Standards for Privacy of Individually Identifiable Health Information. Final Privacy Rule Preamble.. Covered Entity.

12/28/2000

Comment: A number of commenters urged the Department to expand or clarify the definition of "covered entity" to include certain entities other than health care clearinghouses, health plans, and health care providers who conduct standard transactions. For example, several commenters asked that the Department generally expand the scope of the rule to cover all entities that receive or maintain individually identifiable health information; others specifically urged the Department to cover employers, marketing firms, and legal entities that have access to individually identifiable health information. Some commenters asked that life insurance and casualty insurance carriers be considered covered entities for purposes of this rule. One commenter recommended that Pharmacy Benefit Management (PBM) companies be considered covered entities so that they may use and disclose protected health information without authorization.

In addition, a few commenters asked the Department to clarify that the definition includes providers who do not directly conduct electronic transactions if another entity, such as a billing service or hospital, does so on their behalf.

Response: We understand that many entities may use and disclose individually identifiable health information. However, our jurisdiction under the statute is limited to health plans, health care clearinghouses, and health care providers who transmit any health information electronically in connection with any of the standard financial or administrative transactions in section 1173(a) of the Act. These are the entities referred to in section 1173(a)(1) of the Act and thus listed in § 160.103 of the final rule. Consequently, once protected health information leaves the purview of one of these covered entities, their business associates, or other related entities (such as plan sponsors), the information is no longer afforded protection under this rule. We again highlight the need for comprehensive federal legislation to eliminate such gaps in privacy protection.

We also provide the following clarifications with regard to specific entities.

We clarify that employers and marketing firms are not covered entities. However, employers may be plan sponsors of a group health plan that is a covered entity under the rule. In such a case, specific requirements apply to the group health plan. See the preamble on § 164.504 for a discussion of specific "firewall" and other organizational requirements for group health plans and their employer sponsors. The final rule also contains provisions addressing when an insurance issuer providing benefits under a group health plan may disclose summary health information to a plan sponsor.

With regard to life and casualty insurers, we understand that such benefit providers may use and disclose individually identifiable health information. However, Congress did not include life insurers and casualty insurance carriers as "health plans" for the purposes of this rule and therefore they are not covered entities. See the discussion regarding the definition of "health plan" and excepted benefits.

In addition, we clarify that a PBM is a covered entity only to the extent that it meets the definition of one or more of the entities listed in § 160.102. When providing services to patients through managed care networks, it is likely that a PBM is acting as a business associate of a health plan, and may thus use and disclose protected health information pursuant to the relevant provisions of this rule. PBMs may also be business associates of health care providers. See the preamble sections on §§ 164.502, 164.504, and 164.506 for discussions of the specific requirements related to business associates and consent.

Lastly, we clarify that health care providers who do not submit HIPAA transactions in standard form become covered by this rule when other entities, such as a billing service or a hospital, transmit standard electronic transactions on their behalf. The provider could not circumvent these requirements by assigning the task to a contractor.

Comment: Many commenters urged the Department to restrict or clarify the definition of "covered entity" to exclude certain entities, such as department-operated hospitals (public hospitals); state Crime Victim Compensation Programs; employers; and certain lines of insurers, such as workers' compensation insurers, property and casualty insurers, reinsurers, and stop-loss insurers. One commenter expressed concern that clergy, religious practitioners, and other faith-based service providers would have to abide by the rule and asked that the Department exempt prayer healing and non-medical health care.

Response: The Secretary provides the following clarifications in response to these comments. To the extent that a "department-operated hospital" meets the definition of a "health care provider" and conducts any of the standard transactions, it is a covered entity for the purposes of this rule. We agree that a state Crime Victim Compensation Program is not a covered entity if it is not a health care provider that conducts standard transactions, health plan, or health care clearinghouse. Further, as described above, employers are not covered entities.

In addition, we agree that workers' compensation insurers, property and casualty insurers, reinsurers, and stop-loss insurers are not covered entities, as they do not meet the statutory definition of "health plan." See further discussion in the preamble on § 160.103 regarding the definition of "health plan." However, activities related to ceding, securing, or placing a contract for reinsurance, including stop-loss insurance, are health care operations in the final rule. As such, reinsurers and stop-loss insurers may obtain protected health information from covered entities.

