On January 25, 2013, the Office for Civil Rights, Department of
Health and Human Services (HHS) published its long-awaited Omnibus
Final Rule (Final Rule) implementing provisions of the Health
Information Technology for Economic and Clinical Health (HITECH)
Act enacted by Congress in 2009. HITECH significantly modified
requirements under the Health Insurance Portability and
Accountability Act (HIPAA) of 1996. Not surprisingly, the Final
Rule contains many important changes for "covered
entities," such as health care providers, health plans, and
health care clearinghouses, which had already been subject to
HIPAA's requirements. However, the Final Rule also addresses
significant new obligations for certain entities that do business
with covered entities - so-called "business associates" -
and their subcontractors. We address some of the most notable new
requirements for business associates, subcontractors and covered
entities below.
Definition of "Business
Associate"
The Final Rule revises the definition of "business
associate." Under the Final Rule, a "business
associate" is generally a person or entity that creates,
receives, maintains, or transmits protected health information
(PHI) in fulfilling certain functions or activities for a
HIPAA-covered entity. Health information that is created or
received by a covered entity, identifies an individual, and relates
to that individual's physical or mental health condition,
treatment, or payment for health care is considered PHI when it is
transmitted by or maintained in any form of medium, including
electronic media. Notably, the new definition clarifies that
"business associates" include entities that
"maintain" PHI for a covered entity, such as a data
storage company.
The Final Rule also clarifies the definition of a "business
associate" by expressly including health information
organizations, e-prescribing gateways, and other persons that
provide data transmission services with respect to PHI and require
"routine access" to PHI. Additionally, as further
explained below, the new definition of "business
associate" provides that certain subcontractors of business
associates are also "business associates." Due to the
significance of the new rules and the imposition of direct
liability on business associates under HIPAA (see below), entities
which are unsure of whether they qualify as a business associate
should clarify with legal counsel.
Requirements for Business Associates
The Final Rule implements provisions in HITECH that significantly
expand the accountability of business associates under HIPAA. Under
current HIPAA regulations (those in place prior to the effective
date of the new rules), covered entities must enter into contracts
with their business associates (business associate agreements)
which require, among other responsibilities, the business associate
to implement administrative, physical and technical safeguards that
reasonably and appropriately protect the confidentiality, integrity
and availability of electronic PHI. Additionally, under current
regulations, business associate agreements must require a business
associate to use appropriate safeguards to prevent the use or
disclosure of PHI. With the passage of HITECH and the publication
of the Final Rule, parts of the HIPAA Security Rule (i.e.,
HIPAA's regulations relating to security standards for
electronic PHI) and Privacy Rule (i.e., HIPAA's regulations
relating to the privacy of PHI) will apply directly to business
associates, making them potentially liable for civil and criminal
penalties for any non-compliance with the HIPAA regulations, rather
than just a breach of contract.
1. The Final Rule applies the Security Rule directly to
Business Associates
The Final Rule implements HITECH's requirements for business
associates to directly comply with parts of the Security Rule. For
example, under the Final Rule, the Security Rule requires business
associates to ensure the confidentiality, integrity and
availability of electronic PHI that the business associate creates,
receives, maintains or transmits, and also to protect against
reasonably anticipated threats or hazards to the security or
integrity of electronic PHI. The Final Rule also directly requires
a business associate to adopt certain security measures to
implement the standards and implementation specifications under the
Security Rule, including specific administrative safeguards,
physical safeguards and technical safeguards. Business associates
must also conduct a risk analysis and assess the risks and
vulnerabilities of electronic PHI.
In summary, business associates must implement policies and
procedures to comply with the Security Rule. Notably, the Security
Rule was designed to be scalable to the size of the entity. In
identifying reasonable safeguards, entities may consider the size,
complexity and capabilities of the entity, and the cost of security
measures, among certain other factors.
