[Federal Register Volume 68, Number 34 (Thursday, February 20, 2003)]
[Rules and Regulations]
[Pages 8333-8381]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-3877]



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Part II





Department of Health and Human Services





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Office of the Secretary



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45 CFR Parts 160, 162, and 164



Health Insurance Reform: Security Standards; Final Rule

Federal Register / Vol. 68, No. 34 / Thursday, February 20, 2003 / 
Rules and Regulations

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Office of the Secretary

45 CFR Parts 160, 162, and 164

[CMS-0049-F]
RIN 0938-AI57


Health Insurance Reform: Security Standards

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Final rule.

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SUMMARY: This final rule adopts standards for the security of 
electronic protected health information to be implemented by health 
plans, health care clearinghouses, and certain health care providers. 
The use of the security standards will improve the Medicare and 
Medicaid programs, and otherFederal health programs and private health 
programs, and the effectiveness and efficiency of the health care 
industry in general by establishing a level of protection for certain 
electronic health information. This final rule implements some of the 
requirements of the Administrative Simplification subtitle of the 
Health Insurance Portability andAccountability Act of 1996 (HIPAA).

DATES: Effective Date: These regulations are effective on April 21, 
2003.
    Compliance Date: Covered entities, with the exception of small 
health plans, must comply with the requirements of this final rule by 
April 21, 2005. Small health plans must comply with the requirements of 
this final rule by April 21, 2006.

FOR FURTHER INFORMATION CONTACT: William Schooler, (410) 786-0089.

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I. Background

    The Department of Health and Human Services (HHS) Medicare Program, 
other Federal agencies operating health plans or providing health care, 
State Medicaid agencies, private health plans, health care providers, 
and health care clearinghouses must assure their customers (for 
example, patients, insured individuals, providers, and health plans) 
that the integrity, confidentiality, and availability of electronic 
protected health information they collect, maintain, use, or transmit 
is protected. The confidentiality of health information is threatened 
not only by the risk of improper access to stored information, but also 
by the risk of interception during electronic transmission of the 
information. The purpose of this final rule is to adopt national 
standards for safeguards to protect the confidentiality, integrity, and 
availability of electronic protected health information. Currently, no 
standard measures exist in the health care industry that address all 
aspects of the security of electronic health information while it is 
being stored or during the exchange of that information between 
entities.
    This final rule adopts standards as required under title II, 
subtitle F, sections 261 through 264 of the Health Insurance 
Portability and Accountability Act of 1996 (HIPAA), Pub. L. 104-191. 
These standards require measures to be taken to secure this information 
while in the custody of entities covered by HIPAA (covered entities) as 
well as in transit between covered entities and from covered entities 
to others.
    The Congress included provisions to address the need for 
safeguarding electronic health information and other administrative 
simplification issues in HIPAA. In subtitle F of title II of that law, 
the Congress added to title XI of the Social Security Act a new part C, 
entitled ``Administrative Simplification'' (hereafter, we refer to the 
Social Security Act as ``the Act''; we refer to the other laws cited in 
this document by their names). The purpose of subtitle F is to improve 
the Medicare program under title XVIII of the Act, the Medicaid program 
under title XIX of the Act, and the efficiency and effectiveness of the 
health care system, by encouraging the development of a health 
information system through the establishment of standards and 
requirements to enable the electronic exchange of certain health 
information.
    Part C of title XI consists of sections 1171 through 1179 of the 
Act. These sections define various terms and impose requirements on 
HHS, health plans, health care clearinghouses, and certain health care 
providers. These statutory sections are discussed in the Transactions 
Rule, at 65 FR 50312, on pages 50312 through 50313, and in the final 
rules adopting Standards for Privacy of Individually Identifiable 
Health Information, published on December 28, 2000 at 65 FR 82462 
(Privacy Rules), on pages 82470 through 82471, and on August 14, 2002 
at 67 FR 53182. The reader is referred to those discussions.
    Section 1173(d) of the Act requires the Secretary of HHS to adopt 
security standards that take into account the technical capabilities of 
record systems used to maintain health information, the costs of 
security measures, the need to train persons who have access to health 
information, the value of audit trails in computerized record systems, 
and the needs and capabilities of small health care providers and rural 
health care providers. Section 1173(d) of the Act also requires that 
the standards ensure that a health care clearinghouse, if part of a 
larger organization, has policies and security procedures that isolate 
the activities of the clearinghouse with respect to processing 
information so as to prevent unauthorized access to health information 
by the larger organization. Section 1173(d) of the Act provides that 
covered entities that maintain or transmit health information are 
required to maintain reasonable and appropriate administrative, 
physical, and technical safeguards to ensure the integrity and 
confidentiality of the information and to protect against any 
reasonably anticipated threats or hazards to the security or integrity 
of the information and unauthorized use or disclosure of the 
information. These safeguards must also otherwise ensure compliance 
with the statute by the officers and employees of the covered entities.

