HIPAA Audits – Imagine Tax Payments without IRS Audits


We can probably all agree that no one (except possibly accountants) looks forward to an IRS audit. At its most elemental level, there is virtually no upside, a possible downside and a deep feeling that, at best, it will disrupt our lives.

HIPAA audits are essentially no different.

One major difference is that for almost all taxpayers, the idea and the real possibility of an audit existed when they filled out their tax returns. With respect to HIPAA, initially enacted approximately 20 years ago, there was (and, in some cases, still is) some mental block or disconnect regarding audits, penalties, and fines for noncompliance — choose one.

For a little historical background, HIPAA was enacted as a broad Congressional attempt at healthcare reform; it was initially introduced in Congress as the Kennedy-Kassebaum Bill.  The landmark Act was passed in 1996 with two objectives.

  1. One was to ensure that individuals would be able to maintain their health insurance between jobs. This is the Health Insurance Portability part of the Act. Because of its successful implementation, it has become “part of the system” and does not get much coverage.
  2. The second part of the Act is the “Accountability” portion. This section is designed to ensure the security and confidentiality of patient information/data.

Over the years, there have been many additions, clarifications and new portions added to this legislation. All of the changes and details are far beyond the scope of this post; that said, I will list a few.

HIPAA Requirements – Security
Compliance Date – April 20, 2005

The HIPAA Security Rule became effective on April 20, 2005. The Security Rule standards define how we are to ensure the integrity, confidentiality, and availability of our patients’ electronic protected health information (ePHI). The Security Rule requires that we have administrative, physical and technical safeguards for protecting ePHI.  Some (but clearly not all of the ) examples are:

Administrative Safeguards:

  1. Assigning or delegating security responsibility to an individual – Chief Security Officer.
  2. Training workforce members on security principles and organizational policies/procedures.
  3. Terminating workforce members’ access to information systems.
  4. Reporting and responding to security incidents.

Physical Safeguards:  mechanisms to protect electronic systems, equipment and the data they hold from threats, environmental hazards and unauthorized intrusion.

  1. Limiting physical access to information systems containing ePHI (i.e. server rooms).
  2. Preventing inappropriate viewing of ePHI on computers.
  3. Properly removing ePHI from computers before disposing or reusing them.
  4. Backing up and storing ePHI.

Technical Safeguards:  automated processes used to protect data and control access to data.

  1. Providing users with unique identifiers for accessing ePHI.
  2. Accessing ePHI during an emergency.
  3. Encrypting ePHI during transmission.
  4. Automatically logging off users after a determined time period.

Patient Privacy/Security and Technology
As we use technology to improve patient care, we are faced with additional challenges to protect patient information from unauthorized use and disclosure.

In February 2009, the Health Information Technology for Economic and Clinical Health Act (“HITECH”) was enacted as part of the American Recovery and Reinvestment Act of 2009 (“ARRA”). HITECH makes significant changes to HIPAA’s administrative simplification provisions pertaining to privacy and security, including notifying individuals (and in some instances, media outlets) when there has been a privacy/security breach.

Previously, covered entities (healthcare providers, health plans and healthcare clearinghouses) were obligated to mitigate harm caused by unauthorized disclosures of protected health information (“PHI”), but not required to give notice to the individuals whose information was inappropriately disclosed. With HITECH, covered entities and business associates are required to notify individuals when security breaches occur with respect to “unsecured” information. Unsecured information means information not protected through technology or methods designated by the Federal government. In addition, if the breach involves 500 or more individuals, notice to the U.S. Department of Health and Human Services and the media is also required. Depending on the number of people affected by the breach, the time to report the breach changes as well.

While very large healthcare providers have been forthcoming with respect to breach notification, and other providers have been caught when information was breached, we have not yet really had an audit process that would significantly motivate medical providers (especially smaller organizations) to deal with these laws/regulations with the same attention they might give their tax returns. It is only natural that people act based on the consequences of their actions. That is not to say that we should not take the laws seriously, but human nature is still human nature. If I am wrong, the IRS would have no need to audit taxpayers.

To that end, a pilot program was initiated to develop protocols and evaluate HIPAA COMPLIANCE of 115 covered entities. In addition, the methodologies employed in ascertaining compliance were also audited for their effectiveness. In the fourth quarter of 2011, 20 covered entities were selected and received a letter requesting documents, and thereafter on-site reviews began in the first quarter of 2012.

The audit protocol is available at


Subsequently, more entities were audited, and the result of the phase one findings (in this case, findings are not good) showed that approximately 11% of the 115 entities had no findings.  The 11% were comprised of two providers, two clearinghouses and nine health plans.

Additionally, 60% of the findings related to security, which were more than privacy and breach notification findings. This is actually reasonable considering that every entity has security obligations but not every entity has a breach or a breach notification issue. The same rationale applies to privacy issues.

Providers had 65% of the findings and observations although they were only 53% of the entities reviewed.

The frightening part is that the smaller entities had issues with everything.

With respect to security, two-thirds of the entities did not have complete or accurate risk assessments. The other problem areas for providers ran the gamut of issues.

In cases where there were breaches, notification to individuals was the biggest issue.

What we can expect in 2015?

OCR will contact approximately 550 to 800 covered entities for pre-audit surveys; it will use the survey results to select 350 covered entities for an audit. Those entities will have to identify their business associates and provide contact information, at which point OCR will select business associates for audit.

OCR plans to conduct on-site audits as well as desk audits which will be presumably staffed by OCR.

Entities will have two weeks to respond to data requests. All information submitted must be current as of the date of the request. Therefore, after an entity receives a request, it should not then begin to review and update its HIPAA policies and practices. Failure to respond to the request may lead to referral for a compliance review.

It is difficult to know how quickly this will be rolled out in 2015.

There are many entities that should be preparing themselves, as there are many law firms, consultancies and other entities that are gearing up to provide assistance to (virtually) the full vertical of medical coverage that could be subject to this ever-increasing audit regimen.

From a practical perspective, the more audits, the more fines, the more money, the greater expansion of audits.

A word of caution — this article is not meant to offer any legal advice, does not represent the totality of legal/regulatory requirements, the scope of the audits, compliance or remedial measures that entities should take.  In addition there may be state laws and regulations that come into play.

The real concern is that the smaller practices or covered entities may be caught totally off guard. These laws are an important component of the operations of these entities. In sum, it is the new reality.

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