[co-author: Jacquelyn Loyd]
Until last week, Sutter Health was looking at a potential jury verdict in excess of $4 billion against several of its affiliated hospitals in a class action suit filed under the California Medical Information Act, California Civil Code § 56 et seq (“CMIA”) and arising from the theft of a computer containing patient health information. Many providers believed that the CMIA was essentially a “strict liability statute,” i.e., that they could be liable for “nominal damages” under the CMIA without proof of fault, actual disclosure, or injury to patients arising from the disclosure. Many plaintiffs successfully argued that the mere theft of a laptop, thumbdrive, or other device containing patient information was enough to establish liability and entitle them to an award of nominal damages in the amount of $1,000 per patient.
On July 21, 2014, the third district court of appeals published an important decision changing all of this: Sutter Health v. Superior Court (Atkins), Case No. C072591 (Cal. App. 3d Dist. July 21, 2014). While limited to the CMIA, the decision may affect interpretations of certain HIPAA provisions in practice, administrative proceedings, and court cases arising from HIPAA violations.
The Sutter Health v. Superior Court Decision
The class action lawsuit arose in October 2011, when a thief stole a computer containing over 4 million different patients’ medical records from a Sutter Health facility. Sutter had not encrypted the records, but had installed password protection. The facility where Sutter kept the computer had no alarm system or security camera. In November 2011, when Sutter announced the theft of the computer, several of the patients whose medical information was stored on the computer filed suit on behalf of all 4 million patients similarly situated.
The plaintiffs alleged that Sutter violated the CMIA sections 56.10 (which prohibits the unauthorized disclosure of medical records) and 56.101 (which requires providers to preserve the confidentiality of medical information). Sutter demurred to the complaint on various grounds, but the trial court overruled the demurrer. Id. Sutter then sought a writ of mandate, asking the court of appeal to exercise its discretion to review the trial court’s decision - a request the appellate court rarely grants. However, emphasizing the importance of the issues, the court of appeal granted Sutter’s petition for a writ of mandate and reversed the trial court’s decision. Id.
In brief, the appellate court held that the plaintiffs (1) failed to state a cause of action under § 56.10 because Sutter never affirmatively shared the information with the thief and therefore never “disclosed” it; and (2) failed to state a cause of action under § 56.101 because Plaintiffs did not allege that an unauthorized person actually viewed the information, and therefore, no breach of confidentiality occurred. This was a somewhat surprising conclusion given that the CMIA requires that health care providers maintain, store, preserve, destroy, abandon, and dispose of medical information in a way that “preserves the confidentiality of the information contained therein,” § 56.101, and Plaintiffs alleged Sutter negligently stored their information in unencrypted form in a facility without security alarms or cameras. However, the court underscored that “the Confidentiality Act does not provide for liability for increasing the risk of a confidentiality breach.” Rather, the court stated, it “provides for liability for failing to ‘preserve the confidentiality’ of the medical records.” That is, the court instructed: “While loss of possession may result in breach of confidentiality, loss of possession does not necessarily result in a breach of confidentiality. For that reason, a plaintiff must allege a breach of confidentiality, not just a loss of possession, to state a cause of action for nominal or actual damages under section 56.101.”
The Sutter Health court based its ruling in part on that of a similar case from the Second Appellate District: - Regents of the University of California v. Superior Court. 220 Cal. App. 4th 549 (2013). In Regents, a physician took a laptop containing several thousand patients’ information home with him from work. Regents, 220 Cal. App. 4th at 554. A burglar broke into the physician’s home and stole the laptop and the encryption key that enabled him to access the patient information. Id. The Regents court held that the plaintiffs were not entitled to nominal damages under section 56.36 because the CMIA required an affirmative “disclosure” by the provider. Id. at 564.
However, the Sutter opinion goes farther than Regents in protecting providers from class action and other lawsuits. The Regents court opined that a violation of section 56.101 may occur without proof of breach. Id. Sutter clarified that the CMIA requires proof of (1) a breach; (2) tied to a statutory duty (e.g., a duty to preserve confidentiality and a breach of confidentiality as the injury protected against); (3) an actual injury and (4) causation of that injury – all of which are elements of a cause of action for negligence. The court further instructed that the presence in the CMIA of a statutory remedy for violations of section 56.36, nominal damages in the amount of $1,000 per patient, does not change this analysis because “no damages, not even nominal damages, are available unless the injury protected against is suffered.” Citing Buttram v. Owens-Corning Fiberglas Corp., 16 Cal.4th 520, 535 (1997
The Sutter decision is immensely satisfying to CMIA and HIPAA lawyers who believed it unjust to hold that a provider may be subject to billions in nominal damages under the CMIA even though no unauthorized persons viewed any medical information let alone disclosed it. As the court said:
Interpreting section 56.101 to provide $1,000 in damages to every person whose medical information came into the possession of any unauthorized person without that person viewing the information would lead to unintended results. For example, if a thief grabbed a computer containing medical information on four million patients, but the thief destroyed the electronic records to reformat and wipe clean the hard drive and sell the computer without ever viewing the information or even knowing it was on the hard drive, the hdalth care provider would still be liable, at least potentially, for $4 billion.
Fortunately for California health care providers, the court refused to interpret the CMIA to require “such an unintended result.”
Ramifications of the Sutter Health Decision In Matters Governed By HIPAA
Under HIPAA, a breach occurs when a covered entity impermissibly uses or discloses the patient’s protected health information (PHI) unless that entity can show that there is a low probability that the PHI has been compromised. See 45 C.F.R. 164.402; Rules and Regulations, 78 Fed. Reg. 5641 (Jan. 25, 2013). That is, under HIPAA, the burden falls on covered entities to show a low probability of compromise whereas in California, the burden is now on plaintiffs to show that a breach of confidentiality occurred, i.e., that the information was actually viewed by an unauthorized person. Compare Sutter Health v. Superior Court (Atkins), No. C072591 (Cal. App. 3d Dist. July 21, 2014) and Rules and Regulations, 78 Fed. Reg. 5641 (Jan. 25, 2013). Under HIPAA, whether the information was actually viewed is only one factor to be analyzed. Nonetheless, in appropriate cases and challenges, the Sutter Health reasoning may be persuasive to avoid penalties and/or liability – or at least to support an argument that where there is no evidence that PHI was actually viewed, there is per se, or as a matter of law, a low risk of compromise.
HIPAA also penalizes covered entities (and business associates in some cases) where they permit unauthorized “acquisition” and “access” to PHI. See 45 C.F.R. 164.402. It is unclear how courts will interpret “acquisition” and “access” where the unauthorized party merely had an opportunity to view, use, or disclose PHI. However, the Sutter court’s reasoning and expressed concerns provide support for an argument that an actual disclosure should be a required showing.
The third district’s ruling in Sutter Health reinforces the age-old requirement that to recover damages in a CMIA case, a plaintiff must allege and prove the elements of a negligence cause of action. The case clarifies that a breach of confidentiality must have occurred, causing damages, and that a breach cannot be shown without evidence that patient information was actually disclosed. Whether the court’s reasoning will be useful in analyzing HIPAA security incidents and breaches remains to be seen, but at a minimum, the case suggests that where no disclosure occurred, that there is a “low probability” that the PHI was compromised.
 The covered entity (and/or business associate if applicable) must analyze the following factors, at a minimum, in its risk assessment to show that the probability that the PHI has been compromised is low: (1) the nature and extent of the health information involved, (2) the unauthorized person to whom the disclosure was made, (3) whether the health information was actually acquired or viewed, and (4) the extent to which the risk to the PHI has been mitigated. 45 C.F.R. 164.402(2).