II. General Overview of the Provisions of the Proposed Rule

    On August 12, 1998, we published a proposed rule (63 FR 43242) to 
establish a minimum standard for security of electronic health 
information. We proposed that the standard would require the 
safeguarding of all electronic health information by covered entities. 
The proposed rule also proposed a

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standard for electronic signatures. This final rule adopts only 
security standards. All comments concerning the proposed electronic 
signature standard, responses to these comments, and a final rule for 
electronic signatures will be published at a later date. A detailed 
discussion of the provisions of the August 12, 1998 proposed rule can 
be found at 63 FR 43245 through 43259.
    We originally proposed to add part 142, entitled ``Administrative 
Requirements,'' to title 45 of the Code of Federal Regulations (CFR). 
It has now been determined that this material will reside in subchapter 
C of title 45, consisting of parts 160, 162, and 164. Subpart A of part 
160 contains the general provisions applicable to all the 
Administrative Simplification rules; other subparts of part 160 will 
contain other requirements applicable to all standards. Part 162 
contains the standards for transactions and code sets and will contain 
the identifier standards. Part 164 contains the standards relating to 
privacy and security. Subpart A of part 164 contains general provisions 
applicable to part 164; subpart E contains the privacy standards. 
Subpart C of part 164, which is adopted in this final rule, adopts 
standards for the security of electronic protected health information.

III. Analysis of, and Responses to, Public Comments on the Proposed 
Rule

    We received approximately 2,350 timely public comments on the 
August 12, 1998 proposed rule. The comments came from professional 
associations and societies, health care workers, law firms, health 
insurers, hospitals, and private individuals. We reviewed each 
commenter's letter and grouped related comments. Some comments were 
identical. After associating like comments, we placed them in 
categories based on subject matter or based on the section(s) of the 
regulations affected and then reviewed the comments.
    In this section of the preamble, we summarize the provisions of the 
proposed regulations, summarize the related provisions in this final 
rule, and respond to comments received concerning each area.
    It should be noted that the proposed Security Rule contained 
multiple proposed ``requirements'' and ``implementation features.'' In 
this final rule, we replace the term ``requirement'' with ``standard.'' 
We also replace the phrase ``implementation feature'' with 
``implementation specification.'' We do this to maintain consistency 
with the use of those terms as they appear in the statute, the 
Transactions Rule, and the Privacy Rule. Within the comment and 
response portion of this final rule, for purposes of continuity, 
however, we use ``requirement'' and ``implementation feature'' when we 
are referring specifically to matters from the proposed rule. In all 
other instances, we use ``standard'' and ``implementation 
specification.''
    The proposed rule would require that each covered entity (as now 
described in Sec.  160.102) engaged in the electronic maintenance or 
transmission of health information pertaining to individuals assess 
potential risks and vulnerabilities to such information in its 
possession in electronic form, and develop, implement, and maintain 
appropriate security measures to protect that information. Importantly, 
these measures would be required to be documented and kept current.
    The proposed security standard was based on three basic concepts 
that were derived from the Administrative Simplification provisions of 
HIPAA. First, the standard should be comprehensive and coordinated to 
address all aspects of security. Second, it should be scalable, so that 
it can be effectively implemented by covered entities of all types and 
sizes. Third, it should not be linked to specific technologies, 
allowing covered entities to make use of future technology 
advancements.
    The proposed standard consisted of four categories of requirements 
that a covered entity would have to address in order to safeguard the 
integrity, confidentiality, and availability of its electronic health 
information pertaining to individuals: administrative procedures, 
physical safeguards, technical security services, and technical 
mechanisms. The implementation features described the requirements in 
greater detail when that detail was needed. Within the four categories, 
the requirements and implementation features were presented in 
alphabetical order to convey that no one item was considered to be more 
important than another.
    The four proposed categories of requirements and implementation 
features were depicted in tabular form along with the electronic 
signature standard in a combined matrix located at Addendum 1. We also 
provided a glossary of terms, at Addendum 2, to facilitate a common 
understanding of the matrix entries, and at Addendum 3, we mapped 
available existing industry standards and guidelines to the proposed 
security requirements.

