Compliance with the HIPAA Medical Privacy Rule
CRS Report for Congress
Compliance with the HIPAA
Medical Privacy Rule
Gina Marie Stevens
American Law Division
As of April 14, 2003, most health care providers (including doctors and hospitals)
and health plans are required to comply with the new Privacy Rule mandated by the
Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), and must
comply with national standards to protect individually identifiable health information.
The HIPAA Privacy Rule creates a federal floor of privacy protections for individually
identifiable health information; establishes a set of basic consumer protections; institutes
a series of regulatory permissions for uses and disclosures of protected health
information; permits any person to file an administrative complaint for violations; and
authorizes the imposition of civil or criminal penalties. In hearings prior to the effective
date of the Rule, there was widespread concern over aspects of the rule, including the
extent to which it preempted state laws. On April 17, 2003, HHS published an interim
final rule establishing the rules of procedure for investigations and the imposition of
civil money penalties concerning violations. This interim final rule will be effective
May 19, 2003 through September 16, 2003. HHS plans to issue a complete
Enforcement Rule with both procedural and substantive provisions after notice-and-
comment rulemaking. This report will be updated.
Background. In order to “improve portability and continuity of health insurance1
coverage in the group and individual markets,” Congress enacted the Health Insurance
Portability and Accountability Act of 1996 (HIPAA) on August 21, 1996, P. L. 104-191,
110 Stat. 1936, 42 U.S.C. §§ 1320d et seq. Subtitle F of Title II of HIPAA is entitled
“Administrative Simplification,” and states that the purpose of the subtitle is to improve
health care by “encouraging the development of a health information system through the
establishment of standards and requirements for the electronic transmission of certain2
health information.” Sections 261 through 264 of HIPAA contain the administrative
1 H.R. Rep. No. 104-496, at 1, 66-67, reprinted in 1996 U.S.C.C.A.N. 1865, 1865-66.
2 110 Stat. 2021.
Congressional Research Service ˜ The Library of Congress
simplification provisions.3 HIPAA requires health care payers and providers who transmit
transactions electronically to use standardized data elements to conduct financial and
administrative transactions. Section 262 directs HHS to issue standards to facilitate the
electronic exchange of information.4 Section 263 of HIPAA delineates the duties of the
National Committee on Vital and Health Statistics. Section 264 of HIPAA requires HHS
to submit to the Congress detailed recommendations on standards with respect to privacy
rights for individually identifiable health information. In the absence of the enactment of
federal legislation, HIPAA required HHS to issue privacy regulations. The final Privacy
Rule was issued by HHS and published in the Federal Register on December 28, 2000
at 65 Fed. Reg. 82462, shortly before the Clinton Administration left office. The Privacy
Rule went into effect on April 14, 2001. On August 14, 2002, HHS published in the
Federal Register a modified Privacy Rule, 67 Fed. Reg. 53181.5 Enforcement of the
Privacy Rule began on April 14, 2003, except for small health plans (those with annual
receipts of $5 million or less) who have until April 2004 to comply.
The HIPAA Privacy Rule covers health plans, health care clearinghouses, and those
health care providers who conduct certain financial and administrative transactions
electronically.6 Covered entities are bound by the new privacy standards even if they
contract with others (called "business associates") to perform essential functions. HIPAA
does not give HHS authority to regulate other private businesses or public agencies.
Covered entities that fail to comply with the rule are subject to civil and criminal
penalties,7 but individuals do not have the right to sue for violations of the rule. Instead,
the law provides that individuals must direct their complaints to HHS' Office for Civil
Rights (OCR).8 OCR maintains a Web site with information on the new regulation,
including guidance at [http://www.hhs.gov/ocr/hipaa/]. HHS also recently issued a 20
page “Summary of the HIPAA Privacy Rule.”9 HHS will enforce the civil money
penalties, and the Department of Justice will enforce the criminal penalties. Criminal
penalties may be imposed if the offense is committed under false pretenses, with intent
to sell the information or reap other personal gain.
