A two-physician practice in Battle Creek, Michigan is reportedly the first health care provider to cease operations as a result of a ransomware attack.  The Minneapolis Star Tribune reports that Brookside ENT experienced a malware attack that deleted and overwrote every medical record, bill and appointment in the practice’s system, including backups, and created encrypted duplicates.  The attacker then attempted to extort $6,500 from the group, to be wired to an anonymous account, in order to decrypt the files.

Facing the expense and uncertainty of recovering from this attack, the two physicians, Dr. William Scalf, 64, and Dr. John Bizon, 66 (who also serves as a Republican Michigan state senator), decided to close their practice and accelerate their planned retirement by a year.  Unfortunately, with all their records wiped clean, they did not even have a list of patients and their contact information to allow them to communicate the closure of the practice.  Instead, Dr. Scalf said, “… what I did was just sort of sat in the office and saw whoever showed up. For the next couple of weeks.”  Patients were given referrals to other otolaryngologists in the area, but their records, including test results, remained unavailable.

The doctors had decided against paying the ransom because there was no way to ensure they would get a valid code to unlock the files in return, and no way to prevent being extorted again in the future. The Star-Tribune cited Brian Stevenson, president of Roseville cyber security firm FocusPoint Technologies, who reported that only about one-third of ransomware victims who pay the ransoms end up getting their data back. Symantec reports a little better average, with 47% of those who pay receiving a valid unlock code.

The group consulted an IT expert who verified that the attack did not grant the hackers access to any protected health information, so no HIPAA breach needed to be reported.   Note that the HHS Office of Civil Rights Fact Sheet on Ransomware and HIPAA states:

When electronic protected health information (ePHI) is encrypted as the result of a ransomware attack, a breach has occurred because the ePHI encrypted by the ransomware was acquired (i.e., unauthorized individuals have taken possession or control of the information), and thus is a “disclosure” not permitted under the HIPAA Privacy Rule. Unless the covered entity or business associate can demonstrate that there is a “…low probability that the PHI has been compromised,” based on the factors set forth in the Breach Notification Rule, a breach of PHI is presumed to have occurred. The entity must then comply with the applicable breach notification provisions, including notification to affected individuals without unreasonable delay, to the Secretary of HHS, and to the media (for breaches affecting over 500 individuals) in accordance with HIPAA breach notification requirements. See 45 C.F.R. 164.400-414.

In some states physicians can be sanctioned by their medical boards and/or held civilly liable for “patient abandonment,” which is defined in Pennsylvania as “when a physician withdraws his services after a physician-patient relationship has been established, by failing to give notice to the patient of the physician’s intention to withdraw in sufficient time to allow the patient to obtain necessary medical care.”  It is unclear what responsibilities a physician would have in a situation where due to a malicious attack they no longer have access to records that would allow them to provide notice to patients.

One lesson from this catastrophe is to take steps to properly insulate your backup system from external infection. Use multiple backups including a cloud-based system for redundancy. If practical, keep any local backup servers disconnected from the Internet.  The Office of Civil Rights of the Department of Health and Human Services reminds covered entities that “Implementing a data backup plan is a Security Rule requirement for HIPAA covered entities and business associates as part of maintaining an overall contingency plan. Additional activities that must be included as part of an entity’s contingency plan include: disaster recovery planning, emergency operations planning, analyzing the criticality of applications and data to ensure all necessary applications and data are accounted for, and periodic testing of contingency plans to ensure organizational readiness to execute such plans and provide confidence they will be effective. See 45 C.F.R. 164.308(a)(7).”

This attack may have caused an unusually comprehensive loss of data including all patient contact information.  Maintaining a separate patient contact list and printing out appointment schedules may have helped this group reach out to affected patients.  In today’s wired environment it is too easy to assume that our electronic resources will always be available, and when they are suddenly vaporized, the consequences can be severe to providers and patients alike.

If you are a covered entity health plan or clearinghouse, you may be among the nine (un)lucky entities randomly chosen this month for review into compliance with HIPAA’s Administrative Simplification rules governing electronic transactions, code sets, and unique identifiers.  According to an FAQ published in March, the Centers for Medicare & Medicaid Services (CMS), acting on behalf of the U.S. Department of Health and Human Services (HHS) will select five health plans and four clearinghouses for this new compliance review.