2. The Final Rule Clarifies Which Parts of the Privacy Rule
Apply to Business Associates
The Final Rule also applies parts of the Privacy Rule directly to
business associates. For example, among other requirements, a
business associate under the Final Rule:
- Must not use or disclose PHI, except as permitted under the Privacy Rule;
- May use or disclose PHI only as permitted or required by its business associate agreement or as required by law;
- May not use or disclose PHI in a manner that would violate the Privacy Rule if done by the covered entity (with certain limited exceptions);
- Must disclose PHI to HHS to investigate or determine compliance;
- Must disclose PHI to the covered entity, individual or individual's designee as necessary to satisfy a covered entity's obligations to respond to an individual's request for an electronic copy of electronic PHI;
- Must not sell PHI, except as otherwise permitted under the Privacy Rule;
- Must make reasonable efforts to limit PHI to the minimum necessary to accomplish the intended purpose when using, disclosing or requesting PHI; and
- Must directly enter into a business associate agreement with a subcontractor that creates, receives, maintains, or transmits PHI on the business associate's behalf.
In addition to direct liability under HIPAA, business associates
will continue to remain contractually liable under their business
associate agreements. Covered entities must still terminate a
business associate agreement if the business associate materially
breaches the business associate's obligations (unless the
covered entity takes reasonable steps to cure).
Although parts of the Privacy Rule apply to business associates
under the Final Rule, the Final Rule does not require business
associates to comply with all requirements of the Privacy Rule. For
example, business associates would not have to provide a Notice of
Privacy Practices to individuals or designate a privacy official
under the Privacy Rule, unless a covered entity delegated such
responsibility to the business associate to perform on behalf of
the covered entity.
3. The Final Rule Provides that Certain Subcontractors Are
Business Associates
The Final Rule clarifies that a subcontractor of a business
associate who creates, receives, maintains, or transmits PHI on
behalf of the business associate is also a business associate under
HIPAA. In other words, if a business associate delegates a
function, activity or service to a subcontractor that the business
associate agreed to perform for a covered entity, and such
function, activity, or service involves creating, receiving,
maintaining or transmitting PHI, the subcontractor of the business
associate is likewise a "business associate" under
HIPAA.
For example, if a business associate hires an entity to shred its
documents, the hired entity will also be a business associate if
(i) the business associate has taken on responsibility for the
shredding under its business associate agreement with the covered
entity, and (ii) the documents to be shredded contain PHI. If,
however, the documents are not related to the business
associate's responsibilities to the covered entity, but rather
pertain to the business associate's own management,
administration, or legal responsibilities, then the subcontractor
will not be considered a business associate. Likewise, if the
subcontractor is shredding documents related to the business
associate's responsibilities to the covered entity, but those
documents do not contain PHI, the subcontractor will not be a
business associate.
HHS's clarification that certain subcontractors are business
associates significantly expands the obligations of subcontractors
who may not previously have viewed themselves as business
associates. Such subcontractors are now directly accountable for
complying with the Security Rule and Privacy Rule in the same
manner as the business associates who directly contract with the
covered entity. In making this change, HHS's concern was to
avoid lapses in the privacy and security of PHI merely because a
subcontractor performed the function.
Under the Final Rule, business associates must enter into business
associate agreements with their subcontractors that satisfy
HIPAA's detailed requirements for such agreements. The
requirements for business associate agreements between business
associates and their subcontractors under the Final Rule mirror the
required terms for business associate agreements between covered
entities and their business associates. The Final Rule also
requires business associates to terminate a business associate
relationship (or take steps to cure or end the violation and
terminate if not successful) if they know of a pattern of activity
or practice of a subcontractor that constitutes a material breach
or violation of the subcontractor's obligations. However, the
Final Rule clarifies that a covered entity itself is not required
to enter into a business associate agreement with a subcontractor
of the covered entity's business associate.
Covered Entities
The Final Rule includes a myriad of changes that directly affect
covered entities. Two of the most prominent changes - the need to
update the Notices of Privacy Practices and changes to the breach
notification rules - are discussed in this article. Covered
entities should carefully review the new rules to determine if any
other changes may affect their practices and activities, including
changes relating to marketing, fundraising, the right to restrict
uses of and disclosures to health plans, the sale of PHI, the right
of an individual to obtain a copy of PHI, and changes relating to
the ability of health plans to use genetic information for
underwriting purposes.
1. The Final Rule Requires Changes to the Notice of Privacy
Practices
The Final Rule includes a number of changes to the requirements
for providing a Notice of Privacy Practices. First, the Final Rule
requires the Notice of Privacy Practices to include a description
of certain types of uses and disclosures that require an
authorization, in addition to the statement that other uses and
disclosures not described will be made only with an authorization.
