FTC Overturns ALJ’s LabMD Decision and Reasserts its Role as a Data Security Enforcer

On July 29, 2016, the Federal Trade Commission (“FTC” or “Commission”) reversed an FTC administrative law judge’s (“ALJ”) opinion which had ruled against the FTC, finding that the Commission had failed to show that LabMD’s conduct caused harm to consumers to satisfy requirements under Section 5 of the FTC Act. In reversing the ALJ, the FTC issued a unanimous opinion and final order that concluded, in part, that public exposure of sensitive health information was, in itself, a substantial injury.

The FTC initially filed a complaint against LabMD in 2013 under Section 5 of the FTC Act, alleging that the laboratory company failed to “provide reasonable and appropriate security for personal information on its computer networks,” which the FTC claimed lead to the data of thousands of consumers being leaked. The complaint resulted from two security incidents that occurred several years prior, which the FTC claimed were caused by insufficient data security practices.

In its opinion, the FTC concluded that the ALJ had applied the wrong legal standard for unfairness and went on to find that LabMD’s data security practices constituted an unfair act or practice under Section 5 of the FTC Act. Specifically, the Commission found LabMD’s security practices to be unreasonable – “lacking even basic precautions to protect the sensitive consumer information on its computer system.” The Commission stated that “[a]mong other things, [LabMD] failed to use an intrusion detection system or file integrity monitoring; neglected to monitor traffic coming across its firewalls; provided essentially no data security training to its employees; and never deleted any of the consumer data it had protected.” As a result of these alleged shortcomings in data security, medical and other sensitive information for approximately 9,300 individuals was disclosed without authorization.

Further, and perhaps more importantly, the Commission concluded that “the privacy harm resulting from the unauthorized disclosure of sensitive health or medical information is in and of itself a substantial injury under Section 5(n), and thus that LabMD’s disclosure of the [ ] file itself caused substantial injury.” Thus, contrary to the findings of the ALJ, the Commission essentially held that the mere exposure of sensitive personal and health information into the public domain may be enough to constitute a substantial injury for purposes of Section 5, without any proof that the information was ever misused.

As a result, the FTC ordered LabMD to establish a comprehensive information security program, obtain independent third party assessments of the implementation of the information security program for 20 years, and to notify the individuals who were affected by the unauthorized disclosure of their personal information and inform them about how they can protect themselves from identity theft or related harms.

Takeaway: While LabMD has announced its intention to appeal, the FTC’s decision reinforces its role as an enforcer of data security, even in the health care arena, where OCR has been the traditional enforcer of HIPAA and health care data breaches.   Thus, in addition to OCR, health care entities must continue to monitor FTC enforcement actions to see if there are any additional or conflicting data security standards mandated by both agencies.   Any companies handling PHI should, therefore, continue to ensure that their data security policies and procedures are being implemented and followed in accordance with industry standards. Inadequate security safeguards may contribute to data breaches resulting in government investigations and enforcement actions – not just by OCR, but the FTC as well.

For more information about the FTC’s opinion, contact Gregory M. Fliszar or a member of Cozen O’Connor’s Health Law team.

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New Grower/Processor Regulations Released

On August 18, 2016, the Secretary of Pennsylvania’s Department of Health (“DOH”), Dr. Karen Murphy, announced that the DOH has posted draft temporary regulations (“Regulations”) focusing on the 25 medical marijuana grower/processor permits that will become available under Pennsylvania’s Medical Marijuana Act (“Act”) that was passed last April.

The Regulations state the general application requirements for medical marijuana organizations, which requirements include detailed information about principals and financial backers of such organizations. Medical marijuana organizations include not just grower/processors, but also clinical registrants and dispensaries. The application requirements also contain a clear commitment to foster diversity. The Regulations establish procedures for promoting and ensuring that medical organizations foster diversity through participation of diverse groups in all aspects of the medical organization’s operations. This includes but is not limited to requiring each organization to have a diversity plan. Diverse groups are defined under the Regulations as “disadvantaged business[es], minority-owned business[es], women-owned business[es], service-disabled veteran-owned small business[es] or veteran-owned small business[es] that ha[ve] been certified by a third-party certifying organization.”