HIPAA authorizes the HHS Secretary to impose civil money penalties of up to
$25,000 for each year for those entities failing to comply with the privacy rule.10 Several
statutory limitations are imposed on the Secretary’s authority to impose civil money
penalties (CMP). A penalty may not be imposed: with respect to an act that constitutes
an offense punishable under the criminal penalty provision; “if it is established to the
satisfaction of the Secretary that the person liable for the penalty did not know, and by
3 See CRS Report RS20934, A Brief Summary of the Medical Privacy Rule.
4 HHS has issued final regulations on standards for security, transactions and code sets, employer
identifiers, and privacy. See [http://www.hhs.gov/news/press/2002pres/hipaa.html].
6 For information on covered entities, see
[http://www.cms.go v/ hipaa/hipaa2/support/tools/deci sionsupport/default.asp].
7 65 Fed. Reg. 82,462, 82,487 (Dec. 28, 2000); see [http://www.hhs.gov/ocr/hipaa/finalreg.html].
8 See [http://www.ehcca.com/presentations/hipaa6/campanelli.pdf].
10 42 U.S.C. § 1320d-5(a)(1).
exercising reasonable diligence would not have known, that such person violated the
provisions;”11 if “the failure to comply was due to reasonable cause and not to willful
neglect” and is corrected within a certain time period.12 A CMP may be reduced or
waived “to the extent that the payment of such penalty would be excessive relative to the
compliance failure involved.”13 In addition, a number of procedural requirements are
incorporated by reference in HIPAA that are relevant to the imposition of CMP’s.14 The
Secretary may not initiate a CMP action “later than six months after the date” of the
occurrence that forms the basis for the CMP action. The Secretary may initiate a CMP
by serving notice in a manner authorized by Rule 4 of the Federal Rules of Civil
Procedure. The Secretary must give written notice to the person to whom he wishes to
impose a CMP and an opportunity for a determination to made “on the record after a
hearing at which the person is entitled to be represented by counsel, to present witnesses,
and to cross-examine witnesses against the person.”15 Judicial review of the Secretary’s
determination and the issuance and enforcement of subpoenas is available in the United
States Court of Appeals.
With respect to ascertaining compliance with and enforcement of the Privacy Rule,
the Secretary of HHS is to seek the voluntary cooperation of covered entities. The
Secretary is authorized to provide technical assistance to covered entities in order to
facilitate their voluntary compliance. Enforcement and other activities to facilitate
compliance include the provision of technical assistance; responding to questions;
providing interpretations and guidance; responding to state requests for preemption
determinations; investigating complaints and conducting compliance reviews; and seeking
civil monetary penalties and making referrals for criminal prosecution.
An individual may file a compliant with the Secretary if the individual believes that
the covered entity is not complying with the rule.16 Complaints must be filed in writing,
either on paper or electronically; name the entity that is the subject of the complaint and
describe the acts or omissions believed to be in violation of the applicable requirements
of the Privacy Rule; and be filed within 180 days of when the complainant knew or should
have known that the act or omission complained of occurred, unless the time limit is
waived by the Secretary for good cause shown. Complaints to the Secretary may be filed
only with respect to alleged violations occurring on or after April 14, 2003. The Secretary
has delegated to the Office for Civil Rights (OCR) the authority to receive and investigate
complaints as they may relate to the Privacy Rule.17 Individuals may file written
complaints with OCR by mail, fax or e-mail. For information about the Privacy Rule or
the process for filing a complaint with OCR, they may contact any OCR office or go to
[http://www.hhs.gov/ocr/howtofileprivacy.htm]. After April 14, 2003, individuals have
11 42 U.S.C. § 1320d-5(b)(2).
12 42 U.S.C. § 1320d-5(b)(3 ).
13 42 U.S.C. § 1320d-5(b)(4).
14 42 U.S.C. § 1320d-5(a)(2).
15 42 U.S.C. § 1320a-7a(c)(2).
16 45 CFR section 160.306.
17 65 Fed. Reg. At 82,474, 82,487.
a right to file a complaint directly with the covered entity, and are directed to refer to the
covered entity’s notice of privacy practices for information about how to file a complaint.