A. General Issues

    The comment process overwhelmingly validated our basic assumptions 
that the entities affected by this regulation are so varied in terms of 
installed technology, size, resources, and relative risk, that it would 
be impossible to dictate a specific solution or set of solutions that 
would be useable by all covered entities. Many commenters also 
supported the concept of technological neutrality, which would afford 
them the flexibility to select appropriate technology solutions and to 
adopt new technology over time.
1. Security Rule and Privacy Rule Distinctions
    As many commenters recognized, security and privacy are 
inextricably linked. The protection of the privacy of information 
depends in large part on the existence of security measures to protect 
that information. It is important that we note several distinct 
differences between the Privacy Rule and the Security Rule.
    The security standards below define administrative, physical, and 
technical safeguards to protect the confidentiality, integrity, and 
availability of electronic protected health information. The standards 
require covered entities to implement basic safeguards to protect 
electronic protected health information from unauthorized access, 
alteration, deletion, and transmission. The Privacy Rule, by contrast, 
sets standards for how protected health information should be 
controlled by setting forth what uses and disclosures are authorized or 
required and what rights patients have with respect to their health 
information.
    As is discussed more fully below, this rule narrows the scope of 
the information to which the safeguards must be applied from that 
proposed in the proposed rule, electronic health information pertaining 
to individuals, to protected health information in electronic form. 
Thus, the scope of information covered in this rule is consistent with 
the Privacy Rule, which addresses privacy protections for ``protected 
health information.'' However, the scope of the Security Rule is more 
limited than that of the Privacy Rule. The Privacy Rule applies to 
protected health information in any form, whereas this rule applies 
only to protected health information in electronic form. It is true 
that, under section 1173(d) of the Act, the Secretary has authority to 
cover ``health information,'' which, by statute, includes information 
in other than electronic form. However, because the proposed rule 
proposed to cover only health information in electronic form, we do not 
include security standards for health information in non-electronic 
form in this final rule.

