Standards for Privacy of Individually Identifiable Health Information. Final Privacy Rule Preamble.. Section 164.534 - Effective Date and Compliance Date

12/28/2000

Section 1175(b)(1)(A) of the Act requires all covered entities other than small health plans to comply with a standard or implementation specification "not later than 24 months after the date on which an initial standard or implementation specification is adopted or established"; section 1175(b)(1)(B) provides that small health plans must comply not later than 36 months after that date. The proposed rule provided, at proposed § 164.524 (which was titled "Effective date"), that a covered entity was required to be in compliance with the proposed subpart E not later than 24 months following the effective date of the rule, except that small health plans were required to be in compliance not later than 36 months following the effective date of the rule.

The final rules retain these dates in the text of Subpart E, but denominate them as "compliance dates," to distinguish the statutory dates from the date on which the rules become effective. The effective date of the final rules is 60 days following publication in the Federal Register.

Meaning of Effective Date

Comment: A number of commenters expressed confusion about the difference between the effective date of the rule and the effective date on which compliance was required (the statutory compliance dates set out at section 1175(b)(1), summarized above).

Response: The Department agrees that the title of proposed § 164.524 was confusing. Similar comments were received on the Transactions Rule. Those comments were addressed by treating the "effective date" of the rule as the date on which adoption takes effect (the "Effective Date" heading at the beginning of the preamble), while the dates provided for by section 1175(b)(1) of the statute were denominated as "compliance dates." These changes are reflected in the definition of "compliance date" in § 160.103 below (initially published as part of the Transactions Rule) and are also reflected at § 164.524 below. Section 164.524 below has also been reorganized to follow the organization of the analogous provisions of the Transactions Rule. The underlying policy, however, remains as proposed.

Extend the Compliance Date

Comment: Some commenters recommended that the compliance date be extended. A number of comments objected that the time frame for compliance with the proposed standards is unrealistically short. It was pointed out that providers and others would have to do the following, among other things, prior to the applicable compliance date: assess their current systems and departments, determine which state laws were preempted and which were not, update and reprogram computer systems, train workers, create and implement the required privacy policies and procedures, and create or update contracts with business partners. One comment also noted that the task of coming into compliance during the same time period with the other regulations being issued under HIPAA would further complicate the task. These comments generally supported an extension of the compliance dates by one or more years. Other comments supported extending the compliance dates on the ground that the complexity of the tasks involved in implementing the regulation would be a heavy financial burden for providers and others, and that they should be given more time to comply, in order to spread the associated capital and workforce costs over a longer period. It was also suggested that there be provision for granting extensions of the compliance date, based on some criteria, such as a good faith effort to comply or that the compliance dates be extended to two years following completion of a "state-by-state preemption analysis" by the Department.

Response: The Secretary acknowledges that covered entities will have to make changes to their policies and procedures during the period between the effective date of the rules below and the applicable compliance dates. The delayed compliance dates which the statute provides for constitute a recognition of the fact changes will be required and are intended to permit covered entities to manage and implement these changes in an orderly fashion. However, because the time frames for compliance with the initial standards are established by statute, the Secretary has no discretion to extend them: compliance is statutorily required "not later than" the applicable compliance date. Nor do we believe that it would be advisable to accomplish this result by delaying the effective date of the final rules beyond 60 days. Since the Transactions Rule is now in effect, it is imperative to bring the privacy protections afforded by the rules below into effect as soon as possible. Retaining the delayed effective date of 60 days, as originally contemplated, will minimize the gap between transactions covered by those rules and not also afforded protection under the rules below.

Phase-in Requirements

Comment: Several comments suggested that the privacy standards be phased in gradually, to ease the manpower and cost burdens of compliance. A couple of equipment manufacturing groups suggested that updating of various types of equipment would be necessary for compliance purposes, and suggested a phased approach to this -- for example, an initial phase consisting of preparation of policies, plans, and risk assessments, a second phase consisting of bringing new equipment into compliance, and a final phase consisting of bringing existing equipment into compliance.

Response: As noted in the preceding response, section 1175(b)(1) does not allow the Secretary discretion to change the time frame within which compliance must be achieved. Congress appears to have intended the phasing in of compliance to occur during the two-year compliance period, not thereafter.

