Long-Expected Omnibus HIPAA Rule Implements Significant Privacy and Security Regulations for Entities and Business Associates

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1 Legal Update February 11, 2013 Long-Expected Omnibus HIPAA Rule Implements Significant Privacy and Security Regulations for Entities and Business Associates On January 17, 2013, the Department of Health and Human Services (HHS) issued the final omnibus rule modifying the HIPAA Privacy, Security, Breach Notification and Enforcement Rules (Final Rule). 1 As expected, the Final Rule extends the reach and limits of HIPAA s privacy and security provisions. The Final Rule implements mandated changes to HIPAA set forth by the Health Information Technology for Economic and Clinical Health Act (the HITECH Act), enacted February 17, 2009, and, to a lesser extent, the Genetic Information Nondiscrimination Act of 2008 (GINA). The Final Rule becomes effective on March 26, 2013, with covered entities and business associates expected to comply with the new standards and implementation specifications by September 23, 2013 (180 days from the effective date). As described in more detail below, the Final Rule expands certain HIPAA obligations to business associates and their subcontractors, modifies the breach notification standard, clarifies the civil monetary penalty structure and implements a variety of other provisions. Business Associates One of the most significant sections of the Final Rule relates to business associates of covered entities. The Final Rule broadens the definition of business associate to implement changes made under the HITECH Act, to conform to the provisions of the Patient Safety and Quality Improvement Act of 2005 (PSQIA), and to provide greater clarity to persons with access to protected health information generally. A business associate now includes a[ny] person who creates, receives, maintains or transmits protected health information on behalf of a covered entity. (emphasis added). Specifically, the Final Rule identifies the following as business associates: patient safety organizations, health information entities, e-prescribing gateways and other contractors and subcontractors that provide data transmission services or facilitate access to protected health information (PHI). Subcontractors also now fall within the definition of business associate for whom covered entities ultimately will be responsible under the HIPAA Privacy Rule and Security Rule (the HIPAA Rules). The Final Rule provides the following guidance concerning business associate agreements: Vendors that contract with a covered entity to offer personal health records to patients on behalf of the covered entity are business associates and must enter into a written business associate agreement or similar arrangement with the covered entity. Vendors that provide data transmission services to a covered entity that require access to PHI on a routine basis, regardless of

2 whether such PHI is actually accessed by the vendors, are business associates and must enter into a written business associate agreement or similar arrangement with the covered entity. Vendors with transient access to PHI and that act as mere conduits with regard to the transmission of PHI (e.g., the US Postal Service or Internet service providers) are not business associates and, as a result, a business associate agreement is not required. Vendors that provide storage services with respect to PHI and have access to such PHI are business associates with which the covered entity should enter into a contractual relationship regarding such PHI. A covered entity is not required to have a contractual relationship with its business associates subcontractors. Instead, covered entities should obtain satisfactory assurances required by the [HIPAA] Rules from their business associates. Business associates are required to enter into business associate agreements with those subcontractors that will be creating or receiving PHI on behalf of the business associates. Agreements must be written with a subcontractor s subcontractors no matter how far down the chain the information flows. As a practical matter, the expansion of the definition of business associates likely will have limited impact on existing contractual relationships between covered entities and business associates. To the extent existing agreements lack such provisions, they can be amended to meet the expanded definition. In addition, per the HITECH Act, the Final Rule also expands the applicability of the HIPAA Rules to business associates. For example, the Security Rule s administrative, physical, and technical safeguard requirements and documentation requirements now apply directly to business associates. HHS states that the extension of direct liability for compliance with the Security Rule is largely ministerial, as the Security Rule currently requires that covered entities establish business associate agreements that require the implementation of such safeguards. As a result, business associates and subcontractors should already have such security practices in place. Similarly, the Final Rule makes business associates directly liable under the Privacy Rule for uses and disclosures of [PHI] that are not in accord with its business associate agreement or the Privacy Rule. Moreover, business associates will also be directly liable under the Privacy Rule for failure to enter into business associate agreements with any subcontractors. Breach Notification In 2009, HHS issued an interim final rule to implement the breach notification provisions of the HITECH Act. Under the interim final rule, if a covered entity or business associate believed that an unauthorized acquisition, access, use or disclosure of protected health information had occurred, then, in order to determine whether such use or disclosure was a breach, the covered entity or business associate had to perform a comprehensive risk assessment to determine the likelihood that an individual would suffer harm as a result of such use or disclosure. Unlike the interim final rule in which the risk assessment was based on harm to an individual the Final Rule presumes that any unauthorized access of PHI is a breach and requires that the risk assessment focus on the likelihood that the PHI has been compromised. If a covered entity or business associate that has suffered a breach can demonstrate that there is a low probability that the PHI has been compromised, notification may not be required. This low probability determination will be based on a risk assessment that includes the following four factors: 2 Mayer Brown Long Expected Omnibus HIPAA Rule Implements Significant Privacy and Security Regulations for

