Health Information Standards, Privacy, and Security: HIPAA's Administrative Simplification Regulations

Health Information Standards, Privacy, and Security: HIPAA's Administrative Simplification Regulations

Order Code RL30620
CRS Report for Congress
Received through the CRS Web
Health Information Standards, Privacy,
and Security: HIPAA’s Administrative
Simplification Regulations
Updated June 14, 2001
C. Stephen Redhead
Specialist in Life Sciences
Domestic Social Policy Division
Congressional Research Service ˜ The Library of Congress

Health Information Standards, Privacy, and Security:
HIPAA’s Administrative Simplification Regulations
Summary
The Administrative Simplification provisions of the Health Insurance Portability
and Accountability Act of 1996 (HIPAA) instructed the Secretary of Health and
Human Services (HHS) to issue standards to support the electronic transmission of
health information. HIPAA also gave Congress 3 years to enact health privacy
legislation, otherwise the Secretary was required to develop health privacy standards.
Congress failed to meet its own deadline, so Clinton Administration issued a health
privacy rule on December 28, 2000. The rule took effect on April 14, 2001.
The privacy rule gives patients the right to inspect and amend their medical
records and restricts access to and disclosure of individually identifiable health
information. Health care providers must obtain a patient’s general consent to use or
disclose their medical information for treatment, payment, and other health care
operations. In addition, both health plans and providers must obtain a patient’s
specific authorization in order to use and disclose information for non-routine and
most non-health care purposes. The rule specifies certain national priority activities
for which health information may be disclosed without a patient’s authorization.
Hospitals, health insurers, and pharmaceutical companies claim the privacy rule
will compromise patient care by placing unacceptable restrictions on access to health
information and be extremely costly to implement. They are especially critical of the
rule’s general consent provision and the requirement that, with the exception of
treatment-related disclosures, providers and health plans use or disclose no more than
the minimum amount of information necessary to accomplish the intended purpose.
Industry groups have also criticized the rule for requiring providers and plans to enter
into contracts with their business associates to ensure that these groups, which are not
directly covered under HIPAA, adhere to the same privacy protections. In response
to industry concerns, HHS will soon release a guidance document to help covered
entities implement the privacy rule. Patient privacy advocates strongly support the
rule, though they too have concerns. HIPAA did not grant HHS the authority to
cover all entities that handle medical information, nor did it give patients the right to
sue for violations of their health information privacy. Consumer advocates have
urged HHS not to weaken any of the rule’s privacy protections.
Under HIPAA, HHS is also developing electronic health information standards.
On August 17, 2000, HHS issued standards that specify the content and format for
electronic health care claims and other common health care transactions. The
transactions standards are intended to reduce the administrative burden on health
plans and providers, which today exchange information using many different paper
and electronic formats. On August 12, 1998, HHS proposed a set of administrative,
physical, and technical security standards, which health plans and providers must
include in their operations to safeguard confidential patient information against
unauthorized access, use, and disclosure. A final security rule is expected later this
year. Lawmakers have introduced two bills (S. 836, H.R. 1975) that would delay
implementation of HIPAA until all the standards and enforcement regulations, with
the exception of the privacy rule, are published in final form.

Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Electronic Interchange of Health Care Information . . . . . . . . . . . . . . . . . . . . . . 2
Uses and Transmission of Health Information . . . . . . . . . . . . . . . . . . . . . . . 2
Health Information Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Confidentiality and Cryptography . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Digital Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Health Information Privacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
HIPAA’s Administrative Simplification Standards . . . . . . . . . . . . . . . . . . . . . . . 8
Electronic Transactions and Code Sets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
National Provider Identifier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
National Health Plan Identifier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
National Employer Identifier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
National Individual Identifier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Security and Electronic Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Administrative Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Physical Safeguards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Technical Security Services . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Technical Security Mechanisms . . . . . . . . . . . . . . . . . . . . . . . . 14
Electronic Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Standardization and Interoperability of Information Technologies . . . 14
Privacy Rule: Overview and Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Concerns and Issues Dividing Stakeholders . . . . . . . . . . . . . . . . . . . . . . . 17
Patient Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Minimum Necessary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Business Associate Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Marketing by Covered Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
State Law Preemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Compliance Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
HHS Implementation Guidelines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Legislative Activity in the 107th Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Additional Information and Web Sites . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
General HIPAA Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Electronic Transactions and Code Sets . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Privacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Patient Privacy Advocates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Health Care Plans, Providers, and Clearinghouses . . . . . . . . . . . . . . 25
GAO Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

List of Tables
Table 1. Summary of HIPAA’s Administrative Simplification Provisions . . . . . 27
Table 2. Implementation Status of HIPAA’s Standards . . . . . . . . . . . . . . . . . . 29
Table 3. Key Provisions of the Health Privacy Rule (45 CFR 160, 164) . . . . . 30

Health Information Standards, Privacy,
and Security: HIPAA’s Administrative
Simplification Regulations
Introduction
The Administrative Simplification provisions of the Health Insurance Portability
and Accountability Act of 1996 (HIPAA, P.L. 104-191, 42 U.S.C. 1320d) instructed
the Secretary of Health and Human Services (HHS) to develop standards to support
electronic data interchange for a variety of administrative and financial health care
transactions. The intent of the legislation is to improve health care system efficiency
and effectiveness, make it easier to detect fraud and abuse, facilitate access to health
and medical information by researchers, and reduce administrative costs.
HIPAA’s Administrative Simplification provisions required the Secretary to issue
regulations to establish standard electronic formats for billing and other common
transactions, including the use of uniform data codes for reporting diagnoses,
referrals, authorizations, and medical procedures. The legislation also mandated the
development of unique identifiers (i.e., ID numbers) for patients, employers, health
plans, and health care providers. In addition, HIPAA required the Secretary to issue
security standards, including an electronic signature standard, to safeguard
confidential health information against unauthorized access, use, and disclosure.
Finally, the legislation included a timetable for Congress and the Secretary to develop
comprehensive medical records privacy standards to give patients the right to access
their health information and control of use and disclosure of such information by
others.
The Administrative Simplification provisions cover health plans, health care
clearinghouses (i.e., entities that facilitate and process the flow of information
between providers and payers), and health care providers who transmit health
information electronically. Covered entities have up to 24 months to comply with the
standards established by the regulations. Small health plans with annual receipts of
$5 million or less have an additional 12 months to comply. Although HIPAA does
not mandate electronic transmission of health information, the standards are intended
to catalyze the health care industry’s gradual shift away from paper-based medical
records and transactions to electronic record keeping and data transmission. Table
1 provides a summary of all the Administrative Simplification provisions in HIPAA,
including civil penalties for failure to comply with the standards, and criminal penalties
for wrongful disclosure of personally identifiable health information.
This report is divided into two sections. The first section provides some
background on electronic health information security and privacy. The second section
describes each of the HIPAA Administrative Simplification standards, including the

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status of their implementation. To date, HHS has issued two final rules: electronic
transactions and code sets; and privacy. The agency has also proposed standards for
security and electronic signatures, and for unique employer and provider identifiers.
There is an expanded discussion of the privacy rule, which has generated a great deal
of public debate and congressional interest.
Electronic Interchange of Health Care Information
Uses and Transmission of Health Information
The U.S. health care industry is made up of more than 12 million providers,
payers, researchers, and suppliers in more than 500,000 companies, nonprofit
organizations, and research facilities. The transition from fee-for-service health care
to managed health care has fueled enormous growth in the demand for patient data
by an increasing number of entities. The development of integrated health care
delivery systems has, in turn, led to the development of large, integrated databases of
personal health information. With access to these data, people are seeking new and
improved ways to deliver effective care, identify and treat those at risk for disease,
conduct research, assess and improve quality, detect fraud and abuse, and market their
services (see text box on following page).
However, today’s health care system is still largely paper-based and
unstandardized. By some estimates, paperwork alone accounts for more than 20%
of all health care costs. In addition, health care providers spend a significant amount
of their time filling out forms rather than attending to additional patients. Routine
tasks, such as filing a claim for payment from an insurer, checking insurance eligibility
for a particular treatment, or responding to requests for additional information to
support a claim, can involve numerous paper forms and telephone calls. Physicians
often bill multiple health plans, each of which may use a different format for its claims
forms. Paper-based medical records confine medical history to one physical location,
which may limit patients’ ability to share their medical information with other
physicians and specialists in order to receive the best possible diagnosis and treatment.
The nation’s health insurance payers have employed an enormous variety of
formats and data requirements to handle claims and other transactions. Competing
parties have developed proprietary formats for electronic data interchange, but there
is no uniform set of standards.1 Under HIPAA, HHS has mandated the adoption of
standardized electronic formats for several common health care transactions (e.g.,
health plan enrollment, health insurance claims, payment and remittance), and the use
of five medical data code sets for encoding data elements in those transactions. The
industry estimates that full implementation of the transactions standards could yield
a net savings of up to $9 billion a year by reducing administrative overhead, while at
the same time helping improve the quality of health care by freeing up resources now
devoted to paperwork and administration. Adoption of the HIPAA-mandated
electronic transactions and codes standards is also likely to increase substantially the
1HHS estimates that there are about 400 formats for electronic health care claims currently
in use in the United States.

