We are proposing that covered entities be accountable for the uses and disclosures of protected health information by their business partners. A covered entity would be in violation of this rule if the covered entity knew or reasonably should have known of a material breach of the contract by a business partner and it failed to take reasonable steps to cure the breach or terminate the contract. See proposed § 164.506(e)(2)(iii). A covered entity that is aware of impermissible uses and disclosures by a business partner would be responsible for taking such steps as are necessary to prevent further improper use or disclosures and, to the extent practicable, for mitigating any harm caused by such violations. This could include, for example, requiring the business partner to retrieve inappropriately disclosed information (even if the business partner must pay for it) as a condition of continuing to do business with the covered entity. A covered entity that knows or should know of impermissible use of protected health information by its business partner and fails to take reasonable steps to end the breach would be in violation of this rule.
Where a covered entity acts as a business partner to another covered entity, the covered entity that is acting as business partner would also be responsible for any violations of the regulation.
We considered requiring covered entities to terminate relationships with business partners if the business partner committed a serious breach of contact terms required by this subsection or if the business partner exhibited a pattern or practice of behavior that resulted in repeated breaches of such terms. We rejected that approach because of the substantial disruptions in business relationships and customer service when terminations occur. We instead require the covered entity to take reasonable steps to end the breach and mitigate its effects. We would expect covered entities to terminate the arrangement if it becomes clear that a business partner cannot be relied upon to maintain the privacy of protected health information provided to it. We invite comments on our approach here and whether requiring automatic termination of business partner contracts would be warranted in any circumstances.
We also considered imposing more strict liability on covered entities for the actions of their business partners, just as principals are strictly liable for the actions of their agents under common law. We decided, however, that this could impose too great a burden on covered entities, particularly small providers. We are aware that, in some cases, the business partner will be larger and more sophisticated with respect to information handling than the covered entity. Therefore we instead opted to propose that covered entities monitor use of protected health information by business partners, and be held responsible only when they knew or reasonably should have known of improper use of protected health information.
Our intention in this subsection is to recognize the myriad business relationships that currently exist and to ensure that when they involve the exchange of protected health information, the roles and responsibilities of the different parties with respect to the protected health information are clear. We do not propose to fundamentally alter the types of business relationships that exist in the health care industry or the manner in which they function. We request comments on the extent to which our proposal would disturb existing contractual or other arrangements among covered entities and business partners.