Compliance Gap Vis-à-Vis State Laws and Small Health Plans

Comment: Several comments stated that, as drafted, the preemption provisions would be effective as of the rule's effective date (i.e., 60 days following publication), even though covered entities would not be required to comply with the rules for at least another two years. According to these comments, the "preempted" state laws would not be in effect in the interim, so that the actual privacy protection would decrease during that period. A couple of comments also expressed concern about how the preemption provisions would work, given the one-year difference in applicable compliance dates for small health plans and other covered entities. A state medical society pointed out that this gap would also be very troublesome for providers who deal with both "small health plans" and other health plans. One comment asked what entities that decided to come into compliance early would have to do with respect to conflicting state laws and suggested that, since all parties "need to know with confidence which laws govern at the moment, ... [t]here should be uniform effective dates."

Response: We agree that clarification is needed with respect to the applicability of state laws in the interim between the effective date and the compliance dates. What the comments summarized above appeared to assume is that the preemption provisions of section 1178 operate to broadly and generally invalidate any state law that comes within their ambit. We do not agree that this is the effect of section 1178. Rather, what section 1178 does - where it acts to preempt - is to preempt the state law in question with respect to the actions of covered entities to which the state law applies. Thus, if a provision of state law is preempted by section 1178, covered entities within that state to which the state law applies do not have to comply with it, and must instead comply with the contrary federal standard, requirement, or implementation specification. However, as compliance with the contrary federal standard, requirement, or implementation specification is not required until the applicable compliance date, we do not view the state law in question as meeting the test of being "contrary." That is, since compliance with the federal standard, requirement, or implementation standard is not required prior to the applicable compliance date, it is possible for covered entities to comply with the state law in question. See § 160.202 (definition of "contrary"). Thus, since the state law is not "contrary" to an applicable federal standard, requirement, or implementation specification in the period before which compliance is required, it is not preempted.

Several implications of this analysis should be spelled out. First, one conclusion that flows from this analysis is that preemption is specific to covered entities and does not represent a general invalidation of state law, as suggested by many commenters. Second, because preemption is covered entity-specific, preemption will occur at different times for small health plans than it will occur for all other covered entities. That is, the preemption of a given state law for a covered entity, such as a provider, that is covered by the 24-month compliance date of section 1175(b)(1)(A) will occur 12 months earlier than the preemption of the same state law for a small health plan that is covered by the 36-month compliance date of section 1175(b)(1)(B). Third, the preemption occurs only for covered entities; a state law that is preempted under section 1178(a)(1) would not be preempted for persons and entities to which it applies who are not covered entities. Thus, to the extent covered entities or non-covered entities follow the federal standards on a voluntary basis (i.e., the covered entity prior to the applicable compliance date, the non-covered entity at any time), the state law in question will not be preempted for them.

Small Health Plans

Comment: Several comments, pointing to the "Small Business" discussion in the preamble to the proposed rules, applauded the decision to extend the compliance date to three years for small businesses. It was requested that the final rules clarify that the three year compliance date applies to small doctors offices and other small entities, as well as to small health plans.

Response: We recognize that our discussion in the preamble to the proposed rules may have suggested that more covered entities came within the 36 month compliance date than is in fact the case. Again, this is an area in which we are limited by statute. Under section 1175(b) of the Act, only small health plans have three years to come into compliance with the standards below. Thus, other "small businesses" that are covered entities must comply by the two-year compliance date.

Coordination with the Security Standard

Comment: Several comments suggested that the security standard be issued either with or after the privacy standards. It was argued that both sets of standards deal with protecting health information and will require extensive personnel training and revisions to business practices, so that coordinating them would make sense. An equipment manufacturers group also pointed out that it would be logical for covered entities and their business partners to know what privacy policies are required in purchasing security systems, and that "the policies on privacy are implemented through the security standards rather than having already finalized security standards drive policy."

Response: We agree with these comments, and are making every effort to coordinate the final security standards with the privacy standards below. The privacy standards below are being published ahead of the security standards, which is also responsive to the stated concerns.

Prospective Application

Comment: Several comments raised questions about the application of the rule to individually identifiable information created prior to (1) the effective date of the rule, and (2) the compliance dates of the rule. One provider group suggested that the rule should apply only to information gathered after the effective date of the final rule. A drug manufacturer asked what would be the effect of the rule on research on records compiled before the effective date of the rule.

Response: These comments are addressed in connection with the discussion of § 164.532 above.