The Regulations also contain specific requirements for grower/processor permits. Application forms for permits will be posted on the DOH website in the future. Among the requirements is that a grower/processor notify DOH within six months of being issued an initial permit that it is ready, willing and able to begin production.

The Regulations prohibit executive level employees of the Commonwealth and their immediate family members from being employed by or holding an interest in medical marijuana organizations while employed by the Commonwealth and for one year thereafter.

The Regulations are not final and are open for public comment until August 26, 2016.

Although Pennsylvania joins 23 other states and the District of Columbia to legalize medical marijuana, marijuana is still classified as a Schedule I controlled substance by the U.S. Drug Enforcement Agency, and as such it remains a crime under federal law to grow, sell and/or use marijuana. Any content contained herein is not intended to provide legal advice in connection with the violation of any state or federal law.  Although the Act provides for the legalization of medical marijuana in the Commonwealth of Pennsylvania, one should obtain legal advice with respect to any such compliance issues.

Stay tuned for details regarding an upcoming Cozen O’Connor webinar on these Regulations.

For more information about the Regulations or the Act, contact Chris Raphaely, J. Nicole Martin or another member of Cozen O’Connor’s Cannabis Industry Team.

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OCR Announces New HIPAA Guidance on Ransomware

Posted by Gregory M. Fliszar and J. Nicole Martin on July 13, 2016
HHS, OCR / No Comments

shutterstock_438013921In response to the increasing prevalence of ransomware cyber-attacks by hackers on electronic health information systems in hospitals and medical practices, the Department of Health and Human Services (HHS) Office for Civil Rights (OCR) announced on Monday July 11, 2016 its publication of new HIPAA guidance on ransomware (“Ransomware Guidance”). According to OCR:

Ransomware is a type of malware (or malicious software) that encrypts data with a key known only to the hacker and makes the data inaccessible to authorized users. After the data is encrypted, the hacker demands that authorized users pay a ransom (usually in a cryptocurrency such as Bitcoin to maintain anonymity) in order to obtain a key to decrypt the data.

Notably, the HIPAA Security Rule already requires implementation of security measures to help covered entities and business associates prevent the introduction of malware (e.g., ransomware) into their systems, and to implement policies and procedures to assist in responding to ransomware attacks. The Ransomware Guidance addresses, among other areas, how to implement security measures in order to prevent, mitigate the chances of, or even recover from ransomware attacks. Not surprisingly, conducting a risk analysis (or risk assessment) is at the core of covered entities and business associates implementing security management processes as required by the HIPAA Security Rule. The Ransomware Guidance further notes that maintaining an overall contingency plan, as required by the Security Rule, that includes disaster recovery planning, emergency operations planning and frequent backups of data can also help covered entities and business associates respond to and recover from malware infections, including ransomware attacks.

In addition, the Ransomware Guidance states that ransomware attacks against a covered entity or business associate can be considered a breach under the HIPAA Rules. Specifically, the Ransomware Guidance provides, “[w]hen electronic protected health information (ePHI) is encrypted as the result of a ransomware attack, a breach has occurred because the ePHI encrypted by the ransomware was acquired (i.e. unauthorized individuals have taken possession or control of the information), and thus is a ‘disclosure’ not permitted under the HIPAA Privacy Rule.” Therefore, unless it can be shown that there is a low probability that the PHI involved in the ransomware attack has been compromised based on the factors in the Breach Notification Rule, a breach is presumed to have occurred, which would trigger the applicable breach notification provisions.

Even before OCR’s publication of the Ransomware Guidance, in late June the Secretary of HHS sent a letter (“Letter”) to the attention of chief executive officers at health care entities addressing the threat of ransomware. The Secretary attached interagency guidance to the Letter containing best practices and mitigation strategies integral to combatting ransomware incidents.

