New HIPAA Rule Imposes Data Security and Privacy Obligations Directly Upon Vendors and Contractors of Covered Entities

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On January 25, 2013, the Department of Health and Human Services ("HHS") published the Final Rule to the Health Insurance Portability and Accountability Act of 1996 ("HIPAA")'s Data Security and Privacy Rules. The Final Rule is the culmination of an over three-year effort to overhaul the existing provisions, which govern how individuals' health information is used and protected. Many of the changes were required by the 2009 "HITECH" Act, and most (but not all) are substantially similar to the Proposed Rule that HHS issued in July 2010 (the "Proposed Rule"). Below is a high-level summary of the changes that will affect information technology companies that work with organizations covered by HIPAA.

More Companies are now "Business Associates" and thus Directly Responsible for HIPAA Compliance -

HIPAA's Data Security and Privacy Rules have long required "covered entities" (i.e., health care providers, health plans, and health care clearinghouses that handle individuals' protected health information ("PHI")) to contractually ensure that any entity that handles PHI on their behalf also complies with those HIPAA Rules. Now, any entity handling PHI on a covered entity's behalf (called a "business associate") is itself responsible for complying with the HIPAA Data Security and Privacy Rules. This change directly subjects business associates to HIPAA's enforcement scheme, which, as amended, can yield up to $1.5 million in annual civil penalties for each HIPAA violation.

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