Published by Al Saikali

If you have noticed an increasing number of high profile problems for healthcare organizations with respect to privacy and security issues these last few weeks you’re not alone.  The issues have ranged from employee misuse of protected health information, web-based breaches, photocopier breaches, and theft of stolen computers that compromised millions of records containing unsecured protected health information (PHI).  These issues remind us that healthcare companies face significant risks in collecting, using, storing, and disposing of protected health information.

Pharmacy Hit With $1.4 Million Jury Verdict For Unlawful Disclosure of PHI

An Indiana jury recently awarded more than $1.4 million to an individual whose protected health information was allegedly disclosed unlawfully by a pharmacy.  The pharmacist, who was married to the plaintiff’s ex-boyfriend, allegedly looked up the plaintiff’s prescription history and shared it with the pharmacist’s husband and plaintiff’s ex-boyfriend.  The lawsuit alleged theories of negligent training and negligent supervision.  The pharmacy intends to appeal the judgment.

Health Insurer Fined $1.7 Million For Web-Based Database Breach

Meanwhile, the Department of Health and Human Services (HHS) recently fined a health insurer $1.7 million for engaging in conduct inconsistent with HIPAA’s privacy and security rules following a breach of protected health information belonging to more than 612,000 of its customers. The breach arose from an unsecured web-based database that allowed improper access to protected health information of its customers.

HHS’s investigation determined that the insurer:

(1) did not implement policies and procedures for authorizing access to electronic protected health information (ePHI) maintained in its web-based application database;

(2) did not perform an adequate technical evaluation in response to a software upgrade, an operational change affecting the security of ePHI maintained in its web-based application database that would establish the extent to which the configuration of the software providing authentication safeguards for its web-based application met the requirements of the Security Rule;

(3) did not adequately implement technology to verify that a person or entity seeking access to ePHI maintained in its web-based application database is the one claimed; and,

(4) impermissibly disclosed the ePHI, including the names, dates of birth, addresses, Social Security Numbers, telephone numbers and health information, of approximately 612,000 individuals whose ePHI was maintained in the web-based application database.

Health Plan Fined $1.2 Million For Photocopier Breach

In another example of privacy and security issues causing legal problems for a healthcare organization, HHS settled with a health plan for $1.2 million in a photocopier breach case.  The health plan was informed by CBS Evening News that CBS had purchased a photocopier previously leased by the health plan.  (Of all the companies to get the photocopier after the health plan, it had to be CBS News).  The copier’s hard drive contained protected health information belonging to approximately 345,000 individuals.  HHS fined the health plan for impermissibly disclosing the PHI of those individuals when it returned the photocopiers to the leasing agents without erasing the data contained on the copier hard drives.  HHS was also concerned that the health plan failed to include the existence of PHI on the photocopier hard drives as part of its analysis of risks and vulnerabilities required by HIPAA’s Security Rule, and it failed to implement policies and procedures when returning the photocopiers to its leasing agents.

blogged about photocopier data security issues last year, after the Federal Trade Commission issued a guide for businesses on the topic of photocopier data security.  Another resource I recommend to my clients on the topic of media sanitization is a document prepared by the National Institute of Standards and Technology, issued last fall.

Medical Group Breach May Affect Up To Four Million Patients

Lastly, a medical group recently suffered what is believed to be the second-largest loss of unsecured protected health information reported to HHS since mandatory reporting began in September 2009.  The cause?  Four unencrypted desktop computers were stolen from the company’s administrative office.  The computers contained protected health information of  more than 4 million patients.  As a result, the medical group is mapping all of its computer and software systems to identify where patient information is stored and ensuring it is secured.  The call center set up to handle inquiries following the notification of the patients is receiving approximately 2,000 calls each day.

The Takeaways 

So what are five lessons companies should take away from these developments?