CMS has been actively investigating complaints (which can be filed here) related to the Administrative Simplification Rules for some time, publishing summary reports covering complaints submitted beginning in January of 2017.

What will happen if any of these nine selected entities is determined to be non-compliant?

According to CMS,

If an organization isn’t compliant, HHS will work with the entity to resolve any issues. Corrective Action Plans are commonly used to address non-compliance. In cases of willful and egregious noncompliance, monetary penalties may be assessed and calculated on a case by case basis.

Although covered entity health care providers will not be a part of this 2019 compliance review, health care providers may avoid random selection in a future compliance review if they participate in the voluntary compliance program for providers expected to be rolled out this year.  Participants in the 2018 voluntary compliance program (the “Optimization Pilot Program”) for health plans and clearinghouses are exempt from the 2019 random selection process.  Then again, CMS reported that nine of the ten entities participating in the Optimization Pilot Program were required to undergo a Corrective Action Plan.

Covered entity health care providers may decide to play the odds and forego participation in the voluntary program, but this new round of compliance reviews is another reminder to HIPAA covered entities that HIPAA compliance isn’t solely about privacy and data security.

HHS Office for Civil Rights (OCR)’s April 3, 2019 cybersecurity newsletter highlights one of the more challenging cybersecurity vulnerabilities faced by covered entities and business associates.  OCR reminds covered entities (CEs) and business associates (BAs) that compliance with the HIPAA Security Rule can help, but stops a bit short of providing concrete guidance as to how best to minimize risk.  OCR warns:

One of the most dangerous tools in a hacker’s arsenal is the “zero day” exploit or attack which takes advantage of a previously unknown hardware, firmware, or software vulnerability.  Hackers may discover zero day exploits by their own research or probing or may take advantage of the lag between when an exploit is discovered and when a relevant patch or anti-virus update is made available to the public.”

What exactly is a “zero day” attack?  OCR summed it up pretty well.  According to the National Institute of Standards and Technology (NIST), it’s an “attack that exploits a previously unknown hardware, firmware, or software vulnerability.”

The problem is the time that elapses between the discovery of the vulnerability (day zero) and the creation and implementation of the patch for it.  If there’s a “lag between when an exploit is discovered and when a relevant patch or anti-virus update is made available to the public”, what can a CE or BA do?  OCR suggests that an entity “consider adopting other protective measures such as additional access controls or network access limitations” to mitigate liability until a patch is available.

OCR’s June 2019 cybersecurity newsletter provides a more thorough description as to how CEs and BAs can mitigate risks associated with unpatched vulnerabilities.   This newsletter also cross-references a useful resource for staying abreast of new vulnerabilities – the U.S. Computer Emergency Readiness Team (US-CERT).   The US-CERT “Current Activity” web page provides updates on identified security incidents and patches, and subscribers can sign up for email alerts.

Smaller CEs and BAs may still find it difficult to stay abreast of Zero Day attacks and necessary patches.  The NIST Small Business Cybersecurity Act may help (see here for resources made available as a result of the Act), and smaller entities can also make use of HHS’s recently published “Voluntary Cybersecurity Practices for the Health Care Industry.”

Data subject access rights and your medical practice: The UK Information Commissioner’s Office (ICO) issues advice.

Medical practices have reported a significant rise in subject access requests (SARs) since the GDPR came into effect in May last year, which is a similar trend in other sectors. Here are some points of advice from the ICO:

  • General Practitioners (GPs) cannot query the reason for requesting the information.
  • Providing a patient with online access to their health records may be sufficient.
  • SAR response may be provided electronically (subject to safeguards such as encryption).
  • GPs can ask the patient or their representative to clarify the information that would be acceptable to satisfy the SAR.

Where an SAR is made on behalf of a patient by their legal representative:

  • GPs may ask for evidence of clear, specific authority of the data subject to exercise their right of access
  • If a GP thinks that more information than is necessary is being requested, they can check that the patient is aware of the full extent of what is being sought
  • In cases where practices have genuine concerns about giving out excessive information, they can provide data directly to the patient

Details from the UK ICO.