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use of electronic data interchange (EDI) in health care and help move the country
towards the eventual replacement of paper-based transactions with EDI. Details on
the status of the standards for electronic transactions, code sets, and unique identifiers
appear later in the report.
Growing Uses of Health Care Information
Primary users of health care information include physicians, clinics, and hospitals that
provide care to patients. Patients provide background medical information to their
physicians, who use it to develop treatment plans and order diagnostic tests. Physicians
maintain detailed records of medical services provided to patients. Hospitals and clinics
use health care information to provide patient care ordered by physicians and maintain
ongoing records of medical services provided. In order to be reimbursed by health insurers,
health care providers submit claims that often include detailed information about a patient’s
diagnosis, treatment, and prognosis.
Secondary users of health care information include organizations that pay for health care
benefits, such as traditional fee-for-service health insurance companies, managed care
providers, and government programs, like Medicare and Medicaid. These health care
payers also use health care information to analyze the cost and quality of health care
delivered by providers, and to prevent fraud and abuse. Other secondary users of health
information include medical and social science researchers, employers, and public health
services, who use the information for purposes such as researching the costs and benefits
of alternative medical interventions, determining eligibility for social programs, and
understanding state and local health care needs. Much of the health data available to
secondary users specifically identifies individual patients.
The expansion of managed care has stimulated a demand for patient data that could barely
be imagined a decade ago. Managed care organizations (MCOs) operate on the principle
that by monitoring and controlling patient care, they can deliver care more efficiently and
reduce costs. To achieve these objectives, many different groups employed by or under
contract to MCOs must analyze patient data for a wide variety or purposes, including
utilization review (How are participating providers using services?), risk management (Is
the MCO at legal or financial risk?), and quality assessment (How can patient care and
outcomes be improved?).
Health Information Security
There has always been a need to protect confidential medical information against
unauthorized access and disclosure. For paper records, physical protections such as
locks, safes, and controlled-access buildings often provided adequate security. In
addition, the time and effort required to copy extensive health records and transport
them from one location to another effectively discouraged widespread dissemination
and disclosure of health information. But those safeguards may also impede the
delivery of quality patient care, because important information is not always available
when and where it is needed. While electronic data interchange holds great promise
for improving health care delivery, it also raises serious security concerns. Digital
records may easily be copied, modified, or viewed remotely by people seeking to
misuse the information. Health information that used to be protected by physical

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means can now be copied and transmitted across the country with the click of a
mouse.
Information technology experts estimate that more than 120 eHealth companies
were created in 1999. They predict that within a few years we will be able to access
all our medical information online from our homes and offices. Routine tasks such
as selecting physicians, identifying medical care options, viewing medical test results,
and scheduling appointments will be conducted over the Internet. Hospitals,
physicians, and health insurance companies will also conduct business over the
Internet. However, the health care industry lags behind other industries (e.g.,
financial services) in implementing security technologies to protect electronic health
information. Without appropriate security processes and technologies in place,
security threats to electronic health information are likely to increase dramatically.
There are many different components that are required to establish and maintain
information security both in the paper world and the digital world. For any domain,
there must be an authority that creates an identity for itself and issues identities at
lower levels. For example, a private company may issue employee identity cards that
enable access to facilities, benefits, or systems within the company. Those identities
would not be valid at a government facility because the private company has no
authority outside its own domain. Identities issued by authorities are part of the
authentication process, by which individuals are positively identified in order to gain
access to information systems. An identity is only valid if the person or system that
is authenticating it recognizes the authority of the issuing body.
Signed paper documents and identification cards, such as a driver’s license, are
often used to verify a person’s identity. People trust a driver’s license because they
are aware of the steps required to obtain one and they recognize that there are
controls in place to protect against modification and forgery. Authentication is more
difficult in the digital world, because information can be more easily obtained, copied,
and modified. User passwords are a common form of authentication used by digital
information systems, but they are easy to obtain and exploit. Digital signatures
(discussed below) and biometrics (i.e., use of unique physical attributes such as
fingerprints, or retina patterns), though more expensive and difficult to implement,
provide a very high degree of authentication. Once a user’s identity has been
authenticated, that individual may then receive authorization to access, modify,
create, or delete information within a system.
Confidentiality and Cryptography. In digital information systems,
confidentiality can be achieved through the use of cryptography (i.e., disguising a
message with code). To send a message via insecure channels, the message is
encoded, or encrypted, using a cryptographic formula called an encryption key. The
resulting encrypted message can only be unscrambled, or decrypted, using a
decryption key, which is either the same as the encryption key or mathematically
related to it. With cryptography, any kind of digital information — text, data, voice,
images — can be encrypted. There are two types of cryptography.
In secret key cryptography, the key used by the sender to encrypt the message
is also used by the recipient to decrypt the message. Both parties must therefore
arrange to share the same key. If the key has to be transmitted from the sender to the

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recipient, both parties must ensure that the transmission system is secure so that the
key cannot be intercepted.
In public key cryptography, each person gets a pair of keys, a private key and
a public key. The private key is kept secure, known only to the user, while the public
key is published in the electronic equivalent of a telephone book. To use this kind of
system, the sender encrypts the message using the recipient’s public key. The
message can only be decrypted by the recipient using her private key. Public key
cryptography thus permits the secure transmission of information across open
networks, such as the Internet, without senders and recipients having to exchange
secret keys.
Public key cryptography requires an infrastructure (Public Key Infrastructure,
or PKI) to support the information technology applications and manage the
generation, certification, and distribution of public and private keys. For more
information on cryptography and encryption, see CRS Issue Brief IB96039,
Encryption Technology: Congressional Issues (updated regularly).
While encryption ensures confidentiality, it does not by itself guarantee data
integrity and non-repudiation. Integrity is the assurance that a message remains
unaltered during transit and storage. For example, sealing an envelope provides some
guarantee of integrity for paper documents. Non-repudiation is the guarantee that a
particular transmission actually occurred, and that neither the sender nor the receiver
are able to deny it. In the digital world, integrity and non-repudiation are
accomplished through the use of digital signatures.
Digital Signatures. A digital signature is a type of electronic signature that
is attached to an electronic document to provide authentication of the signer’s
identity, much like a handwritten signature on a printed document. The recipient of
a document with a digital signature is able to verify that the document did indeed
originate from the person whose signature is attached (i.e., sender authentication) and
that the document has not been altered since it was signed (i.e., data integrity).
Moreover, digital signatures cannot be repudiated, that is, the signer of a document
cannot later disown it by claiming it was forged (i.e., non-repudiation). The use of
digital signatures grew out of the development of public key cryptography (see text
box on the following page). Digital signatures are an important component of
information security systems and their use, though not widespread, is growing rapidly.
For more information about digital signatures and other electronic signature
technologies, see CRS Report RS20344, Electronic Signatures: Technology
Development and Legislative Issues (updated regularly).
HIPAA’s Administrative Simplification provisions instructed the Secretary to
issue security standards to ensure the integrity and confidentiality of electronic health
information, and to protect such information against unauthorized use and disclosure.
The law also required the Secretary to develop an electronic signature standard. The
provisions and implementation status of the proposed security and electronic signature
rule are summarized below.

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What is a Digital Signature?
A digital signature is a method of authenticating electronic documents that combines the
use of public key cryptography with mathematical algorithms known as hash functions.
When you apply a hash function to a document, it creates a concise digital fingerprint of
the document called a message digest. The message digest is of fixed length, regardless of
the length of the original document. Hash functions are designed so that a small change in
the document produces a large change in the resulting message digest. Once you have
created a message digest from a document, you cannot re-create the document from the
digest.
To create a digital signature, the sender first passes the document through a hash function
to produce a message digest. The sender then encrypts the message digest using her private
key. The result is a digital signature, which is appended to the original document (which
the sender may also encrypt using her private key). The document is then transmitted to
the intended recipient, who decrypts the digital signature using the sender’s public key to
change it back into a message digest. The recipient creates a second message digest by
passing the document through the same hash function as used by the sender.
The recipient then compares the two digests. If they are identical, the recipient can be sure
that the document was not altered during transmission. Because the sender is the only
individual with access to the private key used to encrypt the digest, the recipient is also
assured that the information has indeed been sent by the sender, who is unable to deny that
fact. Although the entire process sounds complicated, in practice it requires little more than
selecting an icon on a computer screen.
Health Information Privacy
The growing use of information technology in the management, administration,
and delivery of health care has led to increasing public concern over the privacy of
medical information. Polls indicate that people are worried about who has access to
their medical records without their express authorization. They fear that their
personal health information will be used against them to deny insurance, employment,
and housing, or to expose them to unwanted judgment and scrutiny.2
Information privacy, as distinct from information security, may be defined as the
right of individuals to determine when, how, and to what extent they will share
personal information about themselves with others. Use and disclosure of
anonymized information, from which all personal identifiers have been removed, is
generally not considered to compromise privacy. The degree of privacy protection
afforded to personal medical information provided to a physician or health insurance
company by a patient varies from state to state. There is no comprehensive federal
law that protects the privacy of medical information.3
2A national survey conducted by Princeton Survey Research Associations and released in
January 1999 found that one in five people believe that their personal health information has
been used inappropriately, without their knowledge or consent.
3The Privacy Act of 1974 (5 U.S.C. 552a) protects personally identifiable information
(continued...)

