For much of 2013, group health plan sponsors have been gearing up for the compliance challenges associated with the Affordable Care Act. There is no doubt that much of the planning, focus and energy trained on the next round of effective dates under the Affordable Care Act is warranted. Nevertheless, plan sponsors must be certain not to overlook the other compliance challenge for 2013 – HIPAA/HITECH. On January 25, 2013, the Department of Health and Human Services (“HHS”) issued fairly significant regulations modifying the HIPAA Privacy, Security and Enforcement rules (the “Final Rule”). The Final Rule is generally effective March 26, 2013. However, covered entities (including group health plans) and business associates (i.e., service providers that conduct business with a covered entity that involves the use or disclosure of individually identifiable health information) must comply with the new provisions by September 23, 2013. Although the Final Rule includes a multitude of signification changes, some of the most pressing compliance obligations facing plan sponsors of group health plans and their business associates impact the security breach notification rules, business associate agreements, limitations on protected health information (“PHI”), and HIPAA Notice of Privacy Practices (“NPPs”).
Security Breach Notification Standards
The Health Information Technology for Economic and Clinical Health Act (“HITECH Act”) requires covered entities to provide notification to both affected individuals and HHS following the discovery of a breach of unsecured PHI. The HITECH Act requires HHS to post on its website a list of covered entities that experience breaches of unsecured PHI involving more than 500 individuals. Prior to the Final Rule, a “breach” was defined as an unauthorized use or disclosure that posed a “significant risk of financial, reputational, or other harm to the individual.” The Final Rule substantially alters the definition of breach by eliminating the “risk-of-significant harm” standard and replaces it with a provision that requires covered entities and business associates to notify individuals of a breach unless a risk assessment determines that there is a low probability that the PHI has been compromised. This change ostensibly ensures that covered entities will not be able to use the absence of clear information about a breach as justification for a “no notice” decision.
To demonstrate that there is low probability that PHI has been compromised, a covered entity or business associate must perform a risk assessment that addresses, at a minimum, the following factors: (1) the nature and extent of the PHI involved; (2) the unauthorized person who used the PHI or to whom the disclosure was made; (3) whether the PHI was actually acquired or viewed; and (4) the extent to which risk has been mitigated. HHS has indicated that it will issue guidance regarding performing assessments with respect to frequently occurring scenarios. It is likely that the new standard will result in more impermissible uses and disclosures being considered as breaches that require notification to affected individuals. As a result, plan sponsors and business associates should begin conducting compliance assessments and providing training to employees who have access to PHI, particularly since HHS often uses breach notifications as a means to conduct audits and investigations.
Business Associates and Business Associate Agreements
As mentioned earlier, the Final Rule has a direct impact on business associates and business associate agreements. For example, the Final Rule makes certain HIPAA Privacy and Security rules directly applicable to business associates, including rules pertaining to security standards, administrative safeguards, physical safeguards and disclosures of PHI. The Final Rule also requires business associates to agree in business associate agreements to comply with the required provisions imposed on them under HIPAA. Generally, for business associates, this new rule should not affect their behavior or performance of services because they are typically contractually obligated under their business associate agreements to comply with HIPAA. The Final Rule now creates legal exposure beyond any already existing contractual obligations for violations. In addition, the Final Rule clarifies that covered entities may be liable under the “federal common law of agency” for the acts and omissions of their business associates.
The Final Rule also requires that business associates not only have a business associate agreement in place with the covered entity to whom they are providing services, but also with subcontractors who will receive, create, or transmit PHI on their behalf. Likewise, subcontractors will also need business associate agreements with their subcontractors as long as PHI is being used. The subcontractor business associate agreement must be at least as stringent as the business associate agreement for the entity retaining the subcontractor. Any new business associate agreements entered into on or after September 23, 2013 must meet the new requirements set forth in the Final Rule. With respect to business associate agreements that were in place as of the effective date of the Final Rule, there is a transition period for updating such business associate agreements. Current business associate agreements must be updated for the new requirements under the Final Rule by the earlier of: (1) the next renewal after September 23, 2013, or (2) September 23, 2014.
Due to the Final Rule, covered entities as well as business associates will need to determine both whether they have requisite business associate agreements in place for service providers and whether amendments to current business associate agreements are necessary to account for the risk of liability as a result of having their business associate be considered an agent.
Limitations on PHI
The Final Rule implements important limitations with respect to the marketing of PHI and the sale of PHI. HHS restricts marketing without authorization where the covered entity receives “remuneration” for such marketing. Marketing is defined as a “communication about a product or service that encourages recipients… to purchase or use the product or service.” This applies to both “direct” and “indirect” remuneration, but does not apply to non-financial benefits, such as in-kind benefits, and payments for purposes other than making a communication, such as payments to implement a disease management program. Plan sponsors should keep in mind that the authorization requirement applies even when a business associate receives remuneration for making a communication, but the plan sponsor will not receive remuneration directly. Despite the general rule, authorization is not necessary for face-to-face communications (e.g., where an individual is handed a pamphlet) and “refill reminders” so long as the remuneration for making such a communication is reasonably related to the cost for making the communication.
HHS also restricts the sale of PHI without authorization. The “sale of PHI,” is defined to include where the plan directly or indirectly receives remuneration for PHI, however, unlike with marketing, remuneration in this instance includes both financial and non-financial benefits. Plan sponsors should note that authorization is not needed for disclosures: (1) for public health purposes; (2) for treatment and payment for health care; (3) for certain corporate transactions (i.e., the sale, transfer, merger, or consolidation of all or part of a covered entity and for related due diligence); (4) to a business associate in connection with the business associate’s performance of activities; (5) to a patient or beneficiary upon request; and (5) as otherwise required by law. Plan sponsors will need to identify any situations where marketing and/or the sale of PHI may be implicated and evaluate whether changes in operations or any agreements with service providers are necessary in light of the new standards.
Changes for HIPAA Notice of Privacy Practices (NPPs)
In addition, Plan sponsors will want to view their existing NPPs, and make changes as necessitated by the Final Rule. More specifically, the Final Rule requires that the NPP must now include the following information: (1) that the sale of PHI and the use of such information for paid marketing requires authorization; (2) that other uses and disclosures of PHI not specifically described in the NPP will be made only with authorization; (3) that affected individuals must be notified of breaches of their PHI; and (4) that individuals can restrict disclosures to their health plan for services for which they pay “out of pocket.”
Aside from the substance of the NPP changes, the Final Rule also includes important provisions concerning requirements for distributing revised NPPs. The Final Rule provides that health plans that post their NPPs on their websites must post material changes on their websites by the effective date of the change, and provide information about the change in their next mailing to covered individuals. Plans that do not post their NPPs on their websites must provide information about any material change to their NPP to covered individuals within 60 days of the material revision to the NPP. With the new distribution provisions, health plans can now avoid the cost of having to distribute a separate mailing with each revised NPP.
View from Proskauer
Given the many significant changes brought about by the Final Rule and the impending compliance date of September 23, 2013, plan sponsors of group health plans and their business associates will have to take prompt action to meet the deadline. This includes revising NPPs, reviewing and revising policies and procedures, as necessary, concerning breach notification, the sale of PHI and the use of PHI for paid marketing activities and developing new forms of business associate agreements. In addition, plan sponsors and business associates should begin conducting compliance assessments and providing training to all employees, both veterans and newly hired, who will have access to PHI. After all, the Affordable Care Act is not the only compliance challenge for 2013.