Yesterday’s listserv announcement from the Office for Civil Rights (OCR) within the U.S. Department of Health and Human Services (HHS) brought to mind this question. The post announces the agreement by a Florida company, Advanced Care Hospitalists PL (ACH), to pay $500,000 and adopt a “substantial corrective action plan”. The first alleged HIPAA violation? Patient information, including name, date of birth, and social security number was viewable on the website of ACH’s medical billing vendor, and reported to ACH by a local hospital in 2014.

To add insult (and another alleged HIPAA violation) to injury, according to the HHS Press Release, ACH did not have a business associate agreement (BAA) in place with the vendor, Doctor’s First Choice Billings, Inc. (First Choice), during the period when medical billing services were rendered (an 8-month period running from November of 2011 to June of 2012). Based on the HHS Press Release, it appears that ACH only scrambled to sign a BAA with First Choice in 2014, likely after learning of the website issue. In addition, according to the HHS Press Release, the person hired by ACH to provide the medical billing services used “First Choice’s name and website, but allegedly without any knowledge or permission of First Choice’s owner.”

These allegations are head-spinning, starting with those implicating the “should’ve-been” business associate. First, how does a medical billing company allow an employee or any other individual access to its website without its knowledge or permission? Next, shouldn’t someone at First Choice have noticed that an unauthorized person was posting information on its website back in 2011-2012, or at some point prior to its discovery by an unrelated third party in 2014? Finally, how does a medical billing company (a company that should know, certainly by late 2011, that it’s most likely acting a business associate when it performs medical billing services), not realize that individually identifiable health information and social security numbers are viewable on its website by outsiders?

ACH’s apparent lackadaisical attitude about its HIPAA obligations is equally stunning. What health care provider engaged in electronic billing was not aware of the need to have a BAA in place with a medical billing vendor in 2011? While the Omnibus Rule wasn’t published until January of 2013 (at which point ACH had another chance to recognize its need for a BAA with First Choice), HHS has been publishing FAQs addressing all kinds of business associate-related issues and requirements since 2002.

It seems pretty obvious that ACH should have had a BAA with First Choice, but, in many instances, having a BAA is neither required by HIPAA nor prudent from the perspective of the covered entity. A BAA generally is not necessary if protected health information is not created, received, maintained or transmitted by or to the vendor in connection with the provision of services on behalf of a covered entity, business associate, or subcontractor, and having one in place may backfire. Consider the following scenario:

*          Health Plan (HP), thinking it is acting out of an abundance of HIPAA caution, requires all of its vendors to sign BAAs.

*          Small Law Firm (SLF) provides legal advice to HP, but does not create, receive, maintain or transmit protected health information in connection with the services it provides on behalf of HP.

*          However, SLF signs HP’s BAA at HP’s request and because SLF thinks it might, at some point, expand the scope of legal services it provides to HP to include matters that require it to receive protected health information from HP.

*          SLF suffers a ransomware attack that results in some of its data being encrypted, including data received from HP. It reviews HHS’s fact sheet on Ransomware and HIPAA, and realizes that a HIPAA breach may have occurred, since it cannot rule out the possibility that it received protected health information from HP at some point after it signed the BAA and prior to the attack.

*          SLF reports the attack to HP as per the BAA. Neither SLF nor HP can rule out the possibility that protected health information of individuals covered by HP was received by SLF at some point and affected by the attack.

HP is now in the position of having to provide breach notifications to individuals and HHS. Had it been more circumspect at the outset, deciding it would only ask SLF to sign a BAA if/when SLF needed protected health information in order to provide legal services on behalf of HP, it may have avoided these HIPAA implications completely.

So while it seems stunning that a health care provider entity such as ACH would have neglected to sign a BAA with First Choice before 2014, having a BAA in place when it is not necessary can create its own problems. Better to constantly ask (and carefully consider): to BAA or not to BAA?

