On January 17, 2013, the Office of Civil Rights of the U.S. Department of Health and Human Services (HHS) announced the omnibus final rulemaking (Omnibus Rule). According to HHS, this Omnibus Rule is needed to strengthen privacy and security protections established under the Health Insurance Portability and Accountability Act of 1996 (HIPAA) for individuals’ information maintained in electronic health records and other formats.
The much-anticipated and long-awaited Omnibus Rule is 563 pages long and covers many topics, issues and concerns that have emerged during the 15-plus years since the passage of HIPAA and the implementing privacy, security and enforcement regulations, and the nearly four years since the passage of the Health Information Technology for Economic and Clinical Health (HITECH) Act in February 2009. Throughout the Omnibus Rule, HHS responds to public comments submitted under the various prior proposed rulemakings and notes that it will be providing additional guidance on certain topics.
In addition to providing a brief overview of the Omnibus Rule, this Alert highlights some of the modifications directly impacting business associates and key changes to the breach notification rule.
Overview of the Omnibus Rule
The Omnibus Rule actually is comprised of the following four final rules. HHS decided to combine these rules in an effort to reduce the impact on regulated entities and to reduce the number of times regulated entities would need to undertake certain compliance activities.
- Final modifications to the HIPAA Privacy, Security, and Enforcement Rules mandated by the HITECH Act, and certain other modifications to improve the Rules, which were issued as a proposed rule on July 14, 2010. These modifications include:
• making business associates of covered entities directly liable for compliance with certain of the HIPAA Privacy and Security Rules’ requirements
• strengthening the limitations on the use and disclosure of protected health information (PHI) for marketing and fundraising purposes
• prohibiting the sale of PHI without individual authorization
• expanding individuals’ rights to receive electronic copies of their health information and to restrict disclosures to a health plan concerning treatment for which the individual has paid in full out-of-pocket
• requiring modifications to, and redistribution of, a covered entity’s notice of privacy practices
• modifying the individual authorization and other requirements to facilitate research and disclosure of child immunization proof to schools, and to enable access to decedent information by family members or others
• adopting the additional HITECH Act enhancements to the Enforcement Rule not previously adopted in the October 30, 2009 interim final rule, such as the provisions addressing enforcement of noncompliance with the HIPAA Rules due to willful neglect.
- Final rule adopting changes to the HIPAA Enforcement Rule to incorporate the increased and tiered civil money penalty structure provided by the HITECH Act, originally published as an interim final rule on October 30, 2009.
- Final rule on Breach Notification for Unsecured PHI under the HITECH Act, which replaces the breach notification rule’s “harm” threshold with a more objective standard and supplants an interim final rule published on August 24, 2009.
- Final rule modifying the HIPAA Privacy Rule as required by the Genetic Information Nondiscrimination Act (GINA) to prohibit most health plans from using or disclosing genetic information for underwriting purposes, which was published as a proposed rule on October 7, 2009.
Despite the breadth of the Omnibus Rule, there remain some anticipated rules from HHS implementing the HITECH Act requirements. In particular, the Omnibus Rule does not address the proposed rulemaking for the accounting of disclosures requirement under the HITECH Act, which was the subject of a May 2011 notice of proposed rulemaking.
The Omnibus Rule will be effective 60 days after publication in the Federal Register – on March 26, 2013. In general, covered entities and business associates must comply with the requirements of the Omnibus Rule 180 days after the effective date of the rules – by September 23, 2013.
There are two notable exceptions to this timeline. First, for those business associate agreements that qualify for the transition exception, the parties will have until the earlier of (1) the date the existing agreement is renewed or modified, or (2) September 22, 2014, to bring their agreements into compliance. Second, with respect to compliance with the notification requirements for breaches of unsecured PHI, the standards provided in the interim final rule continue to apply until the compliance date for the Omnibus Rule of September 23, 2013.
Business Associates and Business Associate Agreements
The Omnibus Rule finalizes rules directly impacting business associates of covered entities, and subcontractors to business associates. Under the HIPAA Privacy Rule, business associates (and by extension subcontractors) are permitted to use and disclose PHI only in accordance with their business associate contracts or as required by law.
Who Is a Business Associate?
Addressing the pivotal question of “who is a business associate,” the Omnibus Rule makes a number of modifications to the existing definition of “business associate.” HHS has added the word “maintains” to the definition to clarify that entities that store or maintain PHI are business associates. Generally, a business associate includes a person (or entity) who creates, receives, maintains or transmits PHI on behalf of a covered entity (emphasis added). Additionally, the definition now includes the HITECH Act-mandated specific inclusion of:
- Health Information Organization, E-prescribing Gateway, or other person that provides data transmission services with respect to PHI to a covered entity and that requires access on a routine basis to such PHI, and
- a person that offers a personal health record to one or more individuals on behalf of a covered entity.
Additionally, through the Omnibus Rule HHS finalized its proposal to extend the HIPAA rules to subcontractors. Subcontractors are specifically included right in the modified definition of “business associate.”
A subcontractor that creates, receives, maintains, or transmits PHI on behalf of the business associate. (A subcontractor is now defined as a person to whom a business associate delegates a function, activity, or service, other than in the capacity of a member of the workforce of such business associate.)