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Advocates of strong privacy protection insist that patients be given the ability to
deny access to their medical information to virtually any third party. They also seek
to prohibit health care plans and providers from requiring patients to waive those
rights as a condition of participation in the health care system. But health plans,
researchers, pharmaceutical companies, and others argue that too much privacy (i.e.,
strict patient consent requirements for the release of personally identifiable health
information) may suppress the flow of information and stifle efforts to improve the
quality and efficiency of health care.
The implied conflict between patient privacy protection and the promotion of
health care quality and efficiency may be an exaggeration. There is growing evidence
from polls and surveys that some people are withdrawing from full participation in
their own health care because they are afraid their health records will be disclosed to
employers and others and lead to discrimination, loss of benefits, stigma, or unwanted
exposure. A January 1999 survey by the California Health Care Foundation found
that one of every six people engaged in some form of privacy-protective behavior,
including lying to their doctor, refusing to provide information or providing inaccurate
information, doctor-hopping to avoid a consolidated medical record, paying out-of-
pocket for care that is covered by insurance, or avoiding care altogether. As a result,
patients risk inadequate medical care, and the data disclosed and used for payment,
outcomes analysis, research, and public health reporting are compromised. Thus,
some advocates argue that strong privacy protection goes hand-in-hand with
promoting health care quality, access, and efficiency.
House and Senate conferees added privacy language to the Administrative
Simplification provisions of HIPAA during the bill’s conference, after lawmakers had
failed to pass stand-alone health privacy legislation. HIPAA required the Secretary
to report to Congress by August 1997 on ways to protect the privacy of personally
identifiable health information. It then gave Congress until August 21, 1999 to enact
health privacy legislation. If Congress failed to act, then the Secretary was instructed
to issue health privacy regulations by February 21, 2000.
The Secretary presented her recommendations on health privacy legislation to
Congress on September 11, 1997, at a hearing before the Senate Committee on Labor
and Human Resources.4 The recommendations were intended to serve as guidance
to Congress in developing comprehensive privacy legislation. The Secretary outlined
the following five key principles as being fundamental to the protection of personally
identifiable health information:
! Boundaries: Limit, with few exceptions, the use of an individual’s health
information to health purposes only.
3(...continued)
collected and held by federal agencies. Federal law also provides substantial privacy
protection for people who receive drug and alcohol treatment at federally funded clinics (42
U.S.C. 290dd-2). Several other statutes provide limited protection under specific
circumstances.
4The Secretary’s report on the confidentiality of personally identifiable health information is
available online at [http://aspe.os.dhhs.gov/admnsimp/pvcrec.htm].

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! Security: Require organizations that handle health information to provide
adequate security against unauthorized access, disclosure, and misuse.
! Consumer Control: Provide patients with the right to inspect, copy, and, if
necessary, correct their health information, and provide patients with details
of who has access to their information, how that information will be used, and
how they can restrict or limit access to it.
! Accountability: Penalize those who misuse health information and provide
redress for those harmed by improper use and disclosure.
! Public Responsibility: Balance privacy protections with public responsibility to
support national priorities, including public health and safety, research, and law
enforcement.
Several health privacy bills were introduced during 1999, but lawmakers were
unable to meet the HIPAA-imposed deadline for enacting comprehensive health
privacy legislation.5 In June 1999, the Senate Committee on Health, Education,
Labor, and Pensions delayed indefinitely an attempt to mark up a health privacy bill
after lawmakers failed to agree on whether to give patients the right to sue over
breaches of medical record confidentiality, and whether to allow preemption of all
state health privacy laws. With the failure of Congress to meet its self-imposed
deadline, the Secretary proceeded to develop health privacy regulations based on the
five principles outlined in her report to Congress.
HHS issued a proposed rule on November 3, 1999. At the request of several
health care groups, the 60-day public comment period was extended by an additional
45 days, during which time the agency received more than 52,000 comments.
Numerous stakeholders provided extensive comments on the proposed rule, including
patient privacy advocates, health care providers, standards and accrediting
organizations, government entities, health care clearinghouses, employers, health
plans, and research and pharmaceutical groups. HHS issued a final health privacy rule
on December 28, 2000. An overview of the rule’s provisions and a discussion of
some of the key concerns and issues raised by stakeholders is provided below.
HIPAA’s Administrative Simplification Standards
Electronic Transactions and Code Sets
On August 17, 2000, HHS published a final rule to implement standards for
electronic health care transactions.6 The standards are intended to reduce the
administrative burden on health plans and health care providers, which today
exchange information using many different paper and electronic formats. Each
standard specifies the content and format of a common administrative or financial
transaction between health plans and health care providers. The eight transactions
5The following health privacy bills were introduced in the 106th Congress: S. 573 (Leahy), S.
578 (Jeffords), S. 881 (Bennett), H.R. 1057 (Markey, identical to S. 573), H.R. 1941
(Condit), H.R. 2404 (Murtha), H.R. 2455 (Shays), and H.R. 2470 (Greenwood).
665 Federal Register 50311–50373.

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covered under the rule are: health care claims; eligibility for health care; referral
certification and authorization; health care claim status; enrollment and disenrollment
in a health plan; health care payment and remittance advice; health plan premium
payments; and coordination of benefits.7 The rule defines the specific standard to be
used for each transaction, the standard-setting organization whose standard must be
used, and where implementation specifications can be obtained.
HIPAA required the Secretary, where possible, to adopt standards developed by
private standards development organizations (SDOs), which are accredited by the
American National Standards Institute (ANSI). HHS chose to use standards
developed by the Accredited Standards Committee (ASC) X12N, except for the
standards for retail pharmacy transactions, which are from the National Council for
Prescription Drug Programs (NCPDP).8 Both sets of standards are already in
widespread use.
All health plans (except for self-administered, employer-sponsored plans serving
fewer than 50 employees) and health care clearinghouses, and all health care providers
that choose to submit or receive a HIPAA-covered transaction are required to use
these standards. Neither HIPAA nor the final rule requires physicians or other
providers to submit transactions electronically. However, if they submit a HIPAA-
covered transaction electronically, it must comply with the standard specified in the
rule. Health care clearinghouses may accept non-standard transactions for the sole
purpose of translating them into standard transactions for sending providers, and may
accept standard transactions and translate them into non-standard transactions for
receiving providers.
The rule names six organizations that have agreed to serve as Designated
Standards Maintenance Organizations (DSMOs).9 These organizations will evaluate
requests for changes to the standards and make recommendations for the Secretary’s
consideration. Under HIPAA, the Secretary may modify a standard no more
frequently than once every 12 months.
In addition to the standards for electronic transactions, the rule adopts several
widely used code sets for encoding data elements in the transactions. Medical data
code sets include diagnostic codes and medical procedure codes. The code sets
adopted under the rule are:
7HIPAA required the Secretary to adopt standards for two additional transactions: first report
of injury, and health claims attachments (i.e., extra documentation, such as operative notes,
pathology reports, or medical history, used to support or supplement a request for payment).
The first report of injury standard was not finalized because an implementation guide was not
available in time. HIPAA gave the Secretary an extra 12 months to issue a claims
attachments standard.
8ACS X12 was chartered by ANSI in 1979 to develop and promote standards to facilitate the
electronic exchange of data. The “N” denotes the insurance subcommittee.
9The six DSMOs are: Accredited Standards Committee X12; Dental Content Committee;
Health Level Seven; National Council for Prescription Drug Programs; National Uniform
Billing Committee; and National Uniform Claims Committee.

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! International Classification of Diseases, 9th Edition, Clinical Modification,
(ICD-9-CM), Volumes 1 and 2, for diagnosing diseases, injuries, impairments
and other health problems, and identifying their causes.
! International Classification of Diseases, 9th Edition, Clinical Modification,
(ICD-9-CM), Volume 3, for reporting inpatient medical procedures by
hospitals.
! Current Procedural Terminology, 4th Edition, (CPT-4), and Health Care
Financing Administration Procedure Coding System (HCPCS), Level 1, for
reporting physician services and other health care services (e.g., radiological
procedures, clinical diagnostic tests, hearing and vision services).
! Health Care Financing Administration Procedure Coding System (HCPCS),
Level 2, for reporting all other substances, equipment, supplies, or other items
used in health care services (e.g., medical supplies, orthotic and prosthetic
devices, durable medical equipment).
! Code on Dental Procedures and Nomenclature, 2nd Edition, for reporting
dental services.
! National Drug Codes (NDC) for reporting prescription drugs and biologics.
The rule eliminates the use of local HCPCS codes (i.e., Level 3), which state
Medicaid programs and other health insurers have developed to identify many of the
services for which they pay. Public and private insurers may submit local codes to
HCFA for review and inclusion in the appropriate national code set. Local codes
generally fall into one of three categories. The first category includes local codes that
are basically the same as existing national codes that describe services commonly
provided by other payers. These local codes are sometimes used to facilitate special
payment arrangements with certain providers. Secondly, there are local codes that
reflect services, including new and emerging technologies (e.g., telemedicine), that are
covered by state Medicaid programs and other payers, for which no national code
currently exists. Finally, many local codes are used to describe special or unique
services covered by a state Medicaid program, but not generally covered by other
health insurers. For example, Medicaid Home and Community-Based Waiver
programs may cover a wide range of non-medical services such as case management,
homemaker services, respite care, and transportation.
In November 1999, the National Association of State Medicaid Directors
established the National Medicaid EDI HIPAA (NMEH) Workgroup to assess the
impact of HIPAA’s Administrative Simplification standards on state Medicaid
programs. Using a 49-state database of local codes, workgroup participants have
prepared a consolidated and prioritized list of a few thousand codes to submit to the
HCFA HCPCS Committee. Medicaid officials question whether HCFA currently has
the resources to process such a large submission in a timely manner. They are
concerned that states will have to continue to use local codes beyond the compliance
deadline.
The electronic transactions and code sets rule took effect on October 16, 2000.
Covered entities have 2 years to come into compliance (i.e., October 16, 2002). Small
health plans with a maximum of $5 million in annual receipts have an additional year
to comply (see Table 2). HCFA estimates that the rule will provide a net savings to
the health care industry of $29.9 billion over 10 years.

