AI Therapy Chatbots Face Mounting State Regulatory Scrutiny as Pennsylvania Sues Character.AI Over Unauthorized Practice of Medicine

On May 1, 2026, the Pennsylvania State Board of Medicine filed a complaint in the Commonwealth Court of Pennsylvania against Character Technologies (search)Search term, the corporate entity operating the Character.AI (search)Search term generative artificial intelligence platform. The case marks a significant escalation in state-level enforcement against AI platforms whose chatbots engage in conduct that regulators say constitutes the unauthorized practice of medicine.

The complaint centers on a chatbot character named "Emilie," described as a "Doctor of psychiatry," which a Pennsylvania Professional Conduct Investigator discovered by searching "psychiatry" on the platform. According to the state's allegations, "Emilie" claimed to have attended medical school at Imperial College London, asserted seven years of psychiatry practice experience, represented that it held a valid Pennsylvania medical license, and provided a fabricated license number. The character had approximately 45,500 user interactions as of mid-April 2026. Character Technologies (search)Search term does not hold a license to practice medicine in Pennsylvania.

Character.AI (search)Search term contests the suit, maintaining that its user-created characters are fictional and intended for entertainment and roleplaying. The company points to in-chat disclaimers stating that characters are not real people and all statements should be treated as fiction, along with additional disclaimers warning users not to rely on characters for professional advice.

The Legal Framework at Play

Pennsylvania law defines medicine and surgery as "the art and science of which the objectives are the cure of diseases and the preservation of the health of man, including the practice of the healing art with or without drugs, except healing by spiritual means or prayer." The state prohibits the unauthorized practice of medicine, which includes practicing medicine, purporting to practice medicine, holding forth as authorized to practice medicine through use of a title, and otherwise holding forth as authorized to practice medicine.

Given the breadth of these statutory prohibitions, the bar for demonstrating unauthorized practice appears low. A platform need not deliver clinical care in the traditional sense; merely holding itself forth as authorized to practice medicine—whether through the use of a title, the assertion of credentials, or other representations of licensure—may be sufficient.

FDA's Medical Device Framework Looms

The Character.AI (search)Search term matter also raises significant questions under federal law. Under the Federal Food, Drug, and Cosmetic Act (FDCA), a product qualifies as a "device" if it is "intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease" or is "intended to affect the structure or any function of the body." Critically, FDA evaluates "intended use" based on the totality of the circumstances—including design, website claims, advertising, and oral and written statements—not simply a company's characterization.

FDA regulates Software as a Medical Device (SaMD) in the same manner as other products, unless subject to statutory carve-outs from the 21st Century Cures Act. While the FDCA may already provide a basis for reaching chatbot operators, enforcement to date has largely been driven by state attorneys general rather than FDA. Michelle Tarver, director of the FDA's Center for Devices and Radiological Health, told an FDA advisory panel that the agency has authorized some 1,200 AI-enabled medical devices, but none are for generative mental health applications.

A Growing State-by-State Patchwork

The Pennsylvania case is not occurring in isolation. A survey of over 42 million US young adults and adolescents found that nearly a fifth used AI chatbots for mental health advice, about 43% of which did so each month. As millions turn to AI for advice, states are stepping in to regulate a space the federal government has yet to standardize.

Tennessee, Colorado, and Maine signed measures in 2026 to curb AI use in therapy, following laws passed by Illinois, Nevada, and Utah in 2025. At least a dozen states have enacted legislation on AI chatbot protections for children. Illinois directly restricted how licensed professionals utilize AI in healthcare, banning these tools from directly engaging with patients.

Delaware recently enacted legislation expressly prohibiting a "nonhuman entity," including an "agent powered by artificial intelligence," from using professional titles or abbreviations associated with licensed healthcare professions, including "doctor," "advanced practice registered nurse," and "registered nurse." The Delaware law further prohibits the licensure of a nonhuman entity to practice medicine, nursing, or related healthcare professions.

"The absence of regulation by the federal government is leaving a vacuum" that "states are trying to fill," said Michael Sutton, a Sheppard, Mullin, Richter & Hampton LLP attorney.

Safety Concerns Drive Legislative Action

Loosely regulated consumer chatbots present real risks. In Colorado, a 13-year-old died by suicide in 2023 after using a Character.ai (search)Search term chatbot, according to a federal lawsuit. Bethany Russell, a licensed therapist who focuses on youth care, warned an FDA advisory committee about the risk of "AI Psychosis," noting that unregulated AI therapists may misdiagnose patients, resulting in unsafe responses to suicidal users.

"We just wanted to draw a line in the sand and say, if you do cross this, you're operating in violation of the law," said Page Walley, a clinical psychologist and Tennessee senator behind the state's restrictions on advertising AI as a mental health professional.

The American Medical Association has urged Congress to prohibit chatbots from diagnosing or treating mental health conditions and to require FDA review for any that behave like professionals. C. Vaile Wright, American Psychological Association senior director of health care innovation, presented to an FDA advisory committee in November 2025, urging modernization of regulations and establishment of a public repository of FDA-cleared tools.

Federal Pressure and the Path Forward

On December 11, 2025, President Donald Trump signed an executive order directing federal agencies to establish "a minimally burdensome national policy framework for AI." While the order does not preempt existing state AI laws, it identifies mechanisms for challenging state AI laws inconsistent with that policy, including Department of Justice litigation and a White House mandate to prepare a legislative recommendation for a uniform federal framework.

For platform operators, the regulatory landscape demands proactive compliance. The Federation of State Medical Boards announced in May 2026 the formation of a new workgroup charged with developing recommendations and model guidelines for state medical boards on the regulation of AI tools used in the practice of medicine.

Some states have signaled a preference for regulatory partnership over litigation. Utah has entered into a regulatory mitigation agreement with mental health chat app ElizaChat, under a framework that allows companies to operate under agreed terms in exchange for regulatory flexibility.

What makes the Pennsylvania case especially notable is how it started—not with a purpose-built health app, but with a single chatbot on a general-purpose platform that a state investigator found by searching "psychiatry." As the Cooley law firm analysis noted, "Regulators are looking at what the AI actually says, and if those responses look like the practice of a licensed profession or the function of a regulated device, disclaimers may not be enough."