In adopting its proposal, HHS maintains that it has authority to do so under the HITECH Act and notes that the intent of this extension of the rules was to “avoid having privacy and security protections for protected health information lapse merely because a function is performed by an entity that is a subcontractor rather than an entity with a direct relationship with a covered entity.” HHS clarifies that this extension of the rules is not limited to “first tier” subcontractors but also applies to downstream contractors that create, receive, maintain or transmit PHI for or on behalf of business associates or subcontractors.
Direct Liability of Business Associates and Subcontractors
With the final adoption of these changes, business associates and subcontractors are directly liable for violations of applicable HIPAA privacy, security and breach notification rules, including:
- compliance with the HIPAA Security Rule’s administrative, physical and technical safeguards and certain documentation requirements
- impermissible uses and disclosures of PHI and certain other requirements under the Privacy Rule, including providing an accounting of disclosures of PHI and failing to disclose PHI as needed to respond to an individual’s request for an copy of electronic PHI
- notification of a covered entity of a breach of unsecured PHI
- compliance with documentation requirements including executing business associate agreements
- failing to disclose PHI when required by the Secretary of HHS to determine the business associate’s compliance.
This direct liability is in addition to contractual liability under business associate agreements. In discussing the modifications to the Security Rule requirements, HHS notes that as business associates, and their subcontractors, are already contractually obligated to comply with these requirements, compliance will only require “modest improvements.” HHS does also recognize, however, that some business associates may not have engaged in the formal administrative safeguards such as performing the risk analysis. Notwithstanding HHS’s view of the size of the task ahead, coming into compliance with the HIPAA Rules will be a significant undertaking for business associates and business associate subcontractors who will need to conduct, or revisit, their risk analysis and develop and implement a HIPAA compliance program.
Business Associate Agreements
Covered entities and business associates are required to obtain “satisfactory assurances” through execution of business associate agreements with their business associates and subcontractor business associates. The Omnibus Rule includes modifications to the requirements for business associate agreements, both within the Privacy Rule and within the Security Rule. One such change clarifies that the obligation to obtain satisfactory assurances from a business associate that is a subcontractor is the obligation of the business associate and not an obligation of the covered entity. Another provision imposes the obligation on a business associate that is aware of non-compliance by a subcontractor to respond as a covered entity would be required to, including terminating the agreement if necessary. Despite receiving many comments questioning the continued need for business associate agreements, HHS declined to eliminate the requirement and states that they continue to see a need for business associate agreements.
HHS discusses and confirms that both covered entities and business associates are liable for the violations due to the acts or omissions of their agents, under the federal common law standard of agency. Not all business associates are automatically agents of covered entities and not all subcontractors are agents of covered entities. Such liability depends on whether there is an agency relationship and whether the act or omission was within the scope of the agency.
Changes to Breach Notification Rule
One of the most significant developments in the Omnibus Rule is HHS’s change in the definition of what constitutes a breach. Under the 2009 interim final Breach Notification Rule for Unsecured PHI (Interim Rule), a breach required a finding that the access, use or disclosure of PHI poses “a significant risk of financial, reputational or other harm to an individual.” This harm threshold, which had to be met before breach notification was triggered, has always been controversial. The Omnibus Rule replaces the “harm threshold” with a new standard, which will likely result in more breach notifications to patients.
Under the Omnibus Rule, the breach is presumed upon the occurrence of an impermissible acquisition, access, use or disclosure of PHI such that notification is required unless a risk assessment demonstrates that there is a low probability that the PHI has been compromised.
Four factors to be considered in conducting the risk assessment are:
- the nature and extent of the PHI involved (such as types of identifiers and risk of re-identification)
- the unauthorized person who used the PHI or to whom the disclosure was made
- whether the PHI actually was acquired or viewed, and
- the extent to which the risk to the PHI has been mitigated.
Additionally, HHS removed the exception on limited data sets that do not contain any dates of birth and zip codes. Thus, the breach standard and risk assessment apply to limited data sets as well.
Other provisions of the Interim Rule related to breach notification largely remain unchanged. However, the Omnibus Rule did clarify that notice to HHS for breaches affecting less than 500 individuals should be no later than 60 days after the end of the calendar year in which the breaches were discovered, not in which the breaches occurred.
In summary, the Omnibus Rule has set the default position in a security incident involving PHI as sending breach notifications unless there is some showing of low probability that PHI has been compromised. In HHS’s opinion, this focus on whether the PHI (not the individual) has been harmed is a more objective standard. Questions still will arise since the Omnibus Rule has not defined what “compromised” means. HHS encourages covered entities and business associates to take advantage of the safe harbor by encrypting PHI thus avoiding this issue altogether.
No Time to Delay
With the publication of the Omnibus Rule, it is clear that health care providers, other HIPAA-covered entities, business associates and business associate subcontractors all will need to re-invest in HIPAA/HITECH Act compliance efforts in 2013. These tasks will include conducting (or updating) risk analysis, risk management activities, policy and procedure implementation or updates, and reviewing and amending or executing business associate contracts with business associates and subcontractors. With the limited time to come into compliance afforded by the Omnibus Rule, combined with HHS’s increasing emphasis on enforcement, these efforts will require committed investment of both resources and funds.
The final rulemaking is to be published in the Federal Register on January 25, 2013, and until then the pre-publication rulemaking is available at https://www.federalregister.gov/public-inspection.
Rebekah A. Z. Monson, Sharon R. Klein and Henry C. Fader