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National Provider Identifier
HHS proposed standards for a national health care provider identifier on May
7, 1998.10 Under the proposal, each provider would be required to use a unique
eight-character, alphanumeric identifier on all health care transactions, including
electronic ones.11 The identifier would contain no embedded intelligence (i.e., no
information about the provider). At present, health plans assign identification
numbers to health care providers. Providers that do business with multiple health
plans often have multiple identification numbers, which can slow administrative
activities and increase costs.
National provider identifiers would be issued by the National Provider System
(NPS), based on information entered into the NPS by one or more organizations
known as enumerators. HHS asked for comment on whether a federally directed
registry should act at the sole enumerator of all health care providers nationwide, or
whether a combination of federal and state entities should act as enumerators. HHS
received and reviewed about 5000 public comments on its proposal and expects to
issue a final rule later this year (see Table 2).
National Health Plan Identifier
A Notice of Proposed Rulemaking (NPRM) for the national health plan identifier
is under development at HHS and is expected to be published later this year (see
Table 2).
National Employer Identifier
In a June 16, 1998 NPRM, HHS proposed adopting the Employer Identification
Number (EIN) to identify employers in all health care transactions.12 The EIN is a
nine-digit taxpayer identification number for employers that is assigned by the Internal
Revenue Service. Unlike the social security number, the EIN does not contain any
embedded information and is not considered confidential. EINs are freely exchanged
by employers and others. HHS received and reviewed about 800 public comments
on the employer identifier NPRM. The agency expects to issue a final rule later this
year (see Table 2).
National Individual Identifier
In contrast to the public’s general acceptance of the health information standards
discussed above, public opinion on the unique individual identifier is deeply divided.
On July 31, 1998, in response to widespread public concern, then Vice President Gore
announced that the Administration would not develop a unique individual identifier
until health privacy protections were in place. Lawmakers also introduced legislation
1063 Federal Register 25320–25357.
11Many commenters on the proposed rule preferred a 10-digit numeric identifier with a check
digit in the last position to help detect keying error.
1263 Federal Register 32784–32798.

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during the 105th Congress to repeal the HIPAA requirement for HHS to adopt
standards for a unique individual identifier, but the bills died in committee without
hearings.13 Congress included a provision in the FY1999 Omnibus Appropriations
Act (P.L. 105-277) that prohibited HHS from developing a unique individual identifier
standard until legislation is enacted specifically approving the standard. The same
provision appeared in the FY2000 Consolidated Appropriations Act (P.L. 106-113)
and again in the FY2001 Consolidated Appropriations Act (P.L. 106-554).14
HIPAA recognized the unique identifier for individuals as an essential component
of administrative simplification. Evidence suggests that the use of a unique individual
identifier would improve the quality of health care and reduce administrative costs.
Today, organizations and individuals involved in health care, including health
insurance companies, health plans, managed care organizations, clinics, hospitals,
physicians, and pharmacies, frequently assign identifiers to individuals for use within
their systems. Those identifiers often vary among organizations, so it is not
uncommon for providers and plans to use different identifiers for the same patient.
Having multiple identifiers for the same individual within or across organizations may
prevent or inhibit timely access to integrated information. There is substantial support
within the health industry for the adoption of a unique identifier for individuals,
provided there are appropriate protections against misuse and unauthorized use
outside of health care.
Controversy over the adoption of a standard for a unique individual identifier has
largely focused on privacy concerns. Opponents of a unique individual identifier
argue that its use could facilitate access to personal information by unscrupulous
employers and insurers, who might then use the information to discriminate in hiring
and insuring individuals with serious or costly health problems. Proposals to use the
social security number as a unique health identifier have been strongly criticized
because of the concern that it would make it easier to link medical records with other
information about an individual, including financial and employment data. For many
advocates, privacy threats outweigh any practical benefits of adopting a unique
individual health identifier, such as improved patient care or administrative savings.
In an attempt to address the controversy surrounding the use of a unique health
identifier, HHS departed from its customary rulemaking process and decided to solicit
information and public input on a variety of options and approaches for individual
health identifiers before issuing a proposed standard. The agency released a White
Paper discussing those options and planned a series of public hearings by the National
Committee on Vital and Health Statistics (NCVHS).15 The initial NCVHS hearing,
which was held in Chicago on July 20-21, 1998, drew significant media attention and
sparked widespread public concern, which led to the Administration’s announcement
13(i) H.R. 4312 (Barr), Medical Privacy Protection Act of 1998; (ii) S. 2352 (Leahy), Patient
Privacy Rights Act of 1998.
14The provision was Section 516 of the FY1999 Labor/HHS/Education Appropriations Act,
and Section 514 in both the FY2000 and FY2001 Labor/HHS/Education Appropriations Act.
15NCVHS serves as the statutory public advisory body to the Secretary of HHS in the area
of health data and statistics [http://www.ncvhs.hhs.gov].

CRS-13
that it was putting development of the unique individual identifier on hold until
privacy protections were issued. Even though the health privacy rule recently took
effect (see discussion below), the legislative rider in this year’s appropriations bill
prohibits HHS from resuming work on developing a unique individual identifier.
Security and Electronic Signature
HHS proposed health information security and electronic signature standards
on August 12, 1998.16 There are no existing standards that integrate all the security
components necessary to protect health information confidentiality. Therefore, HHS
developed new standards, which define a set of requirements that health care plans,
providers, and clearinghouses must include in their operations to ensure that
electronic health information remains secure. The proposed rule also describes the
implementation features that must be present in order to satisfy each requirement.
The agency received and reviewed more than 2000 public comments on the
proposed standards and is expected to issue a final rule in the next few months.
Analysts anticipate that the definitions in the final rule will be aligned with those that
appeared in the final transactions and privacy rules. They also expect a clarification
that the final security rule covers health information transmitted or maintained in any
form or medium (including paper records and oral communications), as does the final
privacy rule. Beyond that, analysts are not expecting any substantial changes in the
final security rule. Prior to the Bush Administration, HHS indicated that it intended
to carve out the electronic signature standard and issue it as a separate rule.
Security. The proposed security standards do not mandate specific
technologies to be used. HHS opted for a technologically neutral approach so as not
to bind the health care community to systems and/or software that may soon be
superceded by new products in the rapidly developing field of information security
technology. The standards include a compendium of organizational and technical
practices and procedures that must be adopted. The proposal is also designed to give
health care entities of different size and complexity the flexibility to develop their own
particular implementation solutions as long as the basic requirements are met. The
proposed security standards include four sets of provisions.
Administrative Procedures. Most of HIPAA security compliance will be
administrative and operational in nature. The proposed rule requires a security
assessment and risk analysis. Policy and procedure requirements include: assigning
authorities to individuals assigned to authorize various level of physical access;
defining physical and data access levels based on role; employee security orientation;
tracking employee access to applications, systems, data, and physical areas; and
termination procedures that ensure recovery of keys and access cards, and removal
of access to applications, systems, and data.
Physical Safeguards. The proposed rule contains several requirements to
protect computers and physical records. They include: facility management; physical
1663 Federal Register 43241–43280.

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access controls; computer room access; medical records access/tracking; shredding
policies; and workstation location policies.
Technical Security Services. The technical security services provisions
deal with systems and software applications that protect and control access to
electronic information. They are designed to ensure that users only have access to
those systems, applications, and data for which they are authorized. Technical
solutions may be as simple as user passwords or include more complex devices such
as biometrics. The proposed rule also requires an audit trail policy to track user
access.
Technical Security Mechanisms. These provisions are intended to protect
the transmission of patient data over public networks (e.g., Intranet, Internet). They
require the appropriate deployment of security software, including Internet use
monitoring, encryption, digital signatures, firewalls, and virus protection.
Electronic Signature. HHS proposed adopting digital signatures (with
properties that ensure message integrity, non-repudiation, and user authentication)
as the electronic signature standard. The standard applies only to HIPAA-specified
transactions that employ an electronic signature. It does not mandate the use of
electronic signatures. None of the transactions adopted under HIPAA currently
require an electronic signature, though they may do so in the future. As previously
mentioned, HHS is expected to remove electronic signatures from the final security
rule. At the request of the Commerce Department’s National Institute of Standards
and Technology (NIST), HHS agreed to defer issuing a final electronic signature
standard until an assessment of this evolving technology has been completed.
Standardization and Interoperability of Information Technologies.
At a March 2000 hearing before the House Science Subcommittee on Technology,
a panel of health care information technology experts urged federal agencies to
develop a set of technology standards by which all health care information security
systems could be evaluated.17 Without such standards, health care plans and providers
who seek to integrate information technology systems have no way of knowing
whether the security components of the products they purchase will perform as
expected. By one estimate, there are more than 1600 companies developing and
selling health care information technology, with no underlying industry standard
security requirements for their products. A wide variety of commercial products are
available, including operating systems, database management systems, firewalls,
smartcards, network devices, and PKI applications, each with different capabilities
and limitations. Without technology standards, consumers may be left wondering
how to choose the product that best suits their needs and which provides the
appropriate level of security.
The experts also testified that the lack of interoperability among information
technology systems presents a barrier to the widespread utilization of electronic
17U.S. Congress. House. Committee on Science. Subcommittee on Technology. The
Changing Face of Healthcare in the Electronic Age, Mar. 10, 2000. Testimony and opening
statements are available online at [http://www.house.gov/science/106_hearing.htm].

