Using Free ChatGPT Could Jeopardize the Sale of Your Healthcare Company

Why Compliance Matters More Than Ever in Today’s M&A Environment

I am not an attorney, and this article should not be taken as legal advice. However, after many years advising healthcare founders, physicians, and CEOs on multi-million-dollar mergers and acquisitions, I have seen various deals fall apart—or get significantly discounted—due to compliance issues that could have easily been avoided. One of the most overlooked areas today involves companies using free software tools, particularly Free Chat GPT, during the preparation or execution of a sale.

Healthcare is a highly regulated industry. Buyers—especially private equity groups, health systems, MSOs, and institutional investors—conduct detailed due diligence on compliance, security, and data governance. What many sellers don’t realize is that the simple act of copying internal information into Free Chat GPT, or relying on free versions of consumer-grade software, can immediately introduce risk into the deal. And in today’s M&A environment, risk always translates into lower valuation, slower due diligence, or lost buyer confidence.

This article outlines the hidden compliance pitfalls that arise when healthcare companies use unsecured software—especially Free Chat GPT—and explains how these mistakes can impact your exit.

The Hidden Compliance Vulnerabilities of Using Free Chat GPT

Most business owners use Free Chat GPT for harmless tasks—rewriting emails, simplifying documents, summarizing PDFs, or brainstorming. But Free Chat GPT is not HIPAA-compliant, not built for handling protected health information, and not designed to safeguard confidential company materials. Yet many founders unknowingly paste sensitive information into the chatbot because it seems private, easy, and fast.

The problem is not the tool itself—it is the way it is used. Free Chat GPT does not sign Business Associate Agreements, does not guarantee encryption standards that meet HIPAA requirements, does not provide audit trails, and does not legally certify that your information remains isolated forever. The confidentiality obligations that healthcare companies must uphold—especially when preparing for a sale—are simply not compatible with consumer-level AI platforms.

During due diligence, buyers routinely ask whether the seller has uploaded internal information into public AI systems. Once you answer “yes,” it opens a floodgate of additional questions and risk assessments. The more uncertainty the buyer perceives, the more aggressively they retrade the price, extend the diligence period, or—in some cases—walk away entirely.

How Free Chat GPT Creates Compliance Trouble for Sellers

Free Chat GPT and the Risk of Mishandling PHI

Even when healthcare owners believe they are not sharing patient-related information, the line between PHI and “business data” can blur. Summaries of patient volumes, physician productivity statistics, scheduling templates, intake workflows, coding patterns, or case studies can unintentionally fall under regulated categories. If any of that data is ever entered into Free Chat GPT, the company may unintentionally violate HIPAA or state privacy laws.

This becomes especially sensitive during an acquisition. Buyers want clarity, certainty, and strong internal controls. If they suspect that PHI or confidential data was fed into Free Chat GPT, they now face the possibility of inheriting regulatory exposure. No buyer wants to acquire a hidden HIPAA violation, and even the perception of risk forces them to slow down or reduce their offer.

Free Chat GPT and the Exposure of Proprietary Company Information

Aside from PHI concerns, sellers often forget that their own confidential business information must also be protected with the same level of rigor. During the sale process, founders routinely paste:

• Financial statements

• P&L summaries

• Add-back schedules

• Internal emails

• Draft legal documents

• Employee issues

• Operational procedures

• Reimbursement strategies

• Negotiation notes

• Vendor contract details

into Free Chat GPT to “clean up” the language or produce a polished explanation.

What they don’t realize is that the output isn’t the issue—the input is. In a typical M&A transaction, confidentiality is not just a courtesy; it is a legal and contractual requirement that sellers must abide by. As highlighted in traditional confidentiality agreements used in healthcare M&A , proprietary information must be protected with the highest degree of care.

When even one piece of confidential information is input into Free Chat GPT, a seller can no longer certify that the company maintained strict data controls. Buyers will absolutely ask for clarification when they review your IT environment. If the answer is unclear or unsatisfactory, valuation—along with trust—begins to erode.

Free Chat GPT and Regulatory Reporting Exposure

If regulators, payors, or oversight bodies discover that a company used Free Chat GPT for internal documents, it may trigger further investigation into data security protocols, employee training, and compliance oversight. Even if no PHI was involved, regulators can still question whether the company followed best practices in safeguarding sensitive operational information.

During M&A, these issues become amplified because the buyer’s legal team evaluates the complete risk profile of the seller. When irregularities are discovered, the buyer may insist on:

• Escrows

• Holdbacks

• Indemnity protections

• Broader reps and warranties

• Lower purchase price

Or they may determine that the risk is simply not worth the reward.