  • Having policies that govern the proper use and disclosure of PHI is a first step, but it is important that companies audit whether their employees are complying with these policies and discipline  employees who don’t comply so that a message is sent to everyone in the company that non-compliance will not be tolerated.
  • As technology is upgraded or changed, it is important that companies continue to evaluate any potential new security risks associated with these changes.  An assumption should not be made that simply because the software is an “upgrade” the security risks remain the same.
  • There are hidden risks, such as photocopier hard drives.  Stay apprised of these potential risks, identify and assess them in your risk assessment (required by HIPAA), then implement administrative and technical safeguards to minimize these risks.  With respect to photocopiers, maybe this means ensuring that the hard drives are wiped clean or written over before they are returned to the leasing agent.
  • Encrypt sensitive information at rest and in motion where feasible, and to the extent it isn’t feasible, build in other technical safeguards to protect the information.
  • Train, train, train – having a fully informed legal department and management doesn’t do much good if employees don’t understand these risks and aren’t trained to avoid them. Do your employees know how seemingly simple and uneventful conduct like photocopying a medical record, leaving a laptop unaccompanied, clicking on a link in an email, or doing a favor to a friend who needs PHI about a loved one, can lead to very significant unintended consequences for your company (and, as a result, them)?  Train them in a way that brings these risks to life, update the training and require it annually, and audit that your employees are undertaking the training.


DISCLAIMER:  The opinions expressed here represent those of Al Saikali and not those of Shook, Hardy & Bacon, LLP or its clients.  Similarly, the opinions expressed by those providing comments are theirs alone, and do not reflect the opinions of Al Saikali, Shook, Hardy & Bacon, or its clients.  All of the data and information provided on this site is for informational purposes only.  It is not legal advice nor should it be relied on as legal advice.


In August of last year, I wrote about HB 300, a Texas law that, beginning September 1, 2012, created employee training and other requirements for any company doing business in Texas that collects, uses, stores, transmits, or comes into possession of protected health information (PHI).  The law’s training provisions required covered entities to train their employees every two years regarding federal and state law related to the protection of PHI, and obtain written acknowledgement of the training.  (The training was required for new employees within 60 days of their hiring).  Companies were required to train their employees in a manner specific to the way in which the individual employee(s) handle PHI.

Recently, however, the Texas legislature passed two bills that amend the requirements of HB 300 in a few significant ways.  Under SB 1609, the role-specific training requirement has changed.  Now, companies may simply train employees about PHI “as necessary and appropriate for the employees to carry out the employees’ duties for the covered entity.”

SB 1609 also changed the frequency of the training from once every two years to whether the company is “affected by a material change in state or federal law concerning protected health information” and in such cases the training must take place “within a reasonable period, but not later than the first anniversary of the date the material change in law takes effect.”  This change could mean more or fewer training sessions of employees depending on the nature of the covered entity’s business, the size of the covered entity, and the location of the covered entity.

SB 1610, which relates to breach notification requirements, is more puzzling.  Until now, Texas law required companies doing business in Texas that suffered data breaches affecting information of individuals residing in other states that did not have data breach notification laws (e.g., Alabama and Kentucky), to notify the individuals in those states of the breach.  SB 1610 removes that requirement and now provides that:  “If the individual whose sensitive personal information was or is reasonably believed to have been acquired by an unauthorized person is a resident of a state that requires a [breached entity] to provide notice of a breach of system security, the notice of the breach of system security required under Subsection (b) [which sets forth Texas’s data breach notification requirements] may be provided under that state’s law or under required under Subsection (b).”

The natural interpretation of this provision is that a Texas company that suffers a breach of customer information where, for example, some of the customers reside in California, Massachusetts, or Connecticut, is not required to comply with those states’ data breach notification laws if the company complies with the standards set forth in Texas’s data breach notification law.  It will be interesting to see whether Texas receives any push back from other state Attorneys General who enforce their states’ data breach notification laws and may not be pleased with a Texas law that instructs companies doing business in Texas that the requirements for breach notification set forth by other states can be ignored if the Texas company meets Texas’s data breach notification requirements.  Nevertheless, the practical effect of this law is not clear because most companies will want to avoid the risk associated with ignoring another state’s data breach notification law.

In short, the legislative changes are a good reminder that companies doing business in Texas that collect, use, store, transmit, or otherwise handle PHI must determine whether they are complying with HB 300 and the more recent legislative acts that were signed into law June 14, 2013 and became effective immediately.