The Secretary’s investigation may include a review of the policies, procedures, or
practices of the covered entity, and of the circumstances regarding the alleged acts or
omissions. The Secretary is also authorized to conduct compliance reviews. Covered
entities are required to provide records and compliance reports to the Secretary to
determine compliance; and to cooperate with complaint investigations and compliance
reviews.In cases where an investigation or compliance review has indicated
noncompliance, the Secretary is to inform the covered entity and the complainant in
writing, and attempt to resolve the matter informally. If the Secretary determines that the
matter cannot be resolved informally, the Secretary may issue written findings
documenting the noncompliance. In cases where no violation is found, the Secretary is
to inform the covered entity and the complainant in writing.
On April 17, 2003 HHS published an interim final “Enforcement Rule” that applies
to standards, including the Privacy Rule, adopted under the Administrative Simplification
provisions of HIPAA, 68 Fed. Reg. 18895.18 The interim final rule establishes procedures
for investigations, imposition of penalties, and hearings for civil money penalties; and is
effective May 19, 2003 thru September 16, 2003. It is to be revised when HHS issues a
complete Enforcement rule that will include procedural and substantive requirements for
the imposition of civil money penalties, such as HHS’ policies for determining violations
and calculating CMP’s. Although HHS recognized that the Administrative Procedure Act
(APA) requires that most of the provisions of the complete Enforcement Rule be
promulgated through notice-and-comment rulemaking, it concluded that the interim final
rule’s procedural provisions are exempted from the requirement for notice and comment
rulemaking under the “rules of agency . . . procedure, or practice” exemption of the APA,
5 U.S.C. § 553(b)(3)(A). As a result, HHS published the procedural rules in final form
without notice-and-comment to inform covered entities and the public of the procedural
requirements for compliance. In addition, HHS requests public comment thru June 16,
The National Committee on Vital and Health Statistics (NCVHS) serves as the
statutory public advisory body to the Secretary of Health and Human Services in the area19
of health data and statistics. As part of its responsibilities under the Health Insurance
Portability and Accountability Act of 1996 (HIPAA), the National Committee on Vital
and Health Statistics (NCVHS) monitors the implementation of the Administrative
Simplification provisions of HIPAA, including the Standards for Privacy of Individually
Identifiable Health Information (Privacy Rule). Last fall, the NCVHS held three hearings
to learn about the implementation activities of covered entities. In its November 2002
letter to Secretary Thompson summarizing its findings the Committee stated that “there
is an extremely high level of confusion, misunderstanding, frustration, anxiety, fear, and
18 Department of Health and Human Services, Civil Money Penalties: Procedures for
Investigations, Imposition of Penalties, and Hearings, 68 Fed. Reg. 18895 (Apr. 17, 2003), at
[http://a257.g.akamait e c h.net/7/257/2422/14mar20010800/edocke t.ac cess.gpo.gov/2003/pdf/0
19 42 U.S.C. 242k(k).
anger as the April 14, 2003 compliance date nears.”20 Reportedly the Privacy Rule has
“touched off a quiet revolution in the health care industry.”21 According to NCVHS, the
OCR is widely viewed as not providing adequate guidance and technical assistance as
evidenced by the lack of model notices of privacy practices, acknowledgments,
authorizations, and other forms. The general guidance was judged to be of limited value
because of special industry or professional circumstances, and NCVHS reported that
witnesses conveyed a great sense of frustration that they could not obtain clarification
from OCR or answers to the questions they submitted. Covered entities report the
undertaking of substantial compliance measures ranging from the adoption of new
policies, the training of employees, and the development of privacy notices.
Another area of widespread concern at the NCVHS hearings was HIPAA
preemption. According to NCVHS, witnesses said that issues of preemption made
compliance much more difficult, costly, and complicated. The term "preemption" is a
judicial doctrine that originated through interpretation of the Supremacy Clause of the
United States Constitution.22 In effect, the Supremacy Clause stands for the proposition
that the Constitution and the laws of the federal government rise above the laws of the
states. As a result, federal law will always override state law in cases of conflict. Absent
a direct conflict, however, preemption depends on the intent of Congress. Such intent
may be express or implied. Express preemption exists when Congress explicitly
commands that a state law be displaced. Where Congress has not expressly preempted
state and local laws, two types of implied federal preemption may be found: field
preemption, in which federal regulation is so pervasive that one can reasonably infer that
states or localities have no role to play, and conflict preemption, in which "compliance
with both federal and state regulations is a physical impossibility, or where the state law
"stands as an obstacle to the accomplishment and execution of the full purposes and
objectives of Congress.”23
HIPAA sets forth a general rule, based on the principles of conflict preemption.