The new Apple Watch Series 4® is one of the more recent and sophisticated consumer health engagement tools. It includes a sensor that lets wearers take an electrocardiogram (ECG) reading and detect irregular heart rhythms. The U.S. Food & Drug Administration (FDA) recently approved these functions as Class II medical devices, which generally means that they have a high to moderate risk to the user. The FDA approval letters describe the Apple Watch Series 4 functions as intended for over-the-counter use and not to replace traditional methods of diagnosis or treatment.

Tech developers and HIPAA lawyers often mean different things when describing a health app or medical device as HIPAA compliant. For example, a health app developer will likely focus on infrastructure, whereas the lawyer will likely focus on implementation. When asked about HIPAA, the app developer might rely on International Organization for Standardization (ISO) certification to demonstrate its data privacy and security controls and highlight how the infrastructure supports HIPAA compliance. The HIPAA lawyer, on the other hand, will likely focus on how (and by whom) data is created, received, maintained and transmitted and must look to the HIPAA regulations and guidance documents issued by the U.S. Department of Health and Human Services (HHS) to determine when and whether the data is subject to HIPAA protection. ISO certification does not equate to HIPAA certification; in fact, there is no HIPAA compliance certification process, and it is often difficult from the outset to determine if and when HIPAA applies.

As discussed in this prior blog post, HHS’s guidance on various “Health App Scenarios” underscores that fact that health data collected by an app may be HIPAA-protected in some circumstances and not in others, depending on the relationship between an app developer and a covered entity or business associate. The consumer (or app user) is unlikely to understand exactly when or whether HIPAA applies, particularly if the consumer has no idea whether such a relationship exists.

Back to the Apple Watch Series 4, and the many other consumer-facing medical devices or health apps in already on the market or in development. When do the nuances of HIPAA applicability begin to impede the potential health benefits of the device or app? If I connect my Apple Watch to Bluetooth and create a pdf file to share my ECG data with my physician, it becomes protected heath information (PHI) upon my physician’s receipt of the data. It likely was not PHI before then (unless my health care provider told me to buy the watch and has process in place to collect the data from me).

Yet the value of getting real-time ECG data lies not in immediate user access, but in immediate physician/provider access. If my device can immediately communicate with my provider, without my having to take the interim step of moving the data into a separate file or otherwise capturing it, my physician can let me know if something is of medical concern. I may not want my health plan or doctor getting detailed information from my Fitbit® or knowing whether I ate dessert every night last week, but if I’m at risk of experiencing a medical emergency or if my plan or provider gives me an incentive to engage in healthy behavior, I may be willing to allow real-time or ongoing access to my information.

The problem, particularly when it comes to health apps and consumer health devices, is that HIPAA is tricky when it comes to non-linear information flow or information that changes over time. It can be confusing when information shifts from being HIPAA-protected or not, depending on who has received it. As consumers become more engaged and active in managing health conditions, it is important that they realize when or whether HIPAA applies and how their personal data could be used (or misused) by recipients. Findings from Deloitte’s 2018 consumer health care survey suggest that many consumers are interested in using apps to help diagnose and treat their conditions. For example, 29% were interested in using voice recognition software to identify depression or anxiety, but perhaps not all of the 29% would be interested in using the software if they were told their information would not be protected by HIPAA (unless and until received by their provider, or if the app developer was acting as a business associate at the time of collection).

Perhaps certain HIPAA definitions or provisions can be tweaked to better fit today’s health data world, but, in the meantime, health app users beware.

Registration to the Privacy Summit is open.

Fox Rothschild’s Minneapolis Privacy Summit on November 8 will explore key cybersecurity issues and compliance questions facing company decision-makers. This free event will feature an impressive array of panelists drawn from cybersecurity leaders, experienced regulatory and compliance professionals and the Chief Division Counsel of the Minneapolis Division of the FBI.

Attendees receive complimentary breakfast and lunch, and can take advantage of networking opportunities and informative panel sessions:

GDPR and the California Consumer Privacy Act: Compliance in a Time of Change

The European Union’s General Data Protection Regulation has been in effect since May. Companies that process or control EU citizens’ personal data should understand how to maintain compliance and avoid costly fines. Health care businesses should also prepare for the next major privacy mandate: the California Consumer Privacy Act.