CRS-15
information in health care. For example, there is currently no way of ensuring that the
system used by one physician will be compatible with that of another physician with
whom she plans to share data electronically. The current situation in the health care
industry is in stark contrast to the banking industry. Early in the development of the
banking industry’s information infrastructure, financial institutions saw the value of
interoperability that would allow a customer from any bank to execute certain
financial transactions from automated teller machines (ATMs) all over the world.
Instead of developing proprietary technologies, these companies adhered to uniform
standards and sought competitive advantage in other ways.
The National Information Assurance Partnership (NIAP), a joint initiative
between NIST and the National Security Agency, is seeking to establish cost-effective
testing, evaluation, and certification programs for information technology security
products. The program will benefit producers by increasing the value and
competitiveness of their products through the availability of formal, independent
testing and certificates of validation. NIAP efforts will also help users by providing
a sound and reliable basis for the evaluation, comparison, and selection of security
products.18
Working together with industry, NIAP is using the Common Criteria for
Information Technology Security Evaluation to develop generic testing specifications
for particular information technology products. The Common Criteria are a set of
internationally developed standards for evaluating the security properties of
information technology products and systems. Last year, NIAP and NIST helped
establish an industry-led health care security forum to discuss security requirements
for health care information technology systems, and the potential for developing
specific sets of security requirements using the Common Criteria.
Privacy Rule: Overview and Issues
On December 28, 2000, HHS published a final rule to protect the privacy of
medical records and other personally identifiable health information.19 The rule took
effect on April 14, 2001(see Table 2).20 Covered entities have 2 years (i.e., April 14,
2003) to come into compliance.21 The privacy rule covers health care providers who
electronically transmit health information in connection with one of the HIPAA-
specified transactions, health plans, and health care clearinghouses. HIPAA did not
provide HHS with the authority to regulate directly the actions of other entities that
18NIAP information is available online at [http://niap.nist.gov].
1965 Federal Register 82461–82829.
20Initially, the privacy rule was set to take effect on February 26, 2001. However, that date
was delayed in accordance with the Congressional Review Act of 1996, which requires a
major rule to be submitted to Congress for a 60-day review period before it becomes effective.
Congress did not receive the rule from HHS until February 13, thereby pushing back the
effective date to April 14.
21Small health plans with annual receipts of no more than $5 million have an additional year
(i.e., April 14, 2004) to comply.

CRS-16
collect and maintain health information, such as life insurers, researchers, and
employers (unless they are acting as providers or plans). However, the rule requires
covered entities to enter into contracts with each of their business associates with
whom they share personal health information for purposes other than consultation,
referral, or treatment.22 The contracts bind the business associates to comply with the
covered entities’ privacy practices and safeguard the confidentiality of protected
health information.
Table 3 summarizes the key provisions of the health privacy rule, which applies
to all personally identifiable health information handled by covered entities, regardless
of the form or format in which it is maintained or transmitted.23 The rule establishes
new rights for patients regarding access to and use of their health information. It
gives patients the right to view and copy their medical records, request that their
medical records be amended, and obtain a history of authorized disclosures of their
records. Covered entities must provide patients with written notice of their privacy
procedures and the anticipated uses and disclosures of patient information. Patients
will also be able to file a complaint with HHS if they believe their privacy rights have
been violated.
The rule establishes two distinct forms of patient release for the use and
disclosure of identifiable health information. First, providers must obtain a patient’s
one-time, general consent to use or disclose their information for treatment, payment,
and other health care operations. Providers may make patient consent a condition of
receiving treatment. Health plans and clearinghouses have the option to obtain patient
consent to use and disclose health information for their own health care operations.
The general consent document must inform patients of their privacy rights, including
the right to request restrictions on the use and disclosure of their medical information
for routine health care functions.
Second, all covered entities must obtain a patient’s specific authorization in order
to use or disclose information for non-routine uses and most non-health care
purposes, such as releasing information to lending institutions or life insurers. The
authorization form must specify the type of information to be disclosed, the person(s)
authorized to disclose the information, and the person(s) who will receive the
information.
The rule specifies certain national priority activities in which patient information
may be used and disclosed without authorization, consistent with other applicable
laws and regulations. These activities include health care system oversight, public
health activities, research (see discussion below), and law enforcement. Covered
entities may also use certain patient information, without first seeking authorization,
to develop mailing lists for fundraising appeals, but they must give patients the
opportunity to opt out of receiving future appeals. Also, while the rule prohibits
22A business associate is any person or organization that performs a function involving the use
or disclosure of identifiable health information on behalf of a covered entity or provides legal,
actuarial, accounting, or other services.
23Medical information in education records covered by the Family Educational Right and
Privacy Act (FERPA) is excluded from the privacy rule.

CRS-17
covered entities from releasing patient information to marketing companies without
prior authorization, a covered entity may itself use such information for marketing on
behalf of third parties, provided patients are given the opportunity to opt out of
receiving further marketing communications.
With the exception of uses and disclosures of patient information for the purpose
of treatment, covered entities must limit the information disclosed to the minimum
necessary to accomplish the purpose of disclosure. Within covered entities,
employees’ access to health information must be limited to the minimum needed to
do their jobs. Employers that sponsor health plans may not obtain and use employees’
health information for purposes unrelated to providing and paying for health care
(e.g., hiring and promotion decisions) without explicit authorization.
Concerns and Issues Dividing Stakeholders
A coalition of hospitals, health maintenance organizations, insurers, and
pharmaceutical companies mounted an aggressive lobbying effort at the beginning of
the year to scale back the privacy rule. These groups are critical of the rule’s general
consent requirement, the minimum necessary standard, and business associate
contracts. They claim that the rule, as currently written, will compromise patient care
by placing unacceptable restrictions on access to health information and be extremely
costly to implement. The critics had hoped to delay the rule’s implementation and
reopen the rulemaking process to amend the rule and make it administratively and
financially less burdensome.
On February 28, the Bush Administration responded to the health care industry’s
concerns by opening the rule for an additional 30-day period of public comment.24
After the comment period closed on March 30, HHS officials indicated that they
would likely delay implementation of the rule in order to make changes to simplify it
and lessen its financial burden. However, the Administration announced on April 12
that the rule would take effect on schedule.
Patient privacy advocates firmly support the health privacy rule, though they too
have concerns with some of its provisions. They are chiefly concerned about the
constraints that HIPAA placed on HHS. They favor legislation that would allow the
agency to broaden federal privacy protections to cover all entities that handle medical
information and provide patients with the right to sue in federal court for violations
of their health information privacy. Consumer advocacy groups have fought health
care industry efforts to lobby HHS for modifications to the rule, which they claim
would weaken the rule’s privacy protections.
Stakeholders presented their views on the privacy rule in testimony before the
Senate Health, Education, Labor, and Pensions Committee and the House Energy and
Commerce Subcommittee on Health in early 2001.25 Key concerns and issues raised
2466 Federal Register 12738–12739.
25The Senate HELP Committee hearing was held on February 8, and the House Health
Subcommittee hearing was held on March 22. Testimony is available on the committee Web
(continued...)

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during those hearings, which are likely to remain central to the debate over the rule’s
implementation, are discussed below.
Patient Consent. The most controversial provision in the privacy rule is the
requirement that health care providers obtain patient consent prior to using or
disclosing health information for treatment, payment, and other health care operations.
Consent is optional for providers who have an indirect relationship with patients (i.e.,
they have no direct contact with the patient, or they provide services at the request
of another provider). Health plans and clearinghouses also have the option, but are
not required, to obtain consent in order to use or disclose information for payment
and health care operations. Patients have the right to request restrictions on how their
information is used or disclosed, though covered entities are not required to agree to
any such restrictions. Patients may revoke their consent at any time.
Privacy advocates and the American Medical Association (AMA) support the
requirement that direct health care providers must obtain consent prior to routine uses
and disclosures, but question why health plans and clearinghouses are not held to the
same standard. According to the AMA, patient trust in the health care system can
only be assured when all entities that maintain health information have an obligation
to safeguard the confidentiality of that information, and when patients have control
over decisions by those entities to use and disclose the information. Requiring
consent before any use or disclosure of health information for health care operations
also creates an incentive to de-identify information at the earliest possible opportunity.
The AMA is especially concerned that consent is optional for health plans in
view of the rule’s broad definition of health care operations. The definition includes
conducting quality assessment and improvement activities; reviewing and evaluating
provider performance, and health plan performance; underwriting, premium rating,
and other activities relating to the creation, renewal or replacement of health
insurance contract; conducting or arranging for medical review, legal services, and
auditing functions; and business planning, development, and management. The AMA
contends that the definition of health care operations is sufficiently broad to
encompass virtually all uses of information.
Health insurers are extremely critical of the consent requirement. They point out
that physicians will be unable to use patient information without a signed consent, and
that the effort and cost of obtaining consent from over 200 million Americans will be
daunting. They also fear that the consent requirement may unintentionally delay and
impede routine operations that are essential to providing quality care and timely
payment. For example, when a physician calls in a prescription, the pharmacist would
need to have the patient’s consent on file in order to fill the prescription and process
the insurance claim. Family members and friends would also be unable to pick up
prescriptions on behalf of the patient.
Privacy advocates dismiss these arguments as misplaced and inaccurate. They
point out that the rule permits covered entities to use their professional judgement and
25(...continued)
sites [http://www.senate.gov/~labor]; [http://www.house.gov/commerce].

