Grand Theft PHI – Are Vendors Putting You at Risk for a HIPAA Breach?

08 December 2014 Labor & Employment Law Perspectives Blog

Your vendor’s employee goes home after a long day of collecting wellness questionnaires and biometric screening results only to wake up the next day to discover that her car has been stolen from her driveway. As you can imagine, the theft will likely result in multiple calls to the employee’s car insurance company, but what you may not realize is that it also resulted in a breach of protected health information (PHI) under the Health Insurance Portability and Accountability Act of 1996 (HIPAA).

PHI generally includes any information collected in connection with a health plan that can reasonably be used to identify an individual and is about the individual’s past, present, or future physical or mental health or condition, the provision of health care to the individual, or payment by a health plan for health care the individual receives. A breach generally includes any use or disclosure of PHI that is not permitted under HIPAA and that compromises the security or privacy of the health information. More information about the HIPAA breach notification rules can be found here.

HIPAA breaches are big news and can result in significant penalties. Civil penalties generally range from $100-$50,000 per year for each violation (i.e., with respect to each individual piece of PHI) and are capped at $1.5 million per year for each identical violation. This means that up to $1.5 million in penalties could be assessed as a result of the breach described above, depending on how many questionnaires and biometric screening results were in the car at the time of the theft. As a real world example, the Department of Health and Human Services (HHS) announced earlier this year that two entities collectively paid the HHS Office for Civil Rights almost $2 million in penalties to resolve potential HIPAA violations after non-encrypted laptops holding electronic PHI were stolen.

Although it is probably impossible in practical terms to avoid all potential breaches, there are a number of steps that plan sponsors can take to protect their employees from a breach of their PHI and protect themselves against potential penalties:

  • Understand where you may be vulnerable. If you sponsor a self-insured health plan, including a wellness program or flexible spending account, then it is very likely that the plan is subject to HIPAA.
  • Ask about your vendors’ policies regarding handling of PHI. Are their laptops/tablets encrypted? How are paper copies of PHI handled and secured? The reality is that the scenario above could have been avoided if the vendor’s employee had secured the PHI by locking it in a safe or taking it to a secure location before returning home. Of course, you cannot be sure that vendor employees will follow these policies, but it is helpful to understand what protections your vendors have in place.
  • Ensure that the contracts with each of your vendors provide that the vendor will be responsible for all consequences of a HIPAA breach that is caused by them or one of their employees. This generally includes paying or providing indemnification for potential penalties, preparing and delivering the breach notices, completing any required filings with the government, and covering the cost of mitigation (e.g., identity theft protection services).
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