Risk Management – How Can Privacy Officers Ensure They Have the Correct Security Policies in Place?

Panelists offer best practices for internal policies, audits and training to help maintain protected health information (PHI), personally identifiable information (PII) or other sensitive data. Learn the cutting edge strategies to combat the technology threats of phishing and ransomware.

Fireside Chat

Jeffrey Van Nest, Chief Division Counsel of the Minneapolis Division of the FBI, speaks on the state of affairs in regulation and enforcement; including how to partner with the FBI, timelines of engagement and the latest on cyber threat schemes. His insights offer details on forming effective cyber incident response plans.

Keynote Speaker – Ken Barnhart

Ken is the former CEO of the Occam Group, a cybersecurity industry advisor and the founder and principal consultant for Highground Cyber – a spin-off of the Occam Group’s Cybersecurity Practice Group. For more than a decade, he has helped companies of all sizes design, host and secure environments in private, public and hybrid cloud models. Prior to his work in the corporate sector, Ken served as a non-commissioned officer in the United States Marine Corp and is a decorated combat veteran of Operation Desert Shield\Storm with the HQ Battalion of the 2nd Marine Division.

Geared toward an audience of corporate executives, in-house chief privacy officers and general counsel, the summit will provide important take-aways about the latest risks and threats facing the health care industry.

Stay tuned for more agenda details. Registration is open.

Filefax, Inc., a defunct Illinois medical records storage and management company, has been fined $100,000 for improperly handling medical data under an agreement with the court-appointed receiver managing the company’s assets on behalf of its creditors.  This settlement has implications for both service providers and their covered entity clients.  Fox Rothschild partners Elizabeth Litten and Michael Kline were quoted in an article by Marla Durben Hirsch entitled “Be prepared for HIPAA Issues if a business associate shuts down” in the August issue of Medical Practice Compliance Alert.

As the HHS press release stated, the consequences for HIPAA violations don’t stop when a business closes.  In this case, Filefax had been under investigation by state and federal authorities since 2015 for careless handling of medical records which had been abandoned at a shredding facility.   Medical Practice Compliance Alert notes:

This settlement shows that  a provider or business associate that has violated HIPAA can’t avoid the consequences by shutting down.  “OCR is saying that you’re still responsible if you close your doors.” Says attorney Elizabeth Litten with Fox Rothschild in Princeton, NJ.

But it also provides a cautionary tale for providers who work with business associates that go under because providers are ultimately responsible for their patients’ records.

The article suggests the following tips for a covered entity to reduce its risks when a business associate may be in shaky financial shape:

  1. Keep an inventory of your business associate relationships.
  2. Choose business associates carefully.
  3. Monitor your business associates’ compliance with HIPAA.
  4. Expect increased scrutiny if a business associate is already on the government’s radar.
  5. Watch for signs that the business associate may be running into financial trouble.
  6. Don’t sit idly if the business associate files for bankruptcy.

What should a covered entity do when it learns that a business associate may have violated its HIPAA responsibilities?  For starters, see our previous post entitled Ten Tips for Actions by a Covered Entity after a HIPAA Breach by a Business Associate.  And if that BA has ceased operations, be prepared to take control of the situation even if the BA may not have enough resources left to reimburse you for its mistakes. Remember, the buck always stops with the Covered Entity.

Harry S. Truman Library & Museum 2017

The recent criminal conviction of a Massachusetts physician provides a stark reminder that violating HIPAA can result in more than civil monetary penalties and the financial and reputational fall-out that results from a breach. In this case, perhaps the cover-up was worse than the crime, or maybe prosecutors decided that a conviction on other charges would have been harder to get. Either way, the case should alert covered entities and business associates to the fact that HIPAA violations can result in jail time and criminal fines.

The U.S. Department of Health and Human Services (HHS), Office for Civil Rights (OCR) investigates complaints and may impose civil monetary penalties (CMPs) for violations of HIPAA.   The U.S. Department of Justice (DOJ) handles criminal investigations and penalties.  This may not provide much comfort, but a CMP will not be imposed if the HIPAA violation is determined to constitute a criminal offense.