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    We received a number of comments that pertained to privacy issues. 
These issues were considered in the development of the Privacy Rule and 
many of these comments were addressed in the preamble of the Privacy 
Rule. Therefore, we are referring the reader to that document for a 
discussion of those issues.
2. Level of Detail
    We solicited comments as to the level of detail expressed in the 
required implementation features; that is, we specifically wanted to 
know whether commenters believe the level of detail of any proposed 
requirement went beyond what is necessary or appropriate. We received 
numerous comments expressing the view that the security standards 
should not be overly prescriptive because the speed with which 
technology is evolving could make specific requirements obsolete and 
might in fact deter technological progress. We have accordingly written 
the final rule to frame the standards in terms that are as generic as 
possible and which, generally speaking, may be met through various 
approaches or technologies.
3. Implementation Specifications
    In addition to adopting standards, this rule adopts implementation 
specifications that provide instructions for implementing those 
standards.
    However, in some cases, the standard itself includes all the 
necessary instructions for implementation. In these instances, there 
may be no corresponding implementation specification for the standard 
specifically set forth in the regulations text. In those instances, the 
standards themselves also serve as the implementation specification. In 
other words, in those instances, we are adopting one set of 
instructions as both the standard and the implementation specification. 
The implementation specification would, accordingly, in those instances 
be required.
    In this final rule, we adopt both ``required'' and ``addressable'' 
implementation specifications. We introduce the concept of 
``addressable implementation specifications'' to provide covered 
entities additional flexibility with respect to compliance with the 
security standards.
    In meeting standards that contain addressable implementation 
specifications, a covered entity will ultimately do one of the 
following: (a) Implement one or more of the addressable implementation 
specifications; (b) implement one or more alternative security 
measures; (c) implement a combination of both; or (d) not implement 
either an addressable implementation specification or an alternative 
security measure. In all cases, the covered entity must meet the 
standards, as explained below.
    The entity must decide whether a given addressable implementation 
specification is a reasonable and appropriate security measure to apply 
within its particular security framework. This decision will depend on 
a variety of factors, such as, among others, the entity's risk 
analysis, risk mitigation strategy, what security measures are already 
in place, and the cost of implementation. Based upon this decision the 
following applies:
    (a) If a given addressable implementation specification is 
determined to be reasonable and appropriate, the covered entity must 
implement it.
    (b) If a given addressable implementation specification is 
determined to be an inappropriate and/or unreasonable security measure 
for the covered entity, but the standard cannot be met without 
implementation of an additional security safeguard, the covered entity 
may implement an alternate measure that accomplishes the same end as 
the addressable implementation specification. An entity that meets a 
given standard through alternative measures must document the decision 
not to implement the addressable implementation specification, the 
rationale behind that decision, and the alternative safeguard 
implemented to meet the standard. For example, the addressable 
implementation specification for the integrity standard calls for 
electronic mechanisms to corroborate that data have not been altered or 
destroyed in an unauthorized manner (see 45 CFR 164.312(c)(2)). In a 
small provider's office environment, it might well be unreasonable and 
inappropriate to make electronic copies of the data in question. 
Rather, it might well be more practical and afford a sufficient 
safeguard to make paper copies of the data.
    (c) A covered entity may also decide that a given implementation 
specification is simply not applicable (that is, neither reasonable nor 
appropriate) to its situation and that the standard can be met without 
implementation of an alternative measure in place of the addressable 
implementation specification. In this scenario, the covered entity must 
document the decision not to implement the addressable specification, 
the rationale behind that decision, and how the standard is being met. 
For example, under the information access management standard, an 
access establishment and modification implementation specification 
reads: ``implement policies and procedures that, based upon the 
entity's access authorization policies, establish, document, review, 
and modify a user's right of access to a workstation, transaction, 
program, or process'' (45 CFR 164.308(a)(4)(ii)(c)). It is possible 
that a small practice, with one or more individuals equally responsible 
for establishing and maintaining all automated patient records, will 
not need to establish policies and procedures for granting access to 
that electronic protected health information because the access rights 
are equal for all of the individuals.
    a. Comment: A large number of commenters indicated that mandating 
69 implementation features would result in a regulation that is too 
burdensome, intrusive, and difficult to implement. These commenters 
requested that the implementation features be made optional to meet the 
requirements. A number of other commenters requested that all 
implementation features be removed from the regulation.
    Response: Deleting the implementation specifications would result 
in the standards being too general to understand, apply effectively, 
and enforce consistently. Moreover, a number of implementation 
specifications are so basic that no covered entity could effectively 
protect electronic protected health information without implementing 
them. We selected 13 of these mandatory implementation specifications 
based on (1) the expertise of Federal security experts and generally 
accepted industry practices and, (2) the recommendation for immediate 
implementation of certain technical and organizational practices and 
procedures described in Chapter 6 of For The Record: Protecting 
Electronic Health Information, a 1997 report by the National Research 
Council (NRC). These mandatory implementation specifications are 
referred to as required implementation specifications and are reflected 
in the NRC report's recommendations. Risk Analysis and Risk management 
are found in the NRC recommendation title System Assessment; Sanction 
Policy is required in the Sanctions recommendation; Information system 
Activity Review is discussed in Audit Trails; Response and Reporting 
circumstances.
    In addition, a number of voluntary national and regional 
organizations have been formed to address HIPAA implementation issues 
and to facilitate