Covered entities must include a statement that most uses and
disclosures of psychotherapy notes, most uses and disclosures of
PHI for marketing, and most "sales of PHI," require an
authorization. Additionally, the Final Rule requires the Notice of
Privacy Practices to include a notice regarding the right of an
individual to restrict certain disclosures to health plans.
Second, the Final Rule requires a separate statement in the Notice
of Privacy Practices regarding certain activities (if applicable)
of a covered entity, including statements relating to:
- Fundraising activities and the ability to opt out of fundraising communications;
- The ability of a group health plan, or health insurance issuer or HMO with respect to a group health plan, to disclose PHI to the sponsor of the plan; and
- If a health plan intends to use or disclose PHI for underwriting purposes, a statement that the covered entity may not use or disclose genetic information for such purposes.
Third, the Final Rule requires covered entities to include in
their Notice of Privacy Practices information pertaining to the
covered entity's breach notification responsibilities.
Specifically, the Notice of Privacy Practices must include a
statement that: (i) the covered entity is required by law to
maintain the privacy of PHI; (ii) the covered entity is required to
provide the individual with notice of its legal duties and privacy
practices with respect to PHI; and (iii) the covered entity is
required to notify affected individuals following a
Covered entities must retain copies of the Notice of Privacy
Practices they issue (including prior versions of the notice).
Covered entities must also ensure that they provide the updated
Notice of Privacy Practices in compliance with applicable HIPAA
requirements. For example, when a Notice of Privacy Practices is
revised, a covered entity that is a health care provider must make
the Notice of Privacy Practices available upon request by
individuals on or after the effective date of the revision.
Additionally, health care providers that maintain a physical
service delivery site must promptly make the Notice of Privacy
Practices available at their service delivery sites for individuals
to take, and post the Notice of Privacy Practices in a clear and
prominent location where it is reasonable to expect individuals to
be able to read it. Covered entities must also update any Notice of
Privacy Practices placed on websites.
2. The Final Rule Modifies the Breach Notification
Rules
In the Final Rule, HHS has departed from the interim breach
notification rules (which were published August 24, 2009) in
several significant ways. HIPAA defines a "breach" as the
acquisition, access, use or disclosure of PHI in a manner not
permitted under the Privacy Rule, which compromises the security or
privacy of the PHI. Under the interim breach notification rules,
the term "compromises the security or privacy of PHI"
means that the acquisition, access, use or disclosure constituted a
significant risk of financial, reputational or other harm to the
individual. Thus, under the interim breach notification rules,
covered entities perform a risk assessment to determine whether an
impermissible acquisition, access, use or disclosure actually
resulted in a "breach" of PHI, and notification is
required only if a significant risk of financial, reputational or
other harm to the individual is identified through the risk
assessment.
In the Final Rule, HHS has eliminated the "harm"
standard. Instead, an impermissible acquisition, access, use or
disclosure of PHI is presumed to be a breach, unless the
covered entity or business associate (as applicable) demonstrates
that there is a low probability that the PHI has been compromised
based on a risk assessment of at least the following factors:
- The nature and extent of the PHI involved, including the types of identifiers and the likelihood of re-identification. For example, if the PHI involved could be used by an unauthorized individual in a manner adverse to the subject of the PHI (e.g., particularly sensitive health information or financial information, such as credit card or social security number), it is more likely that PHI will be considered compromised.
- The unauthorized person who used the PHI or to whom the disclosure was made. For example, a disclosure made to a person or entity required to abide by the Privacy Rule would make it less likely that PHI has been compromised, since the recipient of the PHI must protect the information in a similar manner as the disclosing entity.
- Whether the PHI was actually acquired or viewed.
- The extent to which the risk of PHI has been mitigated.
It is important to note that in the Final Rule HHS has also
removed the "limited data set" exception found in the
interim breach notification rules, which except from the breach
notification requirements disclosures of "limited data
sets" that, in addition to excluding certain directly
identifying information, do not contain an individual's date of
birth and zip code. Under the Final Rule, covered entities and
business associates must undertake a risk assessment of the factors
discussed above whenever an impermissible acquisition, access, use
or disclosure of PHI occurs, even if the PHI involved is only a
limited data set and does not contain dates of birth or zip
codes.