3 The nature and extent of PHI involved, including the types of identifiers and likelihood of re-identification; The unauthorized person who used the PHI or to whom the disclosure of PHI was made; Whether the PHI was actually viewed or acquired or, alternatively, if only the opportunity existed for the information to be viewed or acquired; or The extent to which the risk to the PHI has been mitigated. With regard to a business associate s notification obligations to a covered entity, the Final Rule establishes that a business associate must provide notice of breach of unsecured PHI to a covered entity without unreasonable delay and in no case later than 60 days following the discovery of a breach. With respect to notification to affected individuals of a breach, where a business associate is acting as an agent of the covered entity, discovery of a potential breach by the business associate is imputed to the covered entity. As a result, the covered entity will be required to provide notifications based on when the business associate discovers the breach and not when the business associate notifies the covered entity. HHS recommends that covered entities who have an agency relationship with their business associates address such issues in their business associate agreements. Civil Monetary Penalties The Final Rule s section on civil monetary penalties, while expected based on past rulemaking, is nevertheless noteworthy. On October 30, 2009, HHS issued an interim final rule that would revise HIPAA s enforcement provisions to incorporate the range of potential civil money penalty amounts set forth in section 13410(d) of the HITECH Act. Prior to the HITECH Act, HIPAA s enforcement provisions authorized a civil penalty of not more than $100 for each violation, with the total amount imposed on a covered entity for all violations of an identical nature during a calendar year not to exceed $25,000. The HITECH Act instead imposed a tiered system featuring increasing penalty amounts for violations based on increasing levels of culpability associated with each tier. The Final Rule adopts the HITECH Act s tiered system. This tiered structure and corresponding penalties will apply to violations by covered entities and business associates. Under the Final Rule, the tiered penalty scheme will be applicable to violations occurring on or after February 18, The penalty scheme is as follows, as summarized by the table published by HHS and copied here: For violations in which the covered entity did not know and, by exercising reasonable diligence, would not have known that the covered entity violated a provision, an amount not less than $100 or more than $50,000 for each violation; For a violation that was due to a reasonable cause, and not to willful neglect, an amount not less than $1000 or more than $50,000 for each violation; For a violation that was due to willful neglect and was timely corrected, an amount not less than $10,000 or more than $50,000 for each violation; and For a violation that was due to willful neglect and was not timely corrected, an amount not less than $50,000 for each violation. The Final Rule sets a cap in that any penalty for violations of the same requirement or prohibition under any of the above categories may not exceed $1.5 million in a calendar year. 3 Mayer Brown Long Expected Omnibus HIPAA Rule Implements Significant Privacy and Security Regulations for

4 Categories of Violations and Respective Penalty Amounts Available VIOLATION CATEGORY (A) DID NOT KNOW (B) REASONABLE CAUSE (C)(I) WILLFULL NEGLECT CORRECTED (C)(II) WILLFULL NEGLECT NOT CORRECTED EACH VIOLATION $100 $50,000 $1,000 $50,000 $10,000 $50,000 ALL SUCH VIOLATIONS OF AN IDENTICAL PROVISION IN A CALENDAR YEAR $1,500,000 $1,500,000 $1,500,000 $50,000 $1,500,000 The maximum penalty will not be imposed for every violation. Instead, HHS has identified five categories that it will consider on a case-by-case basis in determining the amount of any civil money penalty. The Final Rule expanded these categories to include the following parameters. These will be fact-specific inquiries. The nature and extent of any violation, including the number of individuals affected and the duration of the violation; The nature and extent of any individual s resulting physical, financial, or reputational harm, including any hindrance to the individual s ability to obtain health care; The history of prior noncompliance, including similar prior indications of noncompliance and the offending party s responses to them, and also history of compliance; The financial condition of the offending party, including difficulties that could have affected compliance or that could cause a money penalty to jeopardize the future provision of health care; and Such other matters as justice may require. The Final Rule also limits the affirmative defenses available to an entity that violates HIPAA. A complete defense is available only if the violation was not due to willful neglect and was corrected within 30 days of when the entity knew, or by exercising reasonable diligence would have known, of the violation. This means that an entity s reasonable lack of knowledge of a violation alone will no longer constitute a complete defense, unless, in certain circumstances, it is timely corrected. Moreover, an employee or business associate s knowledge of a violation may be imputed to a covered entity. Finally, the HHS Secretary can waive the penalty to the extent that payment of the penalty would be excessive relative to the violation, and it is also within the Secretary s discretion to settle any issue or case. Other Notable Components The following section describes other notable provisions of the Final Rule. Unsecured PHI. The Final Rule defines unsecured PHI to mean protected health information that is not rendered unusable, unreadable, or indecipherable to unauthorized individuals through the use of a technology or methodology specified by the Secretary in guidance. Covered entities that implement the specified technologies and methodologies with respect to PHI are not required to provide notifications in the event of a breach of such information that is, the information is not considered unsecured in such cases. The Secretary s guidance referenced in the Final Rule is guidance that was issued on April 19, 2009, which lists and describes encryption and destruction as the two technologies accepted. 2 4 Mayer Brown Long Expected Omnibus HIPAA Rule Implements Significant Privacy and Security Regulations for