OCR will refer matters to DOJ for criminal enforcement in some cases or will work cooperatively with DOJ where a DOJ investigation on other grounds reveals a potential HIPAA violation.  HHS reported that OCR had referred 688 cases to the DOJ for criminal investigation as of June 30, 2018.

The criminal enforcement of HIPAA was described in a Memorandum Opinion issued in 2005 jointly to HHS and the Senior Counsel to the Deputy Attorney General by Steven Bradbury, then-acting Assistant Attorney General of the Office of Legal Counsel within DOJ (the DOJ Memo). The DOJ Memo explains that HIPAA allows for criminal penalties only for violations that involve the disclosure of “unique health identifiers” or “individually identifiable health information” (IIHI) that are made “knowingly” and in violation of HIPAA.   Specifically, a person may be subject to criminal penalties if he or she knowingly (and in violation of HIPAA):  (i) uses or causes to be used a unique health identifier; (ii) obtains IIHI; or (iii) discloses IIHI to another person.  Criminal penalties range from misdemeanors to felonies.  The maximum criminal penalty (a fine of up to $250,000 and imprisonment of up to 10 years) can be imposed if one of these offenses is committed “with intent to sell, transfer, or use [IIHI] for commercial advantage, personal gain, or malicious harm.”  The DOJ Memo explains that “knowingly” refers to knowledge of the facts that constitute the offense, not knowledge of the law being violated (HIPAA).

The DOJ Memo emphasizes the fact that criminal penalties are reserved for limited and specific violations of HIPAA:  “Such punishment is reserved for violations involving `unique health identifiers’ and [IIHI]…  Thus, the statute reflects a heightened concern for violations that intrude upon the medical privacy of individuals.”  The DOJ Memo focuses on violations by covered entities. It notes that when a covered entity is not an individual, but is a corporate entity, the conduct of agents may be imputed to the entity when the agents act within the scope of employment, and the criminal liability of a corporate entity may be attributed to individuals in managerial roles.

DOJ might decide to seek a conviction for a violation of HIPAA when it believes such a conviction would be easier to get than a conviction for a violation of other federal laws governing health care providers (such as the anti-kickback statute).   After all, the DOJ Memo makes it clear that “knowing” refers to the conduct, not the state of the law.  However, it should be noted, as per the DOJ Memo, that the DOJ’s interpretation of “`knowingly’ does not dispense with the mens rea requirement of section 1320d-6 [HIPAA] and create a strict liability offense; satisfaction of the ‘knowing’ element will still require proof that the defendant knew the facts that constitute the offense.”

When a health care entity (like a large hospital system or health plan) has deep pockets, the OCR may decide to pursue very high civil monetary penalties and rely on the financial and reputational implications of the civil monetary penalties to act as a deterrence.  On the other hand, the DOJ may seek to deter behavior associated with a wider range of criminal activities by pursuing jail time for a HIPAA violation.

In the case of the Massachusetts physician, it is also likely that the DOJ pursued the criminal charge because she lied about her relationship with the third party to which she disclosed patient information. My law partner Charles DeMonaco, a white collar defense attorney and former DOJ prosecutor, agrees:

It is understandable why this doctor was indicted and convicted for these offenses.  She was accused of lying to the agents, which is always a major hurdle in a criminal case.  Even if an underlying crime cannot be established, a lie of a material fact to a government agent is a stand-alone false-statement felony.  It also establishes consciousness of guilt. The doctor could have asserted her Fifth Amendment privilege against self-incrimination to avoid talking to the government agents.  It is never a good thing for a doctor to speak with agents who are investigating the doctor’s conduct without counsel and without proper protection of limited use immunity being sought prior to the interview.  The government also proved that she accepted fees from the pharma company after providing the [IIHI] in violation of HIPAA.  Under these facts, it is not surprising that this case was brought as a criminal prosecution and that a guilty verdict was returned.