In short, HHS has retained the need for covered entities and
business associates to perform a risk assessment, but the
assessment is more objective. HHS has not otherwise modified the
breach notification requirements in any significant manner. For
example, HHS has retained the qualification that a
"breach" notification is only necessary if the PHI was
"unsecured." Thus, no breach notification is required
when the PHI that has been impermissibly acquired, accessed, used,
or disclosed was encrypted pursuant to HHS guidelines. HHS has also
continued to exclude the following incidents from the definition of
"breach":
- Unintentional acquisitions, access or uses of PHI by a workforce member or person acting under the authority of a covered entity or business associate, if such acquisition, use or disclose was made in good faith, within the scope of authority, and does not result in a further impermissible use or disclosure under the Privacy Rule.
- Inadvertent disclosures by a person authorized to access PHI at a covered entity or business associate to another person authorized to access PHI at the same covered entity or business associate if the information received as a result of the disclosure is not further used or disclosed in a manner not permitted under the Privacy Rule.
- A disclosure of PHI where a covered entity or business associate has a good faith belief that an unauthorized person to whom the disclosure was made would not reasonably have been able to retain the PHI.
Updates to Business Associate Agreements
The Final Rule makes a number of changes to the required terms and
conditions of a business associate agreement, which will require
covered entities, business associates and subcontractors to update
existing business associate agreements. In addition to other
requirements in business associate agreements, the Final Rule
provides that the agreement must:
- Require the business associate to comply with applicable requirements of the Security Rule.
- Require the business associate to ensure that subcontractors that create, receive, maintain or transmit electronic PHI on behalf of the business associate agree to comply with the requirements of the Security Rule by entering into a business associate agreement with the subcontractor that complies with the requirements for business associate agreements.
- Require the business associate to ensure that any subcontractors that create, receive, maintain or transmit PHI on behalf of the business associate agree to the same restrictions and conditions that apply to the business associate with respect to such PHI.
- Require the business associate to report breaches of unsecured PHI.
- If the business associate will carry out a covered entity's obligation under the Privacy Rule (e.g., serving as the privacy official), require the business associate to comply with the requirements of the Privacy Rule that apply to the performance of such obligation.
Covered entities, business associates and subcontractors
generally have until September 23, 2013 to update and implement
business associate agreements to comply with the new requirements.
However, HHS has opted to grandfather business associate agreements
entered into prior to January 25, 2013 and which complied
with the requirement in effect as of such date. Covered entities,
business associates and subcontractors with such
"grandfathered" agreements have until the earlier
of September 22, 2014 (an extra one-year transition period) or the
date the business associate agreement is modified or renewed
after
September 23, 2013 to update the "grandfathered"
business associate agreements. The parties to such
"grandfathered" agreements need to be careful - if they
modify or renew the agreement after September 23, 2013, they can
effectively cut short the extra one-year transition period and must
make sure the modified or renewed agreement complies with the new
rules. Importantly, HHS has clarified that agreements with
automatic renewal terms will not be deemed to have
"renewed" for purposes of determining whether the
agreement is eligible for the extra one-year transition period.
Additionally, despite the "grandfathered" status of
existing agreements, covered entities and business associates must
still satisfy the requirements of the Final Rule as of the
compliance date (discussed below) even if such requirements are not
reflected in the agreement itself.
Finally, in the Final Rule's Preamble, HHS addressed whether
agreements that were negotiated prior to the Final Rule in an
attempt to satisfy HITECH would need to be updated. HHS responded
that covered entities should review such agreements to determine if
they satisfy the Final Rule, but noted that the parties may have
the transition period to update the agreement (assuming it complied
with existing requirements as of January 25, 2013). HHS also
addressed business associate agreements with provisions that
require "compliance with all applicable laws." HHS noted
that such contracts would not sufficiently reflect the new
requirements. Thus, covered entities, business associates and
subcontractors must review their existing business associate
agreements to make sure that they are updated to comply with the
new rules.
Compliance Date
While the effective date of the Final Rule is March 26, 2013, all
covered entities and business associates have 180 days beyond the
effective date, that is, until September 23, 2013, to comply with
the new requirements. Note, however, that until September 23, 2013,
covered entities and business associates must continue to comply
with the breach notification interim rules.
Conclusion
As discussed above, covered entities, business associates and
their subcontractors have a lot of work to do before September
2013. Furthermore, there are many other provisions contained in the
Final Rule not discussed in this alert which may affect certain
entities. If you have any questions regarding the Final Rule and
its effect on your organization, please contact a member of the
Godfrey & Kahn Health Care Team.
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.