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experience in allowing family members and others to pick up items like prescriptions,
medical supplies, or x-rays. They also believe that the problem of a pharmacist
needing a patient’s consent on file in advance of filling a prescription is easily
remedied. HHS could, for example, issue a guidance that would allow a pharmacist
in such a situation to be considered to have an indirect treatment relationship with the
patient.
The American Hospital Association (AHA) has complained that it did not have
adequate opportunity to comment on how the prior consent provision would impact
patient care or hospital operations. HHS did not include prior consent in the
proposed rule, though the agency did invite comments on whether other approaches
to protecting health information would be more effective. The agency added the
consent provision to the final rule in response to the comments it received. The AHA
is also concerned about the impact of the consent requirement on routine hospital
operations. For example, hospitals would be unable to obtain background medical
information and schedule surgery without first getting a patient’s consent.
Minimum Necessary. Stakeholders are also divided over the requirement
that, with the exception of treatment-related disclosures, covered entities must make
a reasonable effort to disclose no more than the minimum amount of information
necessary to accomplish the intended purpose of the disclosure. The minimum
necessary standard also applies to internal uses of information and requires entities to
define what information will be made available to each employee by role.
Privacy advocates and the AMA are generally supportive of the minimum
necessary standard. Physicians are responsible for determining the minimum amount
necessary, except when responding to requests for information from health insurers,
in which case it becomes the responsibility of the payer to request only the minimum
amount necessary. The AMA is concerned that some health plans may request more
information than a physician would judge to be the minimum necessary. However,
the rule allows physicians to review all non-routine requests to determine whether
they meet the minimum necessary standard. The AMA supports the exception to the
minimum necessary standard for disclosures to or requests by a health care provider
for treatment purposes, which is designed to give physicians the freedom to exchange
and review information to provide patients the treatment they need.
The AMA is critical of the requirement that physician’s offices establish and
implement policies and procedures for complying with the minimum necessary
standard, and review non-routine requests for disclosures. It questions the added
benefit of such a requirement in view of physicians’ ethical and professional
obligations to keep patient information confidential.
Health insurers argue that the minimum necessary standard could jeopardize the
quality of patient care. Most health care services today are delivered in an integrated
system. Health plans are concerned that the minimum necessary standard will limit
the flow of information that they say is essential to good patient care and prompt
payment. HMOs, in particular, fear that physicians might use the minimum necessary
standard to justify withholding patient information. Insurers are also critical of the
fact that the exemption for treatment purposes covers only disclosures of information
and not uses of information. As a result, the rule may limit a physician’s access to

CRS-20
vital information during critical treatment situations. In fact, the rule allows the use
of the entire medical record when it is specifically justified as the amount that is
reasonably necessary to accomplish the purpose of the use.26
Business Associate Contracts. The rule requires covered entities to enter
into contracts with their business associates to ensure that these groups, which are not
directly covered by HIPAA, adhere to the same privacy protections.27 HHS adopted
this arrangement as a way of extending the rule’s protections to information shared
with others in the health care system. The agency proposed requiring covered entities
to monitor the activities of their business associates. That language was amended in
the final rule by limiting a covered entity’s liability to those circumstances where the
entity has knowledge of a breach of contract by the business associate and fails to take
action. The rule exempts providers from having to enter into contracts when the
disclosure of patient information is for treatment purposes. Examples of such
exemptions include consultations between physicians at separate facilities, and
physicians writing prescriptions to be filled by pharmacists.
Patients rights groups have applauded the use of business associate contracts,
though they point out that many entities that handle health information remain
unregulated (e.g., financial institutions, marketing firms, researchers, and employers
who are not acting as providers or plans). They view the rule as an intermediate step
and have urged Congress to pass a more comprehensive health privacy law applicable
to all entities that handle personal health information.
Health plans, employers, and provider groups are opposed to the business
associate contracts, which they argue will result in covered entities having to develop
hundreds, if not thousands, of privacy contracts. They complain that drafting the
contracts will be a lengthy and complex process. Privacy advocates respond that the
rule’s implementation specifications for business associate contracts are clear and
straightforward and should not result in complicated contracts. In order to reduce the
administrative burden, covered entities have the option of developing standard
contracts or standard addenda to existing contracts.
The rule requires business associates to use and disclose health information in
accordance with the policies and procedures established by the covered entity with
whom they contract. Critics are concerned that business associates who contract with
multiple covered entities may find themselves subject to differing standards. The
situation is further complicated by the fact that some covered entities, such as health
insurers, may also act as business associates to other covered entities. Health plans
argue that keeping track of all these potential relationships and contractual obligations
will be confusing and time-consuming.
26HHS states, in the preamble to the rule, that it expects that covered entities will implement
policies that allow persons involved in treatment to have access to the entire record, as needed.
27The rule defines business associates based on their relationship with covered entities. A
business associate is any individual or entity, other than a member of the workforce of a
covered entity, which provides services to or on behalf of a covered entity and uses or
discloses personal health information that belongs to a covered entity. Business associates
include accountants, attorneys, auditors, and billing and data management firms.

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Accrediting bodies, such as the Joint Commission for the Accreditation of
Healthcare Organizations (JCAHO), claim that they act as health oversight agencies
on behalf of government programs and should not be treated as business associates.
JCAHO estimates that it would need to enter into contracts with each of the 18,000
facilities—including hospitals, nursing homes, and home health agencies—that it
surveys for accreditation. Several groups contend that HHS exceeded its statutory
authority by including the business associate contract provisions in the rule. They
point out that HIPAA clearly delineates the entities that are covered under the rule
(i.e., health plans, clearinghouses, and providers conducting standard electronic
transactions).
Marketing by Covered Entities. Patient advocacy groups are concerned
about a provision in the rule that allows physicians, hospitals, and other covered
entities (or their business associates) to market products and services to patients
without their prior authorization. For example, health care providers are permitted
to use or disclose a patient’s medical information to prescribe, recommend or sell their
own products and services, or the products and services of others, as part of the
treatment of that individual. Covered entities must identify themselves when making
a marketing appeal, indicate whether they are being paid to do so, and give patients
the opportunity to opt out of receiving any further such communications.
Commercial use of patient information without authorization is one of the issues
that is fueling the public’s health privacy concerns. Representatives of patient
advocacy groups caution that public confidence in the privacy rule may suffer as a
result of the marketing provision. They would like the rule amended to give patients
the opportunity to opt out in advance of all marketing communications. Such a
change in the rule, they argue, would help allay the public’s concerns.
Research. The Association of American Medical Colleges (AAMC), which
represents the nation’s medical schools and teaching hospitals, has raised several
concerns about the potentially negative impact of the rule on medical research.
Epidemiologists and health services researchers rely on access to archived, de-
identified patient records in order to study the incidence and expression of diseases
in specified populations, the beneficial and adverse outcomes of new therapies, and
the cost-effectiveness of the health care system. However, the AAMC fears that in
order the meet the rule’s definition of de-identified information, medical records have
to be stripped of so many identifying elements as to render them useless for most
research. The association favors a de-identification standard that reflects the realities
of medical research and the motivations of researchers, rather than one which it claims
is designed to address the exaggerated fear of threats from decryption experts with
criminal intentions.
The AAMC is also critical of some of the rule’s new criteria that must be met in
order for researchers to obtain a waiver of patient authorization to access identifiable
health information. Federally funded research involving human subjects, and clinical
trials of new drugs and medical devices, are subject to a set of federal regulations
called the Common Rule. Under the Common Rule, research proposals must be
approved by an Institutional Review Board (IRB) to ensure that the rights and welfare
of the research subjects are protected. IRBs also decide whether or not to waive
informed consent based on the level of risk to the participants. The health privacy

CRS-22
rule requires all research involving human subjects, regardless of its source of funding,
to undergo review by an IRB or a newly created Privacy Board (PB). The IRB or PB
must determine that the research meets eight new criteria regarding privacy rights and
risks, in addition to the provisions of the Common Rule, before it can approve a
waiver. The AAMC is concerned that some of the criteria are contradictory and that
IRBs have no experience or training to make those determinations.
For research performed under an informed consent waiver, the rule requires the
IRB or PB to determine that the information requested by the investigator meets the
minimum necessary requirement. The AAMC is unclear how IRB or PB members
will be able to make this determination in judging proposals for research that requires
access to very large medical databases. Moreover, the association is concerned that
the expectation that the minimum necessary standard has been met will generate a
risk of liability for covered entities. Add to that the rule’s general complexity and the
administrative burdens it places of covered entities, and the AAMC argues that
covered entities may be reluctant to make health information accessible to researchers.
State Law Preemption. Preemption of state laws is one of the most
controversial issues in the health privacy debate. As required by HIPAA, the rule
does not preempt state laws that are more protective of individual privacy. Although
most states do not have comprehensive health privacy laws, nearly all states have
condition-specific privacy requirements that protect individuals with mental illness,
communicable diseases (e.g., HIV/AIDS), cancer, and other sensitive or stigmatized
diseases from having their health information disclosed without their authorization.
Such laws aim to bolster public trust and confidence in the health care system and
encourage patients to seek treatment and counseling without fear of disclosure of
sensitive information. Under the rule, those condition-specific protections would
remain in effect. However, less protective state laws would be preempted. The rule,
therefore, serves as a baseline (i.e., a federal “floor”) of minimum privacy protection.
The rule allows any person to submit to the Secretary in writing a request to
exempt a provision of state law from preemption. It is unclear from the rule to what
extent, and how, the Secretary will allow public comment on such preemption
decisions.
Large health plans and employers that operate in more than one state have
strongly criticized the rule for not preempting all state laws to create a single, national
privacy standard for health information. They argue that the rule’s partial preemption
of state law will be extremely burdensome and costly to implement and only add to
the difficulties of navigating through the existing maze of state privacy laws. Critics
of the rule’s preemption provisions contend that covered entities will have to maintain
some form of state-to-federal regulation matrix to ensure that they are complying with
the correct laws and/or regulations. Because HIPAA specifically provided for
establishing a federal floor of privacy protections, several stakeholders are calling for
new legislation to establish full federal preemption.
Patient and privacy advocates, state governments, and providers strongly support
partial federal preemption, as provided in the rule. They believe that a federal floor
guarantees a minimum level of protection for everyone, while still allowing states to
enact more stringent protections and address future privacy concerns. A recent