Basically, this rule establishes that any federal regulation resulting from implementation
of the Act preempts any contrary state law.24 "Contrary" is defined as situations where:
(1) a covered entity would find it impossible to comply with both the state and the federal
requirements, or (2) when the state law stands as an obstacle to the accomplishment and
execution of the full purposes and objectives of Congress.25 Congress established three
exceptions to this general rule. First, there is an exception for state laws that the Secretary
21 Robert Pear, Health System Wearily Prepares for Privacy Rule, N.Y. TIMES, Apr. 6, 2003;
[ h t t p : / / quer y.nyt i mes.com/gst/abstract .html?res=F40C13 FD395C0C758CDDAD0894DB404482]
22 The Supremacy Clause provides:
“This Constitution, and the Laws of the United States which shall be made in Pursuance
thereof; and all Treaties made, or which shall be made, under the Authority of the United States,
shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any
Thing in the Constitution or Laws of any state to the Contrary notwithstanding.” U.S.Const. art.
VI, cl. 2.
23 Gade v. National Solid Wastes Mgmt. Assn., 505 U.S. 88, 98 (1992).
24 42 U.S.C. § 1320d-7(a)(1).
25 45 C.F.R. 160.202.
determines are necessary to prevent fraud and abuse, to ensure appropriate state regulation
of insurance and health plans, for state reporting on health care delivery, or for other
purposes.26 The second exception provides that state laws will not be superseded if the
Secretary determines that the law addresses controlled substances.27 Both of these
exceptions require an affirmative "exception determination" from the Secretary of HHS
for the state law not to be preempted.28 The third exception provides that state laws will
not be preempted if they relate to the privacy of individually identifiable health
information and are "more stringent" than the federal requirements.29 A state law is "more
stringent" if it meets one or more of the following criteria: 1) the state law prohibits or
further limits the use or disclosure of protected health information, except if the disclosure
is required by HHS to determine a covered entity's compliance or is to the individual who
is the subject of the individually identifiable information; 2) the state law permits
individuals with greater rights of access to or amendment of their individually identifiable
health information; provided, however, HIPAA will not preempt a state law to the extent
that it authorizes or prohibits disclosure of protected health information about a minor to
a parent, guardian or person acting in loco parentis of such minor; 3) the state law
provides for more information to be disseminated to the individual regarding use and
disclosure of their protected health information and rights and remedies; 4) the state law
narrows the scope or duration of authorization or consent, increases the privacy
protections surrounding authorization and consent, or reduces the coercive effect of the
surrounding circumstances; 5) the state law imposes stricter standards for record keeping
or accounting of disclosures; 6) the state law strengthens privacy protections for
individuals with respect to any other matter.30
In addition to the general rule and exceptions, Congress "carved out" two provisions
whereby certain areas of state authority will not be limited or invalidated by HIPAA rules.
First, the public health "carve out" saves any law providing for the reporting of disease
or injury, child abuse, birth, or death for the conduct of public surveillance, investigation
or intervention.31 The second "carve out" allows states to regulate health plans by
requiring the plans to report, or provide access to, information for the purpose of audits,
program monitoring and evaluation, or the licensure or certification.32
Legislation. S. 16, The Equal Rights and Equal Dignity for Americans Act of
26 42 U.S.C. § 1320d-7(a)(2)(A)(i).
27 42 U.S.C. § 1320d-7(a)(2)(A)(ii).
28 See 45 C.F.R. 160.203(a), 160.204.
29 42 U.S.C. § 1320d-7(a)(2)(B) in conjunction with 42 U.S.C. 1320d-2 note (Section 264(c)(2)
of Public Law 104-191).
30 See 45 C.F.R. 160.202.
31 42 U.S.C. 1320d-7(b).
32 42 U.S.C. 1320d-7(c).