The Broader Risk of Free Tools Beyond Free Chat GPT

Many healthcare companies rely on free versions of popular tools: Dropbox Basic, Google Drive personal accounts, Slack Free, Zoom Basic, Trello, WhatsApp, and others. Sellers often assume that because these tools are widely used, they must be safe.

The reality is that free does not mean compliant, and none of these tools offer the encryption standards, BAAs, audit logs, or administrative controls required in healthcare. When buyers see that a company depends on free software, they interpret it as a sign of:

• Weak compliance governance

• Poor IT hygiene

• Potential data leakage

• Uncontrolled employee access

• Shadow IT (unmonitored apps)

• Insufficient policies for PHI protection

This perception alone can reduce your valuation before you even enter formal diligence.

The M&A Impact: How Free Chat GPT Can Lower Your Exit Value

Risk Perception Leads to Price Reductions

Buyers always price risk into their offers. When Free Chat GPT enters the picture, it raises the question: What else is unmanaged? If PHI or confidential information could have been uploaded without the seller knowing, the buyer must assume there are potential liabilities. This gives them justification to lower their offer or demand stricter terms.

Extended Due Diligence Creates “Deal Exhaustion”

The uncertainty introduced by using Free Chat GPT or other free tools often results in longer diligence cycles. Buyers request more documents, more certifications, more IT reports, more disclosures—all of which can slow the deal to a crawl. The longer a deal drags, the higher the chance of “deal fatigue,” which can ultimately cause the deal to fall apart.

RWI Insurance Carriers May Decline or Increase Premiums

Representations and warranties insurance carriers now ask questions specifically about AI usage. If a seller acknowledges using Free Chat GPT for internal documents or financial materials, carriers may:

• Decline coverage

• Increase premiums

• Add exclusions for data breaches

• Add carve-outs for PHI exposure

This directly impacts the buyer’s risk tolerance and negotiating strategy.

What Sellers Should Do Before Going to Market

If you intend to sell your healthcare company within the next 12–24 months, now is the time to take corrective steps. You may need to:

• Transition from Free Chat GPT to ChatGPT Enterprise or Azure OpenAI with protected environments

• Implement HIPAA-compliant platforms for storage and communication

• Run an audit of your company’s software ecosystem

• Identify and eliminate shadow IT

• Train employees on AI and data governance

• Prepare full documentation demonstrating compliance

• Work with an M&A advisor who understands healthcare compliance and can present your data environment properly to buyers

In healthcare M&A, confidence, clarity, and compliance directly impact valuation. The more certainty buyers have, the faster the deal moves—and the better the price you receive.

Final Thoughts

Free Chat GPT is an incredibly powerful tool, but when used improperly—especially in healthcare—it can unintentionally create compliance vulnerabilities that jeopardize your exit. Sellers are often unaware of the regulatory implications, the contractual obligations, or the way buyers interpret these risks during due diligence.

With proper preparation, these risks can be mitigated or eliminated entirely. But the key is to act before you go to market—not after a buyer has already uncovered the issue.

Dr. Allen Nazeri, aka "Dr. Allen," boasts over 35 years of global experience as a healthcare entrepreneur. He is the Managing Director at American Healthcare Capital and Managing Partner at PRIME exits. Dr. Allen provides strategic growth consulting to leadership teams of both privately held and publicly listed companies, ensuring their preparedness for successful exits.

As an M&A advisor with over a decade of hands-on experience in deal-making, I’ve seen a lot. Deals stall. Offers get withdrawn. Valuations shift. But one of the most common, and underestimated reasons a sale can fall apart is partnership misalignment on the sell-side. Whether it's co-founders, silent partners, or family members with equity stakes, when there's a disconnect in vision, values, or urgency, deals can unravel quickly.

He holds a Dental Degree from Creighton University and an MBA in M&A and Investment Banking from the University of Bedfordshire. Dr. Allen is the author of "Value Engineering: Strategies to 10X the Value of Your Clinic and Dominate the Market!" and the brand new book "Selling Your Healthcare Company at a Premium". Dr. Allen offers a free valuation to business owners ready for a partial or complete exit strategy. Dr. Allen collaborates with strategic buyers, private equity firms, and institutional investors, taking direct accountability for the annual successful sell-side representation of nearly $750M in enterprise value.

To have a confidential discussion about your company and receive a free valuation, please email Allen@ahcteam.com or Allen@ahcpexits.com

You can now communicate with Dr. Allen's clone https://www.delphi.ai/drallen