CRS-23
survey of state health privacy statutes suggests that the rule would significantly
improve the privacy protections afforded to patients’ medical information by requiring
states with fairly minimal privacy protections to come up to the federal baseline.28
Privacy advocates are critical of a provision that excludes state parental
notification laws from the rule’s general preemption requirements. Under the rule,
laws that authorize (or prohibit) disclosure of health information about a minor to a
parent or guardian would not be preempted. Advocates for patients’ privacy argue
that minors should enjoy the same protections as adults. However, some conservative
groups are opposed to minors being able to conceal reproductive health information
from their parents (e.g., use of birth control, abortion).
Finally, HIPAA excludes state public health laws from federal preemption.
States have traditionally exercised oversight and authority over public health. Under
the rule, therefore, disclosures made for public health purposes, as mandated by state
laws, do not require patient authorization. Such laws include reporting diseases and
injuries, collecting vital statistics, public health surveillance, and public health
investigation and intervention.
Compliance Costs. Groups that represent health plans and health care
providers have criticized HHS’ impact analysis and expressed concern about the
potential cost of complying with the privacy rule. HHS estimates that the rule will
cost $17.6 billion over 10 years. Two provisions—restricting disclosures to the
minimum amount of necessary information and establishing a privacy
official—account from more than half of HHS’ cost estimate. According to the
agency, the cost of the privacy rule is more than offset by implementation of the
transaction and code sets rule, which is estimated to save the health care industry
$29.9 over 10 years. Together, the two rules will produce a net savings of about
$12.3 billion in improved health care efficiency and privacy protection.
Industry groups believe that the actual compliance costs will substantially exceed
HHS’ estimates. An independent assessment commissioned by the Blue Cross Blue
Shield Association (BCBSA) estimated that the proposed health privacy rule would
cost the health care industry more than $40 billion over 5 years. According to the
BCBSA, most of these costs remain applicable to the final rule. The BCBSA also
believes that HHS overestimated the savings from implementing the transactions
standards.
A study commissioned by the AHA, looking at hospital costs alone, found that
the cost of only three key provisions of the proposed rule—minimum necessary,
business associates, and state law preemption—could be as much as $22.5 billion over
5 years. Other provider groups are concerned that spending additional time with
patients to explain the rule’s requirements and obtain consent will compete with time
for direct patient care.
28The State of Health Privacy: An Uneven Terrain was prepared in 1999 by the Health
Privacy Project and is available online at [http://www.healthprivacy.org].

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Several groups have expressed concern about being able to implement the rule
within the two-year time frame. Despite their concerns, however, organizations that
represent plans and providers are developing model forms for patient consent, notices
explaining privacy practices, business associate contracts, and compliance plans.
HHS Implementation Guidelines
HHS sources have indicated that the agency is about to release a detailed
guidance document to help covered entities implement the privacy rule. The
document is expected to address industry concerns by providing explanations of intent
and clarifying some of the rule’s key provisions. It is unclear to what extent, if any,
the implementation guidelines will alter the rule. Under HIPAA, the Secretary has the
authority to modify the rule after it takes effect in order to permit compliance.
However, any significant modifications to the rule’s provisions would require
reopening the rulemaking process.
Legislative Activity in the 107th Congress
Lawmakers have introduced two bills (S. 836, H.R. 1975) that would delay the
scheduled compliance dates of HIPAA’s Administrative Simplification standards (i.e.,
transactions and codes, security, and unique identifiers). Both bills would set October
16, 2004 as the uniform compliance date, or 24 months after all the final rules are
published, whichever is later. Neither bill directly covers the privacy rule, and H.R.
1975 includes language that specifically excludes the privacy rule from its provisions.
The legislation is in response to efforts by Blue Cross Blue Shield (BCBS) and
other health care industry groups to delay implementation of HIPAA until all the
standards and enforcement regulations, with the exception of the privacy rule, are
published in final form. BCBS claims that without this extension there will be
substantial disruptions in payments to providers. In congressional testimony, industry
groups stressed the importance of synchronizing the compliance dates for the HIPAA
standards to ensure that covered entities have a complete picture of what is required
before they purchase new information technology systems and retrain their employees.
They argue that having to comply with each new rule in turn will only add to
HIPAA’s overall administrative and financial burden.
Additional Information and Web Sites
For more information on the health privacy rule, see CRS Report RS20500,
Medical Records Privacy: Questions and Answers on the HIPAA Final Rule.
Detailed information on all the HIPAA standards, including the text of all Federal
Register notices, summaries of all proposed and final regulations, public comments,
and the HHS implementation plant can be found on the department’s Administrative
Simplification home page [http://aspe.hhs.gov/admnsimp]. HHS’s Office of Civil
Rights, which is responsible for implementing and enforcing the privacy rule and is
responding to questions about the rule, has established a privacy home page

CRS-25
[http://www.hhs.gov/ocr/hipaa]. Additional information on the HIPAA
Administrative Simplification standards may be found at the following Web sites.
General HIPAA Information
Phoenix Health Systems
[http://www.hipaadvisory.com]
HIPAA Comply
[http://www.hipaacomply.com]
National Committee on Vital and Health Statistics
[http://ncvhs.hhs.gov]
Electronic Transactions and Code Sets
Accredited Standards Committee X12
[http://www.x12.org]
Washington Pub. Co. (X12N implementation guides)
[http://www.wpc-edi.com]
National Uniform Billing Committee
[http://www.nubc.org]
National Uniform Claims Committee
[http://www.nucc.org]
National Council for Prescription Drug Programs
[http://www.ncpdp.org]
Workgroup for Electronic Data Interchange
[http://www.wedi.org]
Medicaid HIPAA Information
[http://www.hcfa.gov/medicaid/hipaa/adminsim]
HCPCS
[http://www.hcfa.gov/medicare/hcpcs.htm]
Privacy
Patient Privacy Advocates.
Health Privacy Project, Washington DC
[http://www.healthprivacy.org]
National Coalition for Patient Rights
[http://www.nationalcpr.org]
American Civil Liberties Union
[http://www.aclu.org]
Health Care Plans, Providers, and Clearinghouses.
Association for Electronic Health Care Transactions
[http://www.afehct.org]
American Health Information Management Association
[http://www.ahima.org]
American Hospital Association
[http://www.aha.org]
American Medical Association
[http://www.ama-assn.org]
American Association of Health Plans
[http://www.aahp.org]
Health Insurance Association of America
[http://www.hiaa.org]
Blue Cross Blue Shield Association
[http://www.bluecares.com]
Association of American Medical Colleges
[http://www.aamc.org]
GAO Reports
GAO has provided the Senate Committee on Health Education, Labor, and
Pensions with analysis of the health privacy rule. The following reports are available
on GAO’s Web site [http://www.gao.gov].
Privacy Standards: Issues in HHS’ Proposed Rule on Confidentiality of Personal
Health Information, GAO/T-HEHS-00-106, April 6, 2000.

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Health Privacy: Regulation Enhances Protection of Patient Records but Raises
Practical Concerns, GAO/T-01-387, Feb. 8, 2001.
Medical Privacy Regulation: Questions Remain About Implementing the New
Consent Requirement, GAO-01-584, April 6, 2001.

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Table 1. Summary of HIPAA’s Administrative Simplification Provisions
Purpose (Section 261)
To improve the efficiency and effectiveness of the health care system by establishing standards and requirements for
the electronic transmission of certain types of health information. Amends Title XI of the Social Security Act by adding
Part C—Administrative Simplification.
Administrative Simplification (Section 262)
- Definitions
Defines health care clearinghouse, health care provider, health plan, personally identifiable health information, and
standard setting organization.
- General Requirements for Adoption of Standards
Specifies that the standards apply to health plans, health care clearinghouses, and health care providers that transmit
health information electronically. Requires the Secretary either to adopt standards that have already been developed
by standard setting organizations or to develop different standards, provided they substantially reduce administrative
costs to health plans and providers. If no standard has been adopted by a standard setting organization, the Secretary
must develop a new standard based on the recommendations of the NCVHS and consultations with standard setting
organizations and other appropriate agencies. For all the standards, the Secretary is required to consult with the
National Uniform Billing Committee, the National Uniform Claim Committee, the Workgroup for Electronic Data
Interchange, and the American Dental Association.
- Standards for Electronic Health Care Transactions
Instructs the Secretary to issue the following standards:
(1) Uniform formats for use in the electronic exchange of health information, including health claims and attachments,
health plan eligibility and enrollment, and health care payment, and health claim status.
(2) Code sets for data elements in standard electronic transactions.
(3) Unique identifiers for individuals, employers, health plans, and health care providers.
(4) Security standards to provide administrative, technical, and physical safeguards for protecting medical record
confidentiality.
(5) An electronic signature standard to verify the authenticity of the signer and the transaction.
- Timetable for Adoption of Standards
Requires the Secretary to adopt all the standards within 18 months of HIPAA’s enactment (i.e., by February 21, 1998),
except for the standards for claims attachments, which are due within 30 months of enactment (i.e., by February 21,
1999). Permits the Secretary to modify the standards as frequently as once every 12 months.
- Requirements for Compliance
Requires health plans and providers that process electronic transactions to use standard formats and data elements.
Plans and providers may transmit and receive such data either directly or by contracting with a clearinghouse to convert
nonstandard data elements into standard transactions. Gives entities covered by the standards up to 24 months to
comply. Small health plans have 36 months to comply.a