Also, in response to the comment regarding religious practitioners, the Department clarifies that "health care" as defined under the rule does not include methods of healing that are solely spiritual. Therefore, clergy or other religious practitioners that provide solely religious healing services are not health care providers within the meaning of this rule, and consequently not covered entities for the purposes of this rule.

Comment: A few commenters expressed general uncertainty and requested clarification as to whether certain entities were covered entities for the purposes of this rule. One commenter was uncertain as to whether the rule applies to certain social service entities, in addition to clinical social workers that the commenter believes are providers. Other commenters asked whether researchers or non-governmental entities that collect and analyze patient data to monitor and evaluate quality of care are covered entities. Another commenter requested clarification regarding the definition's application to public health agencies that also are health care providers as well as how the rule affects public health agencies in their data collection from covered entities.

Response: Whether the professionals described in these comments are covered by this rule depends on the activities they undertake, not on their profession or degree. The definitions in this rule are based on activities and functions, not titles. For example, a social service worker whose activities meet this rule's definition of health care will be a health care provider. If that social service worker also transmits information in a standard HIPAA transaction, he or she will be a covered health entity under this rule. Another social service worker may provide services that do not meet the rule's definition of health care, or may not transmit information in a standard transaction. Such a social service worker is not a covered entity under this rule. Similarly, researchers in and of themselves are not covered entities. However, researchers may also be health care providers if they provide health care. In such cases, the persons, or entities in their role as health care providers may be covered entities if they conduct standard transactions.

With regard to public health agencies that are also health care providers, the health care provider "component" of the agency is the covered entity if that component conducts standard transactions. See discussion of "health care components" below. As to the data collection activities of a public health agency, the final rule in § 164.512(b) permits a covered entity to disclose protected health information to public health authorities under specified circumstances, and permits public health agencies that are also covered entities to use protected health information for these purposes. See § 164.512(b) for further details.

Comment: A few commenters requested that the Department clarify that device manufacturers are not covered entities. They stated that the proposal did not provide enough guidance in cases where the "manufacturer supplier" has only one part of its business that acts as the "supplier," and additional detail is needed about the relationship of the "supplier component" of the company to the rest of the business. Similarly, another commenter asserted that drug, biologics, and device manufacturers should not be covered entities simply by virtue of their manufacturing activities.

Response: We clarify that if a supplier manufacturer is a Medicare supplier, then it is a health care provider, and it is a covered entity if it conducts standard transactions. Further, we clarify that a manufacturer of supplies related to the health of a particular individual, e.g., prosthetic devices, is a health care provider because the manufacturer is providing "health care" as defined in the rule. However, that manufacturer is a covered entity only if it conducts standard transactions. We do not intend that a manufacturer of supplies that are generic and not customized or otherwise specifically designed for particular individuals, e.g., ace bandages for a hospital, is a health care provider. Such a manufacturer is not providing "health care" as defined in the rule and is therefore not a covered entity. We note that, even if such a manufacturer is a covered entity, it may be an 'indirect treatment provider' under this rule, and thus not subject to all of the rule's requirements.

With regard to a "supplier component," the final rule addresses the status of the unit or unit(s) of a larger entity that constitute a "health care component." See further discussion under § 164.504 of this preamble.

Finally, we clarify that drug, biologics, and device manufacturers are not health care providers simply by virtue of their manufacturing activities. The manufacturer must be providing health care consistent with the final rule's definition in order to be considered a health care provider.

Comment: A few commenters asked that the Department clarify that pharmaceutical manufacturers are not covered entities. It was explained that pharmaceutical manufacturers provide support and guidance to doctors and patients with respect to the proper use of their products, provide free products for doctors to distribute to patients, and operate charitable programs that provide pharmaceutical drugs to patients who cannot afford to buy the drugs they need.

Response: A pharmaceutical manufacturer is only a covered entity if the manufacturer provides "health care" according to the rule's definition and conducts standard transactions. In the above case, a pharmaceutical manufacturer that provides support and guidance to doctors and patients regarding the proper use of their products is providing "health care" for the purposes of this rule, and therefore, is a health care provider to the extent that it provides such services. The pharmaceutical manufacturer that is a health care provider is only a covered entity, however, if it conducts standard transactions. We note that this rule permits a covered entity to disclose protected health information to any person for treatment purposes, without specific authorization from the individual. Therefore, a covered health care provider is permitted to disclose protected health information to a pharmaceutical manufacturer for treatment purposes. Providing free samples to a health care provider does not in itself constitute health care. For further analysis of pharmacy assistance programs, see response to comment on § 164.501, definition of "payment."

