United States: The Wild West Of Data Breach Enforcement By The Feds

Last Updated: March 18 2014
Article by Elizabeth G. Litten and Amy C. Purcell

Imagine you have completed your HIPAA risk assessment and implemented a robust privacy and security plan designed to meet each criteria of the Omnibus Rule.  You think that, should you suffer a data breach involving protected health information as defined under HIPAA (PHI), you can show the Secretary of the Department of Health and Human Services (HHS) and its Office of Civil Rights (OCR), as well as media reporters and others, that you exercised due diligence and should not be penalized. Your expenditure of time and money will help ensure your compliance with federal law.

Unfortunately, however, HHS is not the only sheriff in town when it comes to data breach enforcement.  The Federal Trade Commission (FTC) has been battling LabMD for the past few years in a case that gets more interesting as the filings and rulings mount (In the Matter of LabMD, Inc., Docket No. 9357 before the FTC).  LabMD's CEO Michael Daugherty recently published a book on the dispute with a title analogizing the FTC to the devil, with the byline, "The Shocking Expose of the U.S. Government's Surveillance and Overreach into Cybersecurity, Medicine, and Small Business."  Daugherty issued a press release in late January attributing the shutdown of operations of LabMD primarily to the FTC's actions. 

Among many other reasons, this case  is interesting because ofthe dual jurisdiction of the FTC and HHS/OCR over breaches that involve individual health information.

On one hand, the HIPAA regulations detail a specific, fact-oriented process for determining whether an impermissible disclosure of PHI constitutes a breach under the law.  The pre-Omnibus Rule breach analysis involved consideration of whether the impermissible disclosure posed a "significant risk of financial, reputational, or other harm" to the individual whose PHI was disclosed.  The post-Omnibus Rule breach analysis presumes that an impermissible disclosure is a breach, unless a risk assessment that includes consideration of at least four specific factors demonstrates there was a "low probability" that the individual's PHI was compromised. 

In stark contrast to HIPAA, the FTC can bring an enforcement action based upon its decision that an entity's data security practices are "unfair", but it has not promulgated regulations or issued specific guidance as to how or when a determination of "unfairness" is made.  Instead, the FTC routinely alleges that entities' data security practices are "unfair" because they are not "reasonable" – two vague words that leave entities guessing about how to become FTC compliant.

In 2013, LabMD filed a motion to have the FTC's enforcement action dismissed.  LabMD argued, in part, that the FTC does not have the authoritiy to bring actions under the "unfairness" prong of Section 5 of the FTC Act.  LabMD further argued that there should only be one sheriff in town – not both HHS and the FTC.  Not surprisingly, in January 2014, the FTC denied the motion to dismiss, finding that HIPAA requirements are "largely consistent with the data security duties" of the FTC under the FTC Act.The opinion speaks of "data security duties" and "requirements" of the FTC Act, but these "duties" and "requirements" are not spelled out (much less even mentioned) in the FTC Act.  As a result, how can anyone arrive at the determination that the standards are consistent?  Instead, entities that suffer a data security incident must comply with the detailed analysis under HIPAA, as well as the absense of any clear guidance under the FTC Act.

In a March 10th ruling, the judge ruled that he would permit LabMD to depose an FTC designee regarding consumers harmed by LabMD's allegedly inadequate security practices.  However, thejudge also ruled that LabMD could not "inquire into why, or how, the factual bases of the allegations ... justify the conclusion that [LabMD] violated the FTC Act."  So while the LabMD case may eventually provide some guidance as to the factual circumstances involved in an FTC determination that data security practices are "unfair" and have caused, or are likely to cause, consumer harm, the legal reasoning behind the FTC's determinations is likely to remain a mystery.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Authors
Elizabeth G. Litten
Amy C. Purcell
 
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