HIPAA Covered Entity Nailed With $300,000+ HIPAA Settlement For Improper PHI Disposal

A Massachusetts dermatology practice’s Health Insurance Portability & Accountability Act (“HIPAA”) $300,000 plus settlement with the Department of Health & Human Services Office for Civil Rights (OCR) reminds health care providers, health plans, health care clearinghouses and their business associates (“Covered Entities”) to use proper practices and safeguards when disposing of protected health information (“PHI”).

Following up on other OCR enforcement involving improper protection and disposal of paper and electronic PHI, the settlement with New England Dermatology P.C., d/b/a New England Dermatology and Laser Center (“NDELC”) OCR announced today (August 23, 2022) resolves charges that NDELC violated the HIPAA Privacy Rules when it placed specimen containers with patient identifying PHI in its parking lot garbage bin.

OCR interprets HIPAA as requiring Covered Entities to appropriate steps to ensure that safeguards are in place when disposing of patient information to keep it from being accessible by the public. ”Improper disposal of protected health information creates an unnecessary risk to patient privacy,” said Acting OCR Director Melanie Fontes Rainer.

On May 11, 2021, NEDLC filed a breach report with OCR that reported empty specimen containers with the PHI on labels were placed in a garbage bin in their parking lot. The containers’ labels included patient names and dates of birth, dates of sample collection, and name of the provider who took the specimen. On March 31, 2021, a third-party security guard found one specimen container bearing a label containing patient names, dates of birth, dates of sample collection, and name of the provider who took the specimen.  During the investigation, NEDLC stated that from February 4, 2011 until March 31, 2021, it regularly discarded specimen containers with an attached label that contained PHI as regular waste, bagged and placed in an exterior dumpster accessible via the parking lot, without alteration to the PHI containing label.

OCR’s New England Regional Office found the practice of disposing of specimen containers with their labels containing PHI violated the HIPAA Privacy Rule including the impermissible use and disclosure of PHI and failure to maintain appropriate safeguards to protect the privacy of PHI.

Under the NEDLC Resolution Agreement negotiated to settle the alleged violations, NEDLC paid $300,640 to OCR and agreed to implement a “robust” corrective action plan that includes two years of  OCR monitoring.  Among other things, the corrective action plan requires NEDLC to:

  • Within 60 days, develop, maintain, and revise, as needed and present for OCR review its written policies and procedures to comply with the physical safeguard and disposal of PHI created, received or maintained by or on behalf of NEDLC and all other HIPAA Privacy, Security and Breach Notification and training protocols to ensure workforce member compliance with these policies; and sanctions for workforce members violating these requirements;
  • Implement the updated policies and procedures within 30 days of receipt of HHS approval;
  • Distribute the policies to existing members of its workforce within 30 days of receipt of HHS approval of the policies and subsequently to new members of the workforce within 30 days of their beginning of service and obtain a signed written or electronic initial compliance certification from all members of the workforce and relevant business associates stating that the workforce members have read, understand, and shall abide by such policies and procedures;
  • Assess, update, and revise, as necessary, the policies and procedures at least annually or as needed, provide the revised policies and procedures to HHS for review and approval, and redistribute to and obtained new compliance certifications from workforce members and business associates within 30 days of HHS approval;
  • If it receives information during the Compliance Term that a workforce member or business associate may have failed to comply with its policies and procedures for safeguarding PHI, promptly investigate and it the investigation finds a violation, notify HHS within 30 days of the violation and corrective action taken;
  • Comply with specified breach investigation and notification requirements;
  • Provide reports certified by a designated leader of the organization its implementation of the corrective action plan, annually and upon the occurrence of certain other events during the two-year monitoring period.

The NEDLC Resolution Agreement is not the first time OCR has nailed a Covered Entity for improper disposal of PHI. In 2015 Cornell Prescription Pharmacy paid OCR $125,000 and implemented a correction action plan to correct alleged HIPAA violations after an OCR investigation of a local news report confirmed unsecured paper documents containing PHI of more than 1600 patients were disposed of in an unlocked, open container on Cornell’s premises. The documents were not shredded and contained identifiable information regarding specific patients. See Cornell Prescription Pharmacy Resolution Agreement. See also $800,000 HIPAA Settlement in Medical Records Dumping Case.

To reduce their own exposure to potential HIPAA liability arising from improper disposal of PHI, covered entities should evaluate the adequacy of the PHI handling, security and disposal policies, procedures, training and compliance for potential weaknesses and take appropriate, timely documented corrective action to tighten their compliance with OCR’s regulations, OCR’s Frequently Asked Questions About the Disposal and other OCR enforcement actions and guidance on PHI disposal.   

Since these evaluations could uncover past or ongoing compliance concerns, Covered Entities and business associates should consider engaging legal counsel experienced with HIPAA compliance to advise and aid the Covered Entity to structure, conduct, evaluate findings and determine and implement any corrective actions that the review reveals as required or advisable within the scope of attorney client privilege.

Effective protection and disposal of PHI requires that Covered Entities recognize and keep track of all PHI in the various phases of its lifecycle in the organization including when it is being disposed or or migrating through various systems. Sanctions for disposal of specimen bottles containing PHI labels should raise the need for awareness of disposal practices for other patient labeled items including identification bracelets, medication containers and labels, meal trays and the plethora of other items containing patient specific information. PHI disposal issues also can arise out of the disposal of files, storage containers, computers, copiers or other devices. For instance, under the Affinity Health Plan, Inc. Resolution Agreement, Affinity Health paid OCR $1,215,780 to settle potential HIPAA Civil Monetary Sanctions after OCR found it exposed the PHI of up to 344,579 individuals by returning photocopiers to a leasing agent without erasing the data contained on the copier hard drives. 