CRS-28
- Civil Penalties for Failure to Comply
Establishes a civil monetary penalty of $100 per person per violation of a specific standard, up to a maximum of
$25,000 per person for all such violations in any calender year. Allows the penalty to be waived if the person liable
for the penalty did not know, and by exercising reasonable diligence would not have known, that the standard had been
violated. Also waives the penalty if failure to comply was due to reasonable cause and not willful neglect.
- Criminal Penalties for Wrongful Disclosures
Establishes criminal penalties for wrongfully using a unique health identifier, or wrongfully obtaining or disclosing
personally identifiable health information. Penalties range from a $50,000 fine and/or 1 year in prison, up to a
$250,000 fine and 10 years in prison if the offense is committed with intent to sell, transfer, or use the information for
commercial advantage, personal gain, or do malicious harm.
- Impact on State Law
Standards preempt contrary provisions in state law pertaining to health information, including provisions that require
medical records to be maintained in written rather than electronic form. However, the standards may not preempt or
limit state laws that are necessary to prevent fraud and abuse, regulate health insurance companies, or report on health
care delivery and costs. The standards may not limit the authority of states to collect and report public health statistics
(e.g., births, deaths, diseases, injuries).
- Financial Institutions
Standards do not apply to the processing of payment transactions by financial institutions (e.g., exchanging information
during a credit care payment for health care).
National Committee on Vital and Health Statistics
Amends Section 306(k) of the Public Health Service Act to increase NCVHS membership from 16 to 18 members and
(Section 263)
requires NCVHS to advise the Secretary on issues related to the collection, processing, and tabulation of health
statistics. Requires NCVHS to study the adoption of uniform health data standards and the electronic exchange of such
information, and report its recommendations to Congress within 4 years of HIPAA’s enactment (i.e., by August 21,
2000). Instructs NCVHS to report annually to Congress on the implementation of HIPAA’s Administrative
Simplification provisions.b
Health Information Privacy (Section 264)
Requires the Secretary to submit to Congress within 1 year of HIPAA’s enactment (i.e., by August 21, 1997)
recommendations for standards to protect the privacy of personally identifiable health information.c Mandates the
Congress to pass health privacy legislation within 3 years of HIPAA’s enactment (i.e., by August 21, 1999), otherwise
the Secretary is instructed, in consultation with NCVHS, to issue privacy standards within the following 6 months (i.e.,
by February 21, 2000). Such standards may not preempt state laws that are more protective of health information
privacy.
Source: Text of HIPAA, as enacted into law (P.L. 104-191).
a HCFA defines small health plans as those with annual receipts of $5 million or less.
b NCVHS reports are available on its Web site at [http://www.ncvhs.hhs.gov].
c The Secretary’s recommendations, which were presented before the Senate Committee on Labor and Human Resources on September 11, 1997, are available online at
[http://aspe.os.dhhs.gov/admnsimp/pvcrec.htm].

CRS-29
Table 2. Implementation Status of HIPAA’s Standards
Standardsa
NPRMb
Final Rule
Effective Datec
Electronic Transactions
May 7, 1998
August 17, 2000
October 16, 2000
and Code Sets
Provider Identifier
May 7, 1998
Expected 2001
Health Plan Identifier
Expected 2001
Employer Identifier
June 16, 1998
Expected 2001
Individual Identifier
On hold
Security and Electronic
August 12, 1998
Expected 2001
Signatures
Privacy
November 3, 1999
December 28, 2000
April 14, 2001
Source: Health Care Financing Administration.
a HHS plans to issue an enforcement rule that applies to all the HIPAA Administrative Simplification standards. The
rule will address the imposition of civil monetary penalties and the referral of criminal cases where there has been a
violation of the standards.
b Notice of Proposed Rulemaking.
c Covered entities have 2 years to come into compliance. Small health plans with revenues of $5 million or less have
an additional year to comply.

CRS-30
Table 3. Key Provisions of the Health Privacy Rule (45 CFR 160, 164)
Covered Entities
Applies to health care providers who electronically transmit health information in connection with any of the HIPAA-covered
transactions, health plans, and health care clearinghouses. [160.102, 164.500]
Covered Health
Applies to personally identifiable health information created or received by a covered entity and transmitted or maintained in any
Information
form or medium (e.g., paper, electronic, oral). [164.501]
Patient Access
Gives patients the right to access, inspect and copy their health information within 30 days of making a request for access, if the
information is maintained or accessible on-site (otherwise within 60 days). Allows covered entities to impose reasonable cost-
based fees for copying the information. Covered entities may deny access under certain circumstances. [164.524]
Amendment of Health
Gives patients the right to request amendment of their health information and requires covered entities to act on such a request
Information
within 60 days. Allows covered entities to deny a request if they determine that the patient’s information is accurate and
complete, or was not created by the covered entity. Permits requester to submit a written statement of disagreement with the
denial. [164.526]
Accounting of
Gives patients the right to receive, within 60 days, an accounting of disclosures over the past 6 years, except for disclosures for
Disclosures
treatment, payment, and health care operations, and for certain other specified purposes. Accounting must include a brief
statement of the purpose of each disclosure and the address of the recipient of the information. [164.528]
Patient Notice
Requires covered entities to provide patients with written notice of their privacy rights, as well as notice of the entities’ legal
duties and privacy practices. Specifies the content of the notice. [164.520]
Minimum Necessary
Requires covered entities to make a reasonable effort to use or disclose the minimum amount of information necessary to
accomplish the intended purpose, except for disclosures related to treatment. [164.502(b), 164.514(d)]
De-identified
Defines de-identified health information as information from which 18 specified types of identifiers have been removed, or
Information
information for which an expert determines that the risk of identification is very small. De-identified information is not subject to
the rule. Disclosure of a code or other means of enabling de-identified information to be re-identified constitutes disclosure of
protected health information. [164.502(d), 164.514(a)-(c)]
Payment, Treatment,
Health care providers must obtain a patient’s one-time consent in writing before using or disclosing health information for
and Health Care
treatment, payment, or other routine health care operations. Providers may condition treatment on obtaining such consent.
Operations
(Health plans and clearinghouses may also obtain consent for their own use and disclosure of health information for treatment,
payment, or other routine health care operations, and may condition enrollment on obtaining such consent.) Patients have the
right to request restrictions on these types of use and disclosure, but covered entities are not required to agree to such a request.
Patients may in writing revoke their consent at any time. [164.506, 164.522(a)]
Directory Assistance
Requires covered entities to give patients notice and the opportunity to opt out before information is disclosed to a facility
and Next of Kin
directory or provided to next of kin or other persons involved in the patients’ care. [164.510]
Non-Routine and
Covered entities must obtain a patient’s specific authorization in writing before using or disclosing health information for non-
Non-Health Care
routine uses and most non-health care purposes (see Disclosures Not Requiring Authorization below). Covered entities may not
Disclosures
condition services or payment on receipt of such authorization. Patients may revoke their authorization at any time. [164.508]

CRS-31
Business Associates
Allows a covered entity to disclose health information to a business associate without further authorization if it obtains
satisfactory assurances, though a written contract, that the business associate will safeguard the information. The contract must
establish the permitted and required uses and disclosures of such information by the business associate. A business associate may
use health information for its own management and administration, and may disclose it to others if it obtains assurances that the
information will be held in confidence and the recipient will notify the business associate of breaches of confidentiality.
[164.502(e), 164.504(e)]
Employers
Employers that sponsor health plans may not obtain and use employees’ health information for employment or other non-health
purposes without their specific authorization. [164.504(f)]
Hybrid Entities
Requires hybrid entities (i.e., companies with multiple lines of business) to restrict disclosure of health information between their
health care and non-health care components. Such disclosures are governed by the same restrictions as disclosures between two
separate and distinct legal entities. [164.504(b)(c)]
Disclosures Not
Covered entities may use and disclose health information without a patient’s authorization for the following national priority
Requiring
activities, consistent with other applicable laws and regulations:
Authorization
(a) uses and disclosures required by law; (b) public health activities; (c) abuse, neglect, and domestic violence; (d) health
oversight; (e) judicial and administrative proceedings; (f) law enforcement; (g) coroners, medical examiners, and funeral
directors; (h) organ donation and transplantation; (i) research; (j) imminent and serious threats to health and safety; (k)
specialized government functions; (l) workers’ compensation programs. [164.512]
Marketing and
Covered entities may use or disclose information without a patient’s authorization to market their own products and services, or
Fundraising
the products and services of others, as part of the treatment of that individual. Covered entities must identity themselves when
making a marketing appeal and give patients the opportunity to opt out of any further communications. Covered entities also may
disclose certain patient information to a foundation or business associate that contacts patients for fundraising purposes, provided
that patients are given the opportunity to opt out of any further communications. [164.514(e)(f)]
Psychotherapy Notes
Provides higher level of protection than for other types of health information. Requires authorization for most uses or disclosures.
Health plans may not condition enrollment or eligibility for benefits on obtaining such authorization. [164.508(a)(2)]
Preemption of State
Preempts all contrary state laws unless they are more stringent (i.e., more protective of privacy). Does not preempt state parental
Laws
notification laws or state laws used to administer health care, regulate controlled substances, or protect public health, safety and
welfare. Allows states to apply to HHS for a determination on whether a state law meets the requirements of these exclusions.
[160.201 et seq.]
Safeguards
Requires covered entities to establish and implement various administrative procedures, commensurate with the size and scope of
their business, to protect the confidentiality of health information. These include designating a privacy officer, training
employees, and developing a system of sanctions for employees who violate an entity’s privacy policies. [164.530]
Compliance
Permits an individual, who believes a covered entity is not compliant, to file a written complaint with the Secretary. Authorizes
Secretary to conduct a compliance review of such an entity. [160.300 et seq.]
Enforcement
HIPAA imposes civil monetary penalties against covered entities that fail to comply with the rule and imposes criminal penalties
for certain wrongful disclosures of health information. Civil fines are $100 per person for unintentional disclosures, capped at
$25,000 per year. Criminal penalties for selling, transferring, or using health information for commercial advantage, personal
gain, or malicious harm include fines of up to $250,000 and/or up to 10 years in prison. [42 USC 1320d-5,6]