DISCLAIMER:  The opinions expressed here represent those of Al Saikali and not those of Shook, Hardy & Bacon, LLP or its clients.  Similarly, the opinions expressed by those providing comments are theirs alone, and do not reflect the opinions of Al Saikali, Shook, Hardy & Bacon, or its clients.  All of the data and information provided on this site is for informational purposes only.  It is not legal advice nor should it be relied on as legal advice.

Last week, the United States Court of Appeals for the Eleventh Circuit decided Resnick v. AvMed, Inc., No. 11-13694 (11th Cir. Sep. 5, 2012).  The Court’s opinion addresses some important issues regarding an individual’s right to bring a private lawsuit when her personally identifiable information or protected health information is compromised.  In its decision, the Court reversed the dismissal of all but two counts in a class action lawsuit that arose from a data breach suffered by an integrated managed care organization.


AvMed, Inc., an integrated managed care organization was the victim of a theft.  Two of AvMed’s unencrypted laptops containing PHI and PII for approximately 1.2 million current and former AvMed members (Plaintiffs) were stolen.  Plaintiffs alleged that an unknown third party used their information for fraudulent purposes 10 to 14 months after the theft.

The operative complaint alleged the following causes of action:  negligence, breach of implied and express contracts, unjust enrichment, negligence per se, breach of fiduciary duty, and breach of implied covenant of good faith and fair dealing.

The Southern District of Florida dismissed the lawsuit, in part because the complaint failed to allege cognizable injury.  The Eleventh Circuit has now reversed the trial court’s dismissal on all but two counts, holding that Plaintiffs had standing, alleged a cognizable injury, and adequately alleged causation.


The Court first addressed the issue of whether Plaintiffs had standing.  The Court held that Plaintiffs alleged all three elements necessary to meet the standing requirement:

  • Plaintiffs suffered an injury in fact – they were victims of identity theft and suffered monetary damages
  • Plaintiffs’ injuries were “fairly traceable to AvMed’s actions” – Plaintiffs had personal habits of securing their sensitive information yet became the victims of identity theft after the laptops containing their PHI were stolen
  • A favorable resolution of the case in Plaintiffs’ favor could redress their injuries – compensatory damages would redress their injuries.

Cognizable Injury

The Court next dealt with the issue of whether Plaintiffs suffered a cognizable injury. Plaintiffs alleged the following damages: money spent placing alerts with various credit reporting companies, money spent contesting fraudulent charges, money spent purchasing credit monitoring services, lost wages for missing work while filling out police reports, travel related costs, cell phone minutes, postage, and overdrawn amounts in their bank accounts.  The Court held that Plaintiffs’ allegations of monetary loss and financial injury were cognizable injuries under Florida law, though the Court did not address the validity of each one of these damages elements separately.


The Court then addressed causation – whether Plaintiffs had alleged sufficient facts showing that the theft of the AvMed computers caused Plaintiffs’ injuries.  The Court held that Plaintiffs’ allegations were sufficient to show that causation was “plausible”.  Specifically, the Court relied on three allegations:  (1) before the breach, Plaintiffs never had their identities stolen or sensitive information compromised; (2) before the breach, Plaintiffs took substantial precautions to protect themselves from identity theft; and, (3) Plaintiffs became the victims of identity theft for the first time in their lives 10 to 14 months after the laptops containing the PHI were stolen.

A key fact for the Eleventh Circuit was that the sensitive information on the stolen laptops was the same sensitive information used to steal Plaintiffs’ identity.

With respect to unjust enrichment (the one count that did not require causation), Plaintiffs alleged that a portion of Plaintiffs’ monthly premiums went towards AvMed’s data security administrative costs, and AvMed should not be permitted to retain that money because AvMed failed to implement proper security measures.  The Court allowed this count to proceed.

