evolving privacy expectations mean traditional compliance frameworks provide incomplete guidance.

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The regulatory landscape has fundamentally shifted. FDA authorized 221 AI and machine learning-based medical devices in 2023 alone, compared to only 33 total in the two decades before 2016. vis proposing concrete requirements for AI bias audits. California has banned AI-only utilization management decisions. The FTC has brought unprecedented enforcement actions against digital health companies.

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The most important insight is that regulatory uncertainty isn't temporary. As technology capabilities expand faster than regulatory frameworks can adapt, the gap between what technology can do and what regulations clearly permit will persist. Technology leaders who build systems designed for adaptation, maintain comprehensive audit capabilities, and develop regulatory intelligence processes will transform compliance challenges into competitive advantages.

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Investment in modular architecture, automated compliance monitoring, and proactive regulatory engagement isn't overhead. It's strategic infrastructure enables your organization to move faster while managing risk more effectively.

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Frequently Asked Questions

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Can Invene give me regulatory insights?

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Yes, because our partners are involved in many aspects of healthcare, we see a lot of things happening. Our relationships are with providers, payers, medtech, pharma, life science. So we usually can predict trends better. Feel free to reach out if you want our perspective.

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How can healthcare technology leaders differentiate between regulatory guidance that requires immediate action versus future direction?

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Evaluate the source and specificity of regulatory statements. Final rules published in the Federal Register require compliance by specified deadlines. Draft guidance and agency speeches signal future direction but aren't immediately enforceable. Monitor enforcement actions to see what agencies actually prioritize. For example, OCR's 52 enforcement actions under the Right of Access Initiative in 2023, representing 30 percent of all HIPAA enforcement, demonstrates high priority. Watch for patterns where agencies issue bulletins before enforcement.

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What's the most effective way to manage regulatory compliance across multiple state jurisdictions for multi-state payer operations?

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Implement technology architecture supporting jurisdiction-specific rules without creating separate systems for each state. Use configuration-driven rules engines where state-specific requirements are parameters rather than hard-coded logic. With 13 states having enacted comprehensive consumer privacy laws by the end of 2023, plus specialized laws like Washington's My Health My Data Act, systems need to accommodate varying consent requirements by member location. Assume the strictest interpretation may effectively become your standard.

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How should technology leaders evaluate regulatory risk when considering adoption of emerging AI capabilities?

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Assess where regulatory oversight is trending rather than focusing solely on current requirements. FDA authorized 221 AI and machine learning-based medical devices in 2023 alone, and CMS proposed Contract Year 2026 rules requiring MA plans to audit AI for bias. Use structured frameworks like NIST's AI Risk Management Framework to map regulatory and legal risks. Implement comprehensive audit trails and transparency capabilities supporting future regulatory requirements. Pilot emerging technologies in limited scope to contain exposure.

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What architectural principles best support regulatory adaptability in healthcare technology systems?

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Prioritize modularity allowing updating specific components without system-wide changes. Claims processing systems with configurable business rules could accommodate the No Surprises Act quickly, while rigid systems required extensive rework. Build comprehensive audit trails capturing decision logic for every transaction. Use configuration-driven rules engines letting compliance teams modify business logic without developer involvement. Remember that only 64 percent of health plans had required patient data APIs six months after the CMS rule took effect.

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When should healthcare organizations engage directly with regulatory agencies rather than relying solely on published guidance?

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Seek clarification through programs like FDA's Q-Submission process when published guidance is ambiguous and implementation decisions involve significant resource commitments. FDA's Digital Health Center reported significant increases in pre-submission requests for AI and software in 2022, with companies utilizing these having smoother approval processes. Engage during public comment periods to raise practical implementation concerns. Work through industry associations like HL7 and CARIN Alliance for collective advocacy. For emerging technologies like digital therapeutics, engage both FDA and CMS early.

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