Standards for Privacy of Individually Identifiable Health Information. Final Privacy Rule Preamble.. Administrative Costs


Section 1172(b) of the Act provides that "[a]ny standard adopted under this part [part C of title XI of the Act] shall be consistent with the objective of reducing the administrative costs of providing and paying for health care." The privacy and security standards are the platform on which the remaining standards rest; indeed, the design of part C of title XI makes clear that the various standards are intended to function together. Thus, the costs of privacy and security are properly attributable to the suite of administrative simplification regulations as a whole, and the cost savings realized should likewise be calculated on an aggregated basis, as is done below. Because the privacy standards are an integral and necessary part of the suite of Administrative Simplification standards, and because that suite of standards will result in substantial administrative cost savings, the privacy standards are "consistent with the objective of reducing the administrative costs of providing and paying for health care."

As more fully discussed in the Regulatory Impact and Regulatory Flexibility analyses below, we recognize that these privacy standards will entail substantial initial and ongoing administrative costs for entities subject to the rules. It is also the case that the privacy standards, like the security standards authorized by section 1173(d) of the Act, are necessitated by the technological advances in information exchange that the remaining Administrative Simplification standards facilitate for the health care industry. The same technological advances that make possible enormous administrative cost savings for the industry as a whole have also made it possible to breach the security and privacy of health information on a scale that was previously inconceivable. The Congress recognized that adequate protection of the security and privacy of health information is a sine qua non of the increased efficiency of information exchange brought about by the electronic revolution, by enacting the security and privacy provisions of the law. Thus, as a matter of policy as well as law, the administrative standards should be viewed as a whole in determining whether they are "consistent with" the objective of reducing administrative costs.