As the House continues to hash out its bill that would set the federal budget and make way for significant tax cuts while also cutting millions from healthcare spending, a quiet clause on use of AI in industry has been tucked inside.
As artificial intelligence (AI) continues to reshape health care delivery—from diagnostic support to administrative efficiency—federal policy battles are beginning to influence how and whether AI in health care will be regulated. Two recent reports, from 404 Media and Healthcare Uncovered, shed light on a little-noticed provision in a congressional spending bill that could dramatically limit future regulation of AI in the sector.
A Hidden Anti-Regulation Clause
Inside the Republican-led House budget reconciliation bill is a provision that would prohibit federal agencies from using funding to propose or implement most new rules governing AI. Specifically, this language bars agencies from initiating rulemaking related to AI technologies unless explicitly authorized by Congress. This would affect agencies like the FDA, HHS, and CMS, which are currently exploring frameworks for safe and ethical AI use in clinical and administrative settings.
According to Healthcare Uncovered, the language was inserted by Rep. Jay Obernolte (R-CA), one of the few members of Congress with a professional background in AI. While advocates claim this provision protects innovation, critics argue it’s a sweeping maneuver that could delay or prevent necessary safeguards—particularly in high-stakes fields like health care.
Why It Matters for Hospitals
AI tools are already in widespread use across hospital systems—for prior authorization, radiology, clinical decision support, revenue cycle management, and workforce optimization. Yet the regulatory landscape remains patchy.
Without clear federal guardrails, hospitals face the risk of:
- Adopting tools that may not meet ethical or clinical safety standards
- Increased liability for adverse patient outcomes linked to unregulated AI use
- Market confusion and vendor proliferation without interoperability or quality benchmarks
As 404 Media notes, this provision could preempt future efforts by CMS to standardize or oversee how AI influences patient care, billing, and equity in access.
Broader Policy Context
This isn’t occurring in a vacuum. The Biden administration’s AI Executive Order from October 2023 directed federal agencies to begin issuing standards for safe, transparent, and equitable AI. Additionally, the National Academy of Medicine and the Coalition for Health AI have proposed frameworks emphasizing safety, transparency, and accountability for health AI systems.
If Congress restricts agency authority, these efforts could be stalled—leaving the industry in a regulatory limbo.
Key Takeaways for Hospital and Health System Leaders
- Stay Ahead of Regulation: Even if federal rulemaking is delayed, health systems should adopt internal governance frameworks for AI that address safety, equity, and data transparency.
- Engage in Advocacy: Hospital leaders should track and influence legislation affecting AI regulation. The current budget provision could shape how AI is governed for years to come.
- Audit Existing AI Tools: Ensure that current AI deployments are clinically validated, appropriately risk-stratified, and monitored for bias or harmful unintended outcomes.
Collaborate with Trusted Vendors: Prioritize partnerships with vendors who commit to ethical AI development and are transparent about their algorithms’ capabilities and limitations.