5 Fundraising The Final Rule expands the types of PHI that may be used (without the need for an authorization) for fundraising purposes. The additional types of PHI include date of birth, general department of service (e.g., cardiology), treating physician information, and outcome information. In addition, covered entities must provide a clear and conspicuous method for opting out of fundraising communications and the method must not result in undue burden or more than nominal cost to the individual. Marketing. The Final Rule expands the uses of PHI that are considered to be marketing and, therefore, require an authorization. The Final Rule requires authorization for all treatment and health care operation communications that encourage the use of a product or service when a covered entity receives financial remuneration for making the communication from the third party whose product or service is being marketed. Sale of PHI. The Final Rule defines sale of PHI as a disclosure of [PHI] by a covered entity or business associate, if applicable, where the covered entity or business associate directly or indirectly receives remuneration from or on behalf of the recipient of the [PHI] in exchange for the [PHI]. Under the Final Rule, a covered entity must obtain an authorization for any disclosure of PHI that constitutes a sale of PHI. Research. The Final Rule finalizes the HHS proposal to allow a blending of conditioned and unconditioned authorizations in a single document. Accordingly, HIPAA does not allow a covered entity to condition treatment on an individual executing an authorization. One of the exceptions is for clinical research, where the covered entity may condition the researchrelated treatment on execution of an authorization to use and disclose the individual s PHI in the research. State Preemption. Although the Final Rule adopts preemption language to the extent that it can under previous proposals and rules under HIPAA and the HITECH Act, it can only preempt state law to the extent those laws are contrary to and more stringent than the Final Rule, as Congress made it clear that was its intention. Without further action from Congress, uniformity as to the various privacy laws will not be possible through rulemaking. GINA. The Final Rule, in accordance with GINA, clarifies that genetic information is a type of health information and generally prohibits health plans from using or disclosing genetic information for underwriting purposes. Genetic information is broadly defined to include manifestation of a disease or disorder in a family member of an individual in addition to genetic tests of individuals and family members and requests for and receipt of genetic services. Other than clarifying that genetic information is health information, the provision does not impact health care providers. Notices of Privacy Practices. Providers will need to update their Notice of Privacy Practices. They should advise individuals of the Final Rule s required changes, such as the duty of a covered entity to notify affected individuals of a breach of unsecured PHI and ensure that the Notice accurately describes privacy practices changes. Forms. The Final Rule states that further educational materials and guidance can be found on its website at privacy/hipaa/understanding/index.html. Further, HHS has posted on its website sample business associate agreement provisions to help covered entities and business associates comply with the new business associate agreement requirements under the Final Rule. 3 5 Mayer Brown Long Expected Omnibus HIPAA Rule Implements Significant Privacy and Security Regulations for

6 For more information about the Final Rule or any other matter raised in this Legal Update, please contact any of the following lawyers. Debra Bogo-Ernst Rebecca S. Eisner incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC ); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. Mayer Brown and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions. This Mayer Brown publication provides information and comments on legal issues and developments of interest to our clients and friends. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein The Mayer Brown Practices. All rights reserved. William Michael, Jr Jeffrey P. Taft Endnotes 1 Available at OFRUpload/OFRData/ _PI.pdf. 2 See 75 Fed. Reg Available at hipaa/understanding/coveredentities/contractprov.html. Mayer Brown is a global legal services organization advising many of the world s largest companies, including a significant portion of the Fortune 100, FTSE 100, DAX and Hang Seng Index companies and more than half of the world s largest banks. Our legal services include banking and finance; corporate and securities; litigation and dispute resolution; antitrust and competition; US Supreme Court and appellate matters; employment and benefits; environmental; financial services regulatory & enforcement; government and global trade; intellectual property; real estate; tax; restructuring, bankruptcy and insolvency; and wealth management. Please visit our web site for comprehensive contact information for all Mayer Brown offices. IRS CIRCULAR 230 NOTICE. Any advice expressed herein as to tax matters was neither written nor intended by Mayer Brown LLP to be used and cannot be used by any taxpayer for the purpose of avoiding tax penalties that may be imposed under US tax law. If any person uses or refers to any such tax advice in promoting, marketing or recommending a partnership or other entity, investment plan or arrangement to any taxpayer, then (i) the advice was written to support the promotion or marketing (by a person other than Mayer Brown LLP) of that transaction or matter, and (ii) such taxpayer should seek advice based on the taxpayer s particular circumstances from an independent tax advisor. Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the Mayer Brown Practices ). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership 6 Mayer Brown Long Expected Omnibus HIPAA Rule Implements Significant Privacy and Security Regulations for

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