The Dismissed Counts

The Eleventh Circuit did, however, affirm the dismissal of Plaintiffs’ negligence per se and breach of covenant of good faith and fair dealing.  The negligence per se count was based on an allegation that AvMed violated Section 395.3025, Florida Statutes, by disclosing Plaintiffs’ health information without authorization.  The Court held that because AvMed is a managed-care organization and not a hospital, ambulatory surgical center, or mobile surgical facility, it was not subject to the statute.  The Court dismissed the breach of covenant of good faith and fair dealing count because any failure by AvMed to secure Plaintiffs’ data did not result from a “conscious and deliberate act” on AvMed’s part.

The Dissent

The opinion included a vigorous dissent that argued Plaintiffs had failed to allege a plausible basis for finding that AvMed caused Plaintiffs to suffer identity theft.  The dissenting judge observed that an obvious alternative explanation for the identity fraud existed – an unscrupulous third party that possessed the Plaintiffs’ sensitive information might have sold it to identity thieves who opened the fraudulent accounts, or a careless third party might have lost the information that then found its way into the hands of those thieves.

What Are The Takeaways?

First, it is important to note that as of the date of this alert, the opinion is not yet final.  That said, the opinion in its current form could lead to a dramatic uptick in data security litigation within the Eleventh Circuit, as plaintiffs will likely use the opinion to argue that the bar for causation in such cases is low and cognizable damages can be extensive (and arguably speculative).

Companies maintaining personally identifiable information and protected health information about residents in the Southeast United States would be well served to ensure that they are taking proactive steps to implement reasonable data security measures in an effort to avoid a data breach.  In this instance, for example, encryption of the subject laptops might have prevented the subject lawsuits.


DISCLAIMER:  The opinions expressed here represent those of Al Saikali and not those of Shook, Hardy & Bacon, LLP or its clients.  Similarly, the opinions expressed by those providing comments are theirs alone, and do not reflect the opinions of Al Saikali, Shook, Hardy & Bacon, or its clients.  All of the data and information provided on this site is for informational purposes only.  It is not legal advice nor should it be relied on as legal advice.

For years, health care providers have worked hard to comply with the HIPAA Security Rule that requires implementation of administrative, technical, and physical safeguards to secure protected health information (PHI).  This recent study by Jorge Rey and Tyler Quinn at Kaufman, Rossin & Co. analyzes data breaches reported to the U.S. Department of Health and Human services between January 1, 2010, and December 31, 2011, in an effort to help health care providers and their vendors (business associates) develop more effective risk assessments.

What Caused PHI Data Breaches?

The study showed that theft comprised approximately 53% of data breaches, other “unauthorized access” caused approximately 20% of data breaches, loss of data caused approximately 15% of data breaches, while hacking and improper disposal of information comprised a very small number of data breaches (6% each).

Where Was The PHI Compromised?

The study further found that laptops, paper, and “other” media (portable electronic devices, backup tapes, CD’s, and X-ray films) were evenly split as locations of data breaches, with approximately 25% each.  Desktop computers and servers were the next most likely location for PHI breaches (approximately 10% to 15%), while email (approximately 2%) and electronic medical records (1%) were the least frequently breached locations of PHI.  The “other” category grew dramatically from 2010 to 2011, signifying the increased use of portable electronic devices among health care providers.


The study found that, overall, reported data breaches of PHI declined from 2010 to 2011, indicating that “[c]overed entities and business associates seem to have a better understanding of where e-PHI resides, and many have implemented safeguards to protect it.”  The bad news, however, is that the number of individuals whose PHI was compromised nearly doubled from 2010 to 2011.  Importantly, one of every five breaches occurred at or due to a business associate, indicating that health care providers need to do more to assess and monitor their vendors’ security weaknesses.

The study ends with a very helpful “Risk Score Tool” or checklist to help health care providers measure whether they are implementing effective safeguards for the PHI they collect and maintain.  I highly recommend this study to anyone in the health care industry who is interested in security and privacy issues that arise from the collection, storage, and use of PHI.


DISCLAIMER:  The opinions expressed here represent those of Al Saikali and not those of Shook, Hardy & Bacon, LLP or its clients.  Similarly, the opinions expressed by those providing comments are theirs alone, and do not reflect the opinions of Al Saikali, Shook, Hardy & Bacon, or its clients.  All of the data and information provided on this site is for informational purposes only.  It is not legal advice nor should it be relied on as legal advice.