Everyone subject to HIPAA should be aware that a HIPAA violation involving disclosure or breach of IIHI may be the low-hanging fruit for criminal prosecutors originally focused on other violations of law.   In particular, covered entities should carefully evaluate arrangements with third parties that involve the sharing of IIHI with those parties for commercial/personal gain or commercial harm. If the sharing of IIHI is not permitted under HIPAA and commercial gain or harm is involved, these violations could result in the most severe level of criminal penalties, including significant jail time.

The European Union’s General Data Protection Regulation (GDPR) went into effect on May 25, 2018. Whereas HIPAA applies to particular types or classes of data creators, recipients, maintainers or transmitters (U.S. covered entities and their business associates and subcontractors), GDPR applies much more generally – it applies to personal data itself. Granted, it doesn’t apply to personal data that has absolutely no nexus to the EU, but assuming it doesn’t apply to your U.S.-based entity simply because you don’t have a physical location in the EU is a mistake.

So when does GDPR apply to a U.S.-based covered entity, business associate, or subcontractor? As with HIPAA, the devil is in the definitions, so I’ve capitalized certain GDPR-defined terms below. GDPR is comprised of 99 articles set forth in 11 chapters, and 173 “Recitals” explain the rationales for adoption. Similar to the way regulatory preambles and guidance published by the U.S. Department of Health and Human Services (HHS) can be helpful to understanding HIPAA compliance, the Recitals offer insight into GDPR applicability and scope.

Under Article 3, GDPR applies:

(1) To the Processing of Personal Data in the context of the activities of an establishment of a Controller or Processor in the EU, regardless of whether the Processing takes place in the EU;

(2) To the Processing of Personal Data of data subjects who are in the EU by a Controller or Processor not established in the EU, where the Processing activities are related to:

(a) the offering of goods or services, irrespective of whether a payment of the data subject is required, to such data subjects in the EU; or

(b) the monitoring of their behavior as far as their behavior takes place within the EU; and

(3) To the Processing of Personal Data by a Controller not established in the EU, but in a place where EU member state law applies by virtue of public international law.

It is paragraph (2) that seems most likely to capture unwitting U.S.-based covered entities, business associates, and subcontractors that are not established in the EU (though Recital 22 offers further explanation of what it means to be Processing data in the context of the activities of an establishment).

Notably, paragraph (2) makes it clear that while the entity need not be located within the EU for GDPR to apply, the data subject must be. If the U.S. entity offers goods or services to, or monitors the behavior of, data subjects who are “in” the EU, GDPR likely applies. It is the location of the data subject, not his or her citizenship, residency or nationality, that matters. GDPR does not follow the data subject outside the EU, but it does follow the data subject (even an American) into the EU – so long as the Processing of the Personal Data takes place in the EU.

So what does this mean for the U.S.-based covered entity, business associate, or subcontractor not established in the EU? It should carefully review its website, marketing activities, discharge or post-service follow-up procedures, and any other activities that might involve the offering goods or services to, or monitoring the behavior of, individuals in EU. If GDPR applies, the company will need to analyze how its HIPAA privacy and data security policies are inconsistent with and fall short of GDPR requirements. The company, whether a covered entity, business associate, or subcontractor, should also make sure that none of its vendors process data on its behalf in the EU.

In addition to understanding where data subjects are located and where Processing takes place in order to determine GDPR applicability, covered entities, business associates and subcontractors must determine whether they are acting as Controllers or Processors in order to understand their GDPR compliance obligations.

This can create particular challenges for a business associate.  If a covered entity is subject to GDPR, a business associate that creates, receives, maintains or transmits Personal Data on behalf of the covered entity will either be acting as a Processor (for example, where the covered entity simply uses the business associates tools or services to conduct its business), or a Controller (for example, where the business associate reaches out directly to plan members or patients, such as by an email campaign).  If the business associate’s services agreement or business associate agreement makes no mention of the fact that the covered entity is subject to GDPR, the business associate may not know whether it is also subject to GDPR, let alone whether it is a Controller or Processor.

The bottom line is that focusing on compliance with HIPAA and other federal and state laws pertaining to privacy and security of personal information is not enough, even for companies that view themselves as operating solely within the U.S.  A thorough risk assessment should include not only careful consideration of HIPAA requirements, but of the potential applicability and compliance requirements of GDPR.