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communication among trading partners. These include the Strategic 
National Implementation Process (SNIP) developed under the auspices of 
the Workgroup for Electronic Data Interchange (WEDI), an organization 
named in the HIPAA statute to consult with the Secretary of HHS on 
HIPAA issues. Some of these organizations have developed white papers, 
tools, and recommended best practices addressing a number of HIPAA 
issues, including security. Covered entities may wish to examine these 
products to determine if they are relevant and useful in their own 
implementation efforts. A partial list of these organizations can be 
found at http://www.wedi/snip./org. We believe that these and other 
future industry-developed guidelines and/or models may provide valuable 
assistance to covered entities implementing these standards but must 
caution that HHS does not rate or endorse any such guidelines and/or 
models and the value of its content must be determine by the user.
    b. Comment: Many commenters asked us to develop guidelines and 
models to aid in complying with the Security Rule. Several commenters 
either offered to participate in the development of guidelines and 
models or suggested entities that should be invited to participate.
    Response: We agree that creation of compliance tools and guidelines 
for different business environments could assist covered entities to 
implement the HIPAA Security Rule. We plan to issue guidance documents 
after the publication of this final rule. However, it is critical for 
each covered entity to establish policies and procedures that address 
its own unique risks and circumstances.
    In addition, a number of voluntary national and regional 
organizations have been formed to address HIPAA implementation issues 
and to facilitate communication among trading partners. These include 
the Strategic National Implementation Process (SNIP) developed under 
the auspices of the Workgroup for Electronic Data Interchange (WEDI), 
an organization named in the HIPAA statute to consult with the 
Secretary of HHS on HIPAA issues. Some of these organizations have 
developed white papers, tools, and recommended best practices 
addressing a number of HIPAA issues, including security.
    Covered entities may wish to examine these products to determine if 
they are relevant and useful in their own implementation efforts. A 
partial list of these organizations can be found at http://www.snip.wedi.org. We believe that these and other future industry-
developed guidelines and/or models may provide valuable assistance to 
covered entities implementing these standards but must caution that HHS 
does not rate or endorse any such guidelines and/or models and the 
value of its content must be determined by the user.
4. Examples
    Comment: We received a number of comments that demonstrated 
confusion regarding the purpose of the examples of security solutions 
that were included throughout the proposed rule. Commenters stated that 
they could not, or did not wish to, adopt various security measures 
suggested in examples. Other commenters asked that we include 
additional options within the examples. Some commenters referred 
specifically to the example provided in the proposed rule demonstrating 
how a small or rural provider might comply with the standards. One 
commenter asked for clarification that the examples are not mandatory 
measures that are required to demonstrate compliance, but are merely 
meant as a guide when implementing the security standards. Another 
commenter expressed support for the use of examples to clarify the 
intent of text descriptions.
    Response: We wish to clarify that examples are used only as 
illustrations of possible approaches, and are included to serve as a 
springboard for ideas. The steps that a covered entity will actually 
need to take to comply with these regulations will be dependent upon 
its own particular environment and circumstances and risk assessment. 
The examples do not describe mandatory measures, nor do they represent 
the only, or even the best, way of achieving compliance. The most 
appropriate means of compliance for any covered entity can only be 
determined by that entity assessing its own risks and deciding upon the 
measures that would best mitigate those risks.