Because HIPAA obligations continue even when a Covered Entity or business associate goes out of business, Covered Entities also need to take appropriate steps to provide for ongoing management, protection and disposal of PHI when they or a business associate ceases business. Thus, in the FileFax Resolution Agreement, for instance the receiver appointed to liquidate the assets of Filefax, Inc. agreed to pay $ 100,000 out of the receivership estate to OCR to settle potential HIPAA violations after Filefax shut its doors during the course of OCR’s investigation into alleged HIPAA violations.

Covered Entities must understand that these responsibilities generally cannot be met merely through adoption of a standard set of policies and procedures from a third-party. The HIPAA Privacy Rule requires all Covered Entities to prepare and document risk assessments and develop and enforce appropriate privacy and security policies and procedures. Security and disposal practices and procedures are among the elements of HIPAA compliance that OCR expects Covered Entities to address in the documented risk assessments the regulations require Covered Entities to prepare and maintain. See $750,000 HIPAA Settlement Underscores the Need for Organization Wide Risk Analysis. As with other HIPAA compliance responsibilities, OCR regulations require that Covered Entities include their documented assessment and decision-making about the adequacy and reasonableness of their PHI protection and destruction practices under HIPAA as part of their overall HIPAA risk assessment plan and practices.

While OCR guidance provides some examples of several practices that a Covered Entity might use that could or could not meet the destruction standards, these examples are not safe harbors. The regulations and guidance expect Covered Entities to conduct a documented review and assessment “of their own circumstances to determine what steps are reasonable to safeguard PHI through disposal and develop and implement policies and procedures to carry out those steps.”  OCR guidance directs that Covered Entities should assess potential risks to patient privacy, as well as consider such issues as the form, type, and amount of PHI to be disposed. Covered entities are responsible for conducting and documenting their analysis as well as their adoption, implementation and enforcement of the resulting policies and procedures.

If circumstances come to light that indicate a breach of the standards in the course of the disposal compliance assessment or otherwise, Covered Entities also promptly should work with legal counsel timely to investigate, determine and provide any required notifications or other corrective action and document their actions to meet applicable HIPAA and other legal obligations and mitigate liability.

Of course, Covered Entities and their leaders always must keep in mind that their responsibilities and potential liability for mishandling PHI could extend well beyond HIPAA. In addition to the civil monetary penalties HIPAA authorizes, mishandling the collection, protection or disposal of PHI or other sensitive data also can trigger other legal exposures. For instance, as HIPAA compliance is part of the Conditions of Participation that Medicare participating Covered Entities and Medicare Advantage Plans must meet to qualify for program participation, noncompliance could trigger program exclusion, False Claims Act or related exposures. Deficiencies in security or destruction of credit card, banking or other PHI that also qualifies as personal financial information could trigger exposure under Federal Trade Commission, state identity theft and privacy or other laws. Public companies and their leaders also may need to evaluate if deficiencies in their security or destruction protocols trigger investor disclosure obligations under Securities and Exchange Commission rules or other federal or state laws. Considering these and other exposures, documented, compliance and defensibility of PHI and other sensitive information use, protection, disclosure and destruction should rank high among the priorities of all Covered Entities and their leaders.

More Information

We hope this update is helpful. For more information about the these or other health or other legal, management or public policy developments, please contact the author Cynthia Marcotte Stamer via e-mail or via telephone at (214) 452 -8297

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About the Author

Recognized by her peers as a Martindale-Hubble “AV-Preeminent” (Top 1%) and “Top Rated Lawyer” with special recognition LexisNexis® Martindale-Hubbell® as “LEGAL LEADER™ Texas Top Rated Lawyer” in Health Care Law and Labor and Employment Law; as among the “Best Lawyers In Dallas” for her work in the fields of “Labor & Employment,” “Tax: ERISA & Employee Benefits,” “Health Care” and “Business and Commercial Law” by D Magazine, Cynthia Marcotte Stamer is a practicing attorney board certified in labor and employment law by the Texas Board of Legal Specialization and management consultant, author, public policy advocate and lecturer widely known for 30+ years of health industry and other management work, public policy leadership and advocacy, coaching, teachings, and publications.

A Fellow in the American College of Employee Benefit Counsel, Vice Chair of the American Bar Association (“ABA”) International Section Life Sciences and Health Committee, Past Chair of the ABA Managed Care & Insurance Interest Group, Scribe for the ABA JCEB Annual Agency Meeting with HHS-OCR, past chair of the the ABA RPTE Employee Benefits & Other Compensation Group and current co-Chair of its Welfare Benefit Committee, Ms. Stamer is most widely recognized for her decades of pragmatic, leading edge work, scholarship and thought leadership on health and managed care industry legal, public policy and operational concerns. 

Ms. Stamer’s work throughout her 30 plus year career has focused heavily on working with health care and managed care, health and other employee benefit plan, insurance and financial services and other public and private organizations and their technology, data, and other service providers and advisors domestically and internationally with legal and operational compliance and risk management, performance and workforce management, regulatory and public policy and other legal and operational concerns. 

For more information about Ms. Stamer or her health industry and other experience and involvements, see www.cynthiastamer.com or contact Ms. Stamer via telephone at (214) 452-8297 or via e-mail here

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