Comment: Several commenters asked about the definition of "covered entity" and its application to health care entities within larger organizations.

Response: A detailed discussion of the final rule's organizational requirements and firewall restrictions for "health care components" of larger entities, as well as for affiliated, and other entities is found at the discussion of § 164.504 of this preamble. The following responses to comments provide additional information with respect to particular "component entity" circumstances.

Comment: Several commenters asked that we clarify the definition of covered entity to state that with respect to persons or organizations that provide health care or have created health plans but are primarily engaged in other unrelated businesses, the term "covered entity" encompasses only the health care components of the entity. Similarly, others recommended that only the component of a government agency that is a provider, health plan, or clearinghouse should be considered a covered entity.

Other commenters requested that we revise proposed § 160.102 to apply only to the component of an entity that engages in the transactions specified in the rule. Commenters stated that companies should remain free to employ licensed health care providers and to enter into corporate relationships with provider institutions without fear of being considered to be a covered entity. Another commenter suggested that the regulation not apply to the provider-employee or employer when neither the provider nor the company are a covered entity.

Some commenters specifically argued that the definition of "covered entity" did not contemplate an integrated health care system and one commenter stated that the proposal would disrupt the multi-disciplinary, collaborative approach that many take to health care today by treating all components as separate entities. Commenters, therefore, recommended that the rule treat the integrated entity, not its constituent parts, as the covered entity.

A few commenters asked that the Department further clarify the definition with respect to the unique organizational models and relationships of academic medical centers and their parent universities and the rules that govern information exchange within the institution. One commenter asked whether faculty physicians who are paid by a medical school or faculty practice plan and who are on the medical staff of, but not paid directly by, a hospital are included within the covered entity. Another commenter stated that it appears that only the health center at an academic institution is the covered entity. Uncertainty was also expressed as to whether other components of the institution that might create protected health information only incidentally through the conduct of research would also be covered.

Response: The Department understands that in today's health care industry, the relationships among health care entities and non-health care organizations are highly complex and varied. Accordingly, the final rule gives covered entities some flexibility to segregate or aggregate its operations for purposes of the application of this rule. The new component entity provision can be found at §§ 164.504(b)-(c). In response to the request for clarification on whether the rule would apply to a research component of the covered entity, we point out that if the research activities fall outside of the health care component they would not be subject to the rule. One organization may have one or several "health care component(s)" that each perform one or more of the health care functions of a covered entity, i.e., health care provider, health plan, health care clearinghouse. In addition, the final rule permits covered entities that are affiliated, i.e., share common ownership or control, to designate themselves, or their health care components, together to be a single covered entity for purposes of the rule.

It appears from the comments that there is not a common understanding of the meaning of "integrated delivery system." Arrangements that apply this label to themselves operate and share information many different ways, and may or may not be financially or clinically integrated. In some cases, multiple entities hold themselves out as one enterprise and engage together in clinical or financial activities. In others, separate entities share information but do not provide treatment together or share financial risk. Many health care providers participate in more than one such arrangement.

Therefore, we do not include a separate category of 'covered entity' under this rule for "integrated delivery systems" but instead accommodate the operations of these varied arrangements through the functional provisions of the rule. For example, covered entities that operate as 'organized health care arrangements' as defined in this rule may share protected health information for the operation of such arrangement without becoming business associates of one another. Similarly, the regulation does not require a business associate arrangement when protected health information is shared for purposes of providing treatment. The application of this rule to any particular 'integrated system' will depend on the nature of the common activities the participants in the system perform. When the participants in such an arrangement are 'affiliated' as defined in this rule, they may consider themselves a single covered entity (see § 164. 504).

The arrangements between academic health centers, faculty practice plans, universities, and hospitals are similarly diverse. We cannot describe a blanket rule that covers all such arrangements. The application of this rule will depend on the purposes for which the participants in such arrangements share protected health information, whether some or all participants are under common ownership or control, and similar matters. We note that physicians who have staff privileges at a covered hospital do not become part of that hospital covered entity by virtue of having such privileges.