B. Applicability (Sec.  164.302)

    We proposed that the security standards would apply to health 
plans, health care clearinghouses, and to health care providers that 
maintain or transmit health information electronically. The proposed 
security standards would apply to all electronic health information 
maintained or transmitted, regardless of format (standard transaction 
or a proprietary format). No distinction would be made between internal 
corporate entity communication or communication external to the 
corporate entity. Electronic transmissions would include transactions 
using all media, even when the information is physically moved from one 
location to another using magnetic tape, disk, or other machine 
readable media. Transmissions over the Internet (wide-open), extranet 
(using Internet technology to link a business with information only 
accessible to collaborating parties), leased lines, dial-up lines, and 
private networks would be included. We proposed that telephone voice 
response and ``faxback'' systems (a request for information made via 
voice using a fax machine and requested information returned via that 
same machine as a fax) would not be included but we solicited comments 
on this proposed exclusion.
    This final rule simplifies the applicability statement greatly. 
Section 164.302 provides that the security standards apply to covered 
entities; the scope of the information covered is specified in Sec.  
164.306 (see the discussion under that section below regarding the 
changes and revisions to the scope of information covered).
    1. Comment: A number of commenters requested clarification of who 
must comply with the standards. The preamble and proposed Sec.  142.102 
and Sec.  142.302 stated: ``Each person described in section 1172(a) of 
the Act who maintains or transmits health information shall maintain 
reasonable and appropriate administrative, technical, and physical 
safeguards.'' Commenters suggested that this statement is in conflict 
with the law, which defines a covered entity as a health plan, a 
clearinghouse, or a health care provider that conducts certain 
transactions electronically. The commentors apparently did not realize 
that section 1172(a) of the Act contains the definition of covered 
entities.
    Response: Section 164.302 below makes the security standards 
applicable to ``covered entities.'' The term ``covered entity'' is 
defined at Sec.  160.103 as one of the following: (1) A health plan; 
(2) a health care clearinghouse; (3) a health care provider who 
transmits any health information in electronic form in connection with 
a transaction covered by part 162 of title 45 of the Code of Federal 
Regulations (CFR). The rationale for the use and the meaning of the 
term ``covered entity'' is discussed in the preamble to the Privacy 
Rule (65 FR 82476 through 82477).
    As that discussion makes clear, the standards only apply to health 
care providers who engage electronically in the transactions for which 
standards have been adopted.