Ransomware is immediately disruptive to the day-to-day operation of businesses, as seen by its impact earlier this year on health care systems like MedStar in Washington, D.C. and Hollywood Presbyterian Medical Center in Los Angeles (“HPMC”), resulting for example, in HPMC paying 40 Bitcoins (approximately $17,000) to regain control of its computer system. Although the Ransomware Guidance does not address whether payment or ransom should be paid to regain access to computer systems, the interagency guidance attached to the Letter advises against paying hackers because, among other reasons, paying a ransom doesn’t necessarily guarantee that an entity will regain access to its system. The Ransomware Guidance does recommend that an entity victimized by a ransomware attack contact its local FBI or United States Secret Service field office.

For more information about the Ransomware Guidance contact Gregory M. Fliszar, Ryan Blaney, J. Nicole Martin or a member of Cozen O’Connor’s Health Law team.

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Data Security Plays a Key Role in the Adoption and Success of Precision Medicine

Posted by Ryan Blaney on June 16, 2016
Uncategorized / No Comments

shutterstock_157454741The White House recently released a guidance document for those in the precision medicine community to help ensure that participants’ data and resources remain secure.  The document, titled “Precision Medicine Initiative: Data Security Policy Principles and Framework,” is meant to offer “security policy principles and a framework to guide decision-making by organizations conducting or participating in precision medicine activities” and is the result of a collaborative, interagency process featuring roundtable discussions with various security experts as well as a review of existing data security resources.  Federal PMI agencies already have committed to integrating the framework into all PMI activities.

But the document is meant only to be a guideline – not a one-size-fits-all solution.  It notes that those in the PMI community must constantly strive to use current best practices and should conduct their own “comprehensive risk assessment to identify specific security requirements and establish processes to continuously review and make improvements.”

The guidance emphasizes some overarching principles that anyone dealing with sensitive data should bear in mind when developing and implementing a data security plan:

  • Keep pace with changing technology and new security threats.
  • Tailor your data security plan to your unique circumstances.
  • Be specific – think about your risks and put in writing how you will neutralize them.
  • Have an independent third party review your plan.
  • Without compromising security, be transparent about your plan to build trust among participants.

The document also offers specific suggestions with respect to identity proofing, user credentials and authentication, encryption and physical security, audits to detect anomalous activity, and incident response, among other topics.  The White House also emphasizes the importance of ongoing participant education, as well as role-specific training for those who use PMI data.

On balance, the White House’s message to the PMI community is clear: Think hard about data security, think often about data security, and act vigilantly.

The guidance is available here: www.whitehouse.gov/sites/whitehouse.gov/files/documents/PMI_Security_Principles_Framework_v2.pdf.

For more information you can contact Ryan P. Blaney or another member of Cozen O’Connor’s Health Law team.

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The E-Cigarettes Industry Fights Back Challenging the FDA in Federal Court

e cig

Days after the publication of the Food and Drug Administration’s controversial final rule regarding e-cigarettes (and other nicotine-delivering products), a company called Nicopure Labs LLC filed a lawsuit challenging it in the U.S. District Court for the District of Columbia.  Nicopure seeks to have the rule vacated and declared unlawful, and has requested a preliminary injunction barring enforcement of the rule and prohibiting the FDA from taking any action under the rule pending resolution of the lawsuit.

The final rule, which will take effect on August 8, 2016 absent an injunction, grants the FDA authority to regulate electronic cigarettes and other vaping products and imposes rules on the industry that many insiders fear will leave it decimated.  These rules include banning sales to anyone younger than 18 years of age, requiring extensive warning labels on packing and — most significantly — subjecting all products (even those currently on the market) to the FDA approval process and the FDA’s reporting and recordkeeping requirements.  The price tag associated with the FDA approval process alone likely will pose an insurmountable barrier for the small vape shops, device manufacturers and e-liquid producers that currently drive most of the industry.

Nicopure, a Florida company that distributes battery-powered vaping devices and manufactures and distributes e-liquid, seeks to have the Final Rule vacated on several grounds.  First, Nicopure alleges that the deeming rule defines “tobacco product” so broadly that it constitutes an unreasonable construction of the authority granted under the Administrative Procedure Act (APA).  Additionally, Nicopure contends that the rule should be vacated as arbitrary and capricious in violation of the APA.  Finally, Nicopure brings a constitutional challenge, arguing that the rule violates the First Amendment by prohibiting manufacturers from “making truthful and nonmisleading statements regarding vaping devices, e-liquids and related products” and from “engaging in other forms of protected expression, including by distributing free samples of vaping devices or e-liquids.”