We reject the recommendation to apply the rule only to components of an entity that engage in the transactions. This would omit as covered entities, for example, the health plan components that do not directly engage in the transactions, including components that engage in important health plan functions such as coverage determinations and quality review. Indeed, we do not believe that the statute permits this result with respect to health plans or health care clearinghouses as a matter of negative implication from section 1172(a)(3). We clarify that only a health care provider must conduct transactions to be a covered entity for purposes of this rule.

We also clarify that health care providers (such as doctors or nurses) who work for a larger organization and do not conduct transactions on their own behalf are workforce members of the covered entity, not covered entities themselves.

Comment: A few commenters asked the Department to clarify the definition to provide that a multi-line insurer that sells insurance coverages, some of which do and others which do not meet the definition of "health plan," is not a covered entity with respect to actions taken in connection with coverages that are not "health plans."

Response: The final rule clarifies that the requirements below apply only to the organizational unit or units of the organization that are the "health care component" of a covered entity, where the "covered functions" are not the primary functions of the entity. Therefore, for a multi-line insurer, the "health care component" is the insurance line(s) that conduct, or support the conduct of, the health care function of the covered entity. Also, it should be noted that excepted benefits, such as life insurance, are not included in the definition of "health plan." (See preamble discussion of § 164.504).

Comment: A commenter questioned whether the Health Care Financing Administration (HCFA) is a covered entity and how HCFA will share data with Medicare managed care organizations. The commenter also questioned why the regulation must apply to Medicaid since the existing Medicaid statute requires that states have privacy standards in place. It was also requested that the Department provide a definition of "health plan" to clarify that state Medicaid Programs are considered as such.

Response: HCFA is a covered entity because it administers Medicare and Medicaid, which are both listed in the statute as health plans. Medicare managed care organizations are also covered entities under this regulation. As noted elsewhere in this preamble, covered entities that jointly administer a health plan, such as Medicare + Choice, are both covered entities, and are not business associates of each other by virtue of such joint administration.

We do not exclude state Medicaid programs. Congress explicitly included the Medicaid program as a covered health plan in the HIPAA statute.

Comment: A commenter asked the Department to provide detailed guidance as to when providers, plans, and clearinghouses become covered entities. The commenter provided the following example: if a provider submits claims only in paper form, and a coordination of benefits (COB) transaction is created due to other insurance coverage, will the original provider need to be notified that the claim is now in electronic form, and that it has become a covered entity? Another commenter voiced concern as to whether physicians who do not conduct electronic transactions would become covered entities if another entity using its records downstream transmits information in connection with a standard transaction on their behalf.

Response: We clarify that health care providers who submit the transactions in standard electronic form, health plans, and health care clearinghouses are covered entities if they meet the respective definitions. Health care providers become subject to the rule if they conduct standard transactions. In the above example, the health care provider would not be a covered entity if the coordination of benefits transaction was generated by a payor.

We also clarify that health care providers who do not submit transactions in standard form become covered by this rule when other entities, such as a billing service or a hospital, transmit standard electronic transactions on the providers' behalf. However, where the downstream transaction is not conducted on behalf of the health care provider, the provider does not become a covered entity due to the downstream transaction.

Comment: Several commenters discussed the relationship between section 1179 of the Act and the privacy regulations. One commenter suggested that HHS retain the statement that a covered entity means "the entities to which part C of title XI of the Act applies." In particular, the commenter observed that section 1179 of the Act provides that part C of title XI of the Act does not apply to financial institutions or to entities acting on behalf of such institutions that are covered by the section 1179 exemption. Thus, under the definition of covered entity, they comment that financial institutions and other entities that come within the scope of the section 1179 exemption are appropriately not covered entities.

Other commenters maintained that section 1179 of the Act means that the Act's privacy requirements do not apply to the request for, or the use or disclosure of, information by a covered entity with respect to payment: (a) for transferring receivables; (b) for auditing; (c) in connection with - (i) a customer dispute; or (ii) an inquiry from or to a customer; (d) in a communication to a customer of the entity regarding the customer's transactions payment card, account, check, or electronic funds transfer; (e) for reporting to consumer reporting agencies; or (f) for complying with: (i) a civil or criminal subpoena; or (ii) a federal or state law regulating the entity. These companies expressed concern that the proposed rule did not include the full text of section 1179 when discussing the list of activities that were exempt from the rule's requirements. Accordingly, they recommended including in the final rule either a full listing of or a reference to section 1179's full list of exemptions. Furthermore, these firms opposed applying the proposed rule's minimum necessary standard for disclosure of protected health information to financial institutions because of section 1179.