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    2. Comment: Several commenters recommended expansion of 
applicability, either to other specific entities, or to all entities 
involved in health care. Others wanted to know whether the standards 
apply to entities such as employers, public health organizations, 
medical schools, universities, research organizations, plan brokers, or 
non-EDI providers. One commenter asked whether the standards apply to 
State data organizations operating in capacities other than as plans, 
clearinghouses, or providers. Still other commenters stated that it was 
inappropriate to include physicians and other health care professionals 
in the same category as plans and clearinghouses, arguing that 
providers should be subject to different, less burdensome requirements 
because they already protect health information.
    Response: The statute does not cover all health care entities that 
transmit or maintain individually identifiable health information. 
Section 1172(a) of the Act provides that only health plans, health care 
clearinghouses, and certain health care providers (as discussed above) 
are covered. With respect to the comments regarding the difference 
between providers and plans/clearinghouses, we have structured the 
Security Rule to be scalable and flexible enough to allow different 
entities to implement the standards in a manner that is appropriate for 
their circumstances. Regarding the coverage of entities not within the 
jurisdiction of HIPAA, see the Privacy Rule at 82567 through 82571.
    3. Comment: One commenter asked whether the standards would apply 
to research organizations, both to those affiliated with health care 
providers and those that are not.
    Response: Only health plans, health care clearinghouses, and 
certain health care providers are required to comply with the security 
standards. Researchers who are members of a covered entity's work force 
may be covered by the security standards as part of the covered entity. 
See the definition of ``workforce'' at 45 CFR 160.103. Note, however, 
that a covered entity could, under appropriate circumstances, exclude a 
researcher or research division from its health care component or 
components (see Sec.  164.105(a)). Researchers who are not part of the 
covered entity's workforce and are not themselves covered entities are 
not subject to the standards.
    4. Comment: Several commenters stated that internal networks and 
external networks should be treated differently. One commenter asked 
for further clarification of the difference between what needs to be 
secured external to a corporation versus the security of data movement 
within an organization. Another stated that complying with the security 
standards for internal communications may prove difficult and costly to 
monitor and control. In contrast, one commenter stated that the 
existence of requirements should not depend on whether use of 
information is for internal or external purposes.
    Another commenter argued that the regulation goes beyond the intent 
of the law, and while communication of electronic information between 
entities should be covered, the law was never intended to mandate 
changes to an entity's internal automated systems. One commenter 
requested that raw data that are only for the internal use of a 
facility be excluded, provided that reasonable safeguards are in place 
to keep the raw data under the control of the facility.
    Response: Section 1173(d)(2) of the Act states: Each person 
described in section 1172(a) who maintains or transmits health 
information shall maintain reasonable and appropriate administrative, 
technical, and physical safeguards--(A) to ensure the integrity and 
confidentiality of the information; (B) to protect against any 
reasonably anticipated--(i) threats or hazards to the security or 
integrity of the information; and (ii) unauthorized uses or disclosures 
of the information; and (C) otherwise to ensure compliance with this 
part by the officers and employees of such person.
    This language draws no distinction between internal and external 
data movement. Therefore, this final rule covers electronic protected 
health information at rest (that is, in storage) as well as during 
transmission. Appropriate protections must be applied, regardless of 
whether the data are at rest or being transmitted. However, because 
each entity's security needs are unique, the specific protections 
determined appropriate to adequately protect information will vary and 
will be determined by each entity in complying with the standards (see 
the discussion below).
    5. Comment: Several commenters found the following statement in the 
proposed rule (63 FR 43245) at section II.A. confusing and asked for 
clarification: ``With the exception of the security standard, 
transmission within a corporate entity would not be required to comply 
with the standards.''
    Response: In the final Transactions Rule, we revised our approach 
concerning the transaction and code set exemptions, replacing this 
concept with other tests that determine whether a particular 
transaction is subject to those standards (see the discussion in the 
Transactions Rule at 65 FR 50316 through 50318). We also note that the 
Privacy Rule regulates a covered entity's use, as well as disclosure, 
of protected health information.
    6. Comment: One commenter stated that research would be hampered if 
proposed Sec.  142.306(a) applied. The commenter believes that research 
uses of health information should be excluded or the standard should be 
revised to allow appropriate flexibility for research depending on the 
risk to patients or subjects (for example, if the information is 
anonymous, there is no risk, and it would not be necessary to meet the 
security standards).
    Response: If electronic protected health information is de-
identified (as truly anonymous information would be), it is not covered 
by this rule because it is no longer electronic protected health 
information (see 45 CFR 164.502(d) and 164.514(a)). Electronic 
protected health information received, created, or maintained by a 
covered entity, or that is transmitted by covered entities, is covered 
by the security standards and must be protected. To the extent a 
researcher is a covered entity, the researcher must comply with these 
standards with respect to electronic protected health information. 
Otherwise, the conditions for release of such information to 
researchers is governed by the Privacy Rule. See, for example, 45 CFR 
164.512(i), 164.514(e) and 164.502(d). These standards would not apply 
to the researchers as such in the latter circumstances.
    7. Comment: One commenter asked to what extent individual patients 
are subject to the standards. For example, some telemedicine practices 
support the use of diagnostic systems in the patient's home, which can 
be used to conduct tests and send results to a remote physician. In 
other cases, patients may be responsible for the filing of insurance 
claims directly and will need the ability to verify facts, confirm 
receipt of claims, and so on. The commenter asked if it is the intent 
of the rule to include electronic transmission to or from the patient.
    Response: Patients are not covered entities and, thus, are not 
subject to these standards. With respect to transmissions from covered 
entities, covered entities must protect electronic protected health 
information when they transmit that information. See also the 
discussion of encryption in section III.G.

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C. Transition to the Final Rule

    The proposed rule included definitions for a number of terms that 
have now already been promulgated as part of the Transactions Rule or 
the Privacy Rule. Comments related to the definitions of ``code set,'' 
``health care'' clearinghouse,'' ``health plan,'' ``health care 
provider,'' ``small health plan,'' ``standard'' and ``transaction,'' 
are addressed in the Transactions Rule at 65 FR 50319 through 50320. 
Comments concerning the definition of ``individually identifiable 
health information'' are discussed below, but are also addressed in the 
Privacy Rule at 65 FR 82611 through 82613. In addition, a few terms 
were redefined in the final Standards for Privacy of Individually 
Identifiable Health Information (67 FR 53182), issued on August 14, 
2002 (Privacy Modifications). Certain terms that were defined in the 
proposed rule are not used in the final rule because they are no longer 
necessary. Other terms defined in the proposed rule are defined within 
the explanation of the standards in the final rule and are discussed in 
the preamble discussions in Sec.  164.308 through Sec.  164.312.
    Definitions of terms relevant to the security standards now appear 
in the regulations text provisions as indicated below:
    Sec.  160.103: Definitions of the following terms relevant to this 
rule appear in Sec.  160.103: ``business associate,'' ``covered 
entity,'