As of this writing, the FDA has not responded to Nicopure’s complaint, but the case (Nicopure Labs, LLC v. Food and Drug Administration, et al.,1:16-cv-00-878) will no doubt be closely watched by the rule’s proponents and detractors alike.

For more information you can contact Ryan Blaney or another member of Cozen O’Connor’s Health Law team.

 

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Medical Marijuana in Pennsylvania: What Physicians Should Know

shutterstock_244196869On April 17, 2016, Governor Wolf signed Act 16 of 2016, making Pennsylvania the 24th state (plus the District of Columbia) to legalize marijuana for medical use. The full text of the act is available here.

Physicians, not surprisingly, will play a vital role in making medical marijuana available to Pennsylvanians, while ensuring patient safety in the process.  This is what they should know about Act 16: Continue reading…

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Cyber-Security Alert: D.C. Area Hospital Chain MedStar Targeted By Hackers

Posted by Dana Petrillo on March 30, 2016
Healthcare, Hospital / No Comments

MedStar, a Washington, D.C.-area hospital chain, became the latest healthcare industry victim of a cyber-attack when hackers breached its systems with a crippling virus. MedStar operates 10 hospitals in the D.C./Baltimore region, employs 30,000 staff, has 6,000 affiliated physicians, and serviced more than 4.5 million patient visits in 2015.

After being paralyzed by the virus, MedStar’s entire IT system for its 10 hospitals was forced to shut down and revert to paper records. The chain’s approximately 35,000 employees do not have access to emails and cannot look up digital patient records in the attack’s wake. The FBI is assisting the chain by investigating the incident. It’s unclear at the moment whether or not the hackers are demanding ransom from MedStar in exchange for removing the virus.

Monday’s cyber-attack at MedStar comes weeks after Hollywood Presbyterian Medical Center in Los Angeles paid hackers 40 bitcoins, or about $17,000, to regain control of its computer system, which hackers had seized with ransomware using an infected email attachment.

Hackers increasingly target healthcare entities as security protections in healthcare often lag behind those in banking and financial sectors. Healthcare information contains a treasure trove of patients’ personal information, and a complete healthcare record is worth at least ten times more on the black market than credit card information. Also, hospitals are considered critical infrastructure that cannot reasonably be closed or incapacitated for any great length of time, and so may be more inclined to bowing to hackers’ demands for ransom.

This latest attack just goes to show the importance of cybersecurity at hospitals and other healthcare entities. In addition to the recent Hollywood Presbyterian Medical Center attack, data breaches and cyber-attacks have also recently occurred at Excellus Blue Cross Blue Shield, UCLA Health System, Premera Blue Cross, and Anthem Inc.

For more information, please contact Dana Petrillo, or another member of Cozen O’Connor’s Health Law team.

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Heads-up! HIPAA Phase Two Audits Begin – Business Associates Included!

Posted by Gregory M. Fliszar, Ryan Blaney, and J. Nicole Martin on March 22, 2016
HHS, OCR / No Comments

The Department of Health and Human Services (HHS) Office of Civil Rights (OCR) finally announced on March 21 that it is ready to begin Phase Two of its HIPAA audit program, which will include business associates. These audits, mandated by HITECH, will primarily be comprised of desk audits, scheduled for completion by the end of December 2016, followed by onsite audits.

OCR explained it will immediately commence Phase Two by verifying, via email, cover entities’ and business associates’ contact information. The OCR is requesting timely responses, so that it can send pre-audit questionnaires out in order to gather data from covered entities and business associates for the creation of potential audit subject pools. The data will relate to the entities’ size, type and operations. Should covered entities and business associates fail to respond to OCR’s requests, they may still be part of OCR’s potential subject pools because OCR plans to compile publically available information about covered entities and business associates that do not respond to its requests.