These commenters suggest that in light of section 1179, HHS lacks the authority to impose restrictions on financial institutions and other entities when they engage in activities described in that section. One commenter expressed concern that even though proposed § 164.510(i) would have permitted covered entities to disclose certain information to financial institutions for banking and payment processes, it did not state clearly that financial institutions and other entities described in section 1179 are exempt from the rule's requirements.

Response: We interpret section 1179 of the Act to mean that entities engaged in the activities of a financial institution, and those acting on behalf of a financial institution, are not subject to this regulation when they are engaged in authorizing, processing, clearing, settling, billing, transferring, reconciling, or collecting payments for a financial institution. The statutory reference to 12 U.S.C. 3401 indicates that Congress chose to adopt the definition of financial institutions found in the Right to Financial Privacy Act, which defines financial institutions as any office of a bank, savings bank, card issuer, industrial loan company, trust company, savings association, building and loan, homestead association, cooperative bank, credit union, or consumer finance institution located in the United States or one of its Territories. Thus, when we use the term "financial institution" in this regulation, we turn to the definition with which Congress provided us. We interpret this provision to mean that when a financial institution, or its agent on behalf of the financial institution, conducts the activities described in section 1179, the privacy regulation will not govern the activity.

If, however, these activities are performed by a covered entity or by another entity, including a financial institution, on behalf of a covered entity, the activities are subject to this rule. For example, if a bank operates the accounts payable system or other "back office" functions for a covered health care provider, that activity is not described in section 1179. In such instances, because the bank would meet the rule's definition of "business associate," the provider must enter into a business associate contract with the bank before disclosing protected health information pursuant to this relationship. However, if the same provider maintains an account through which he/she cashes checks from patients, no business associate contract would be necessary because the bank's activities are not undertaken for or on behalf of the covered entity, and fall within the scope of section 1179. In part to give effect to section 1179, in this rule we do not consider a financial institution to be acting on behalf of a covered entity when it processes consumer-conducted financial transactions by debit, credit or other payment card, clears checks, initiates or processes electronic funds transfers, or conducts any other activity that directly facilitates or effects the transfer of funds for compensation for health care.

We do not agree with the comment that section 1179 of the Act means that the privacy regulation's requirements cannot apply to the activities listed in that section; rather, it means that the entities expressly mentioned, financial institutions (as defined in the Right to Financial Privacy Act), and their agents that engage in the listed activities for the financial institution are not within the scope of the regulation. Nor do we interpret section 1179 to support an exemption for disclosures to financial institutions from the minimum necessary provisions of this regulation.

Comment: One commenter recommended that HHS include a definition of "entity" in the final rule because HIPAA did not define it. The commenter explained that in a modern health care environment, the organization acting as the health plan or health care provider may involve many interrelated corporate entities and that this could lead to difficulties in determining what "entities" are actually subject to the regulation.

Response: We reject the commenter's suggestion. We believe it is clear in the final rule that the entities subject to the regulation are those listed at § 160.102. However, we acknowledge that how the rule applies to integrated or other complex health systems needs to be addressed; we have done so in § 164.504 and in other provisions, such as those addressing organized health care arrangements.

Comment: The preamble should clarify that self-insured group health and workmen's compensation plans are not covered entities or business partners.

Response: In the preamble to the proposed rule we stated that certain types of insurance entities, such as workers' compensation, would not be covered entities under the rule. We do not change this position in this final rule. The statutory definition of health plan does not include workers' compensation products, and the regulatory definition of the term specifically excludes them. However, HIPAA specifically includes most group health plans within the definition of "health plan."

Comment: A health insurance issuer asserted that health insurers and third party administrators are usually required by employers to submit reports describing the volume, amount, payee, basis for services rendered, types of claims paid and services for which payment was requested on behalf of it covered employees. They recommended that the rule permit the disclosure of protected health information for such purposes.

Response: We agree that health plans should be able to disclose protected health information to employers sponsoring health plans under certain circumstances. Section 164.504(f) explains the conditions under which protected health information may be disclosed to plan sponsors. We believe that this provision gives sponsors access to the information they need, but protects individual's information to the extent possible under our legislative authority.