The first round of desk audits will focus on covered entities, and the second round will focus on business associates. The third round will be onsite audits, with a greater focus on the HIPAA requirements. OCR explains that some covered entities and business associates who are subject to desk audits may also be subject to onsite audits. According to OCR, all covered entities and business associates are eligible to be audited. The audits will focus on identifying compliance with specific privacy and security requirements under HIPAA/HITECH, and OCR will notify auditees by letter, regarding the subject(s) of their specific audits. On the HHS website, OCR provides a sample letter for review. Subsequent to the audits, OCR will review and analyze information from audit final reports.

Importantly, if an audit report uncovers significant noncompliance with HIPAA, it could prompt an investigation by OCR. The areas of interest for OCR in Phase Two will become clearer as the Phase Two audit program gets underway, but for now, we know OCR will focus on assessing covered entities’ and business associates’ HIPAA compliance, identifying best practices and discovering risks and vulnerabilities.

More information about the Phase Two audits is available here, and you can also contact Greg Fliszar, Ryan Blaney, J. Nicole Martin or another member of Cozen O’Connor’s Health Law team.

 

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OCR Announces Two Significant HIPAA Breach Settlements

Posted by Gregory M. Fliszar and J. Nicole Martin on March 21, 2016
HHS, OCR / No Comments

shutterstock_62667685On consecutive days, the Office of Civil Rights (“OCR”) of the Department of Health and Human Services (“HHS”) recently announced two large HIPAA breach settlements. On March 16, 2016, OCR announced that it entered into a Resolution Agreement with North Memorial Health Care of Minnesota for $1.55 million plus a two-year corrective action plan. On March 17, 2016 OCR followed by announcing that Feinstein Institute for Medical research, a New York biomedical research institute, agreed to pay to OCR $3.9 million and enter into a three-year corrective action plan to settle potential HIPAA violations. Both cases resulted from the all too familiar scenario of breaches resulting from stolen, unencrypted laptops.

In the Minnesota hospital breach, the unencrypted laptop containing the PHI of over 9,000 individuals was stolen from the locked car of an employee of a business associate of the hospital. According to the OCR’s investigation, the hospital failed to have a business associate agreement in place with that particular business associate. OCR also alleged that the hospital had not previously performed a risk analysis to identify and address potential risks and vulnerabilities to the ePHI it maintained, accessed or transmitted.

In the New York research corporation breach, OCR alleged that the institution did not have policies and procedures in place, including a policy on encryption and one that addressed use and access of electronic devices (e.g., the removal of the devices from the institution’s facility), nor did it have in place a security management process that sufficiently addressed potential security risks and vulnerabilities to ePHI, namely, its confidentiality, vulnerability or integrity. Notably, the stolen, unencrypted laptop contained the PHI of approximately 13,000 individuals.

As above, both OCR settlements also include multiple year corrective action plans requiring the hospital and research facility to conduct risk analyses/assessments, train their employees, and have HIPAA compliant policies and procedures in place. The Resolution Agreement for the Minnesota hospital breach is available here, and the Resolution Agreement for the New York research institute breach is available here.

Takeaways: The OCR’s 2016 breach enforcement is off to a very strong start with two high dollar settlements. Lessons learned from both breaches include the significance of encrypting electronic devices, conducting and updating on a regular basis security risk assessments and analyses, having adequate safeguards in place to protect PHI, having business associate agreements with all business associates, and having and implementing HIPAA policies and procedures to protect the security and privacy of PHI, including for example, policies related to encryption, authorized access to ePHI/PHI, and removal of electronic devices from facilities.

 

For more information, contact Greg Fliszar, J. Nicole Martin, or a member of Cozen O’Connor’s Health Law team.

 

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Update No. 2: Is This The Year Florida Recognizes Direct Primary Care?

Posted by Marc Goldsand on March 14, 2016
primary care / No Comments

House Bill 37 (“HB 37”), a bill intended to codify and regulate direct primary care in the State of Florida, which had sailed through the Florida House with virtually unanimous support, died in the Senate as the legislative clock ran out on it last week. When the Senate failed to take it up for vote before the session expired on March 11th, it had the effect of killing the bill. The 60-day 2017 legislative session begins on March 14, 2017.

 

For more information, please contact Marc I. Goldsand of Cozen O’Connor at mgoldsand@cozen.com or (786) 871-3935, or a member of Cozen O’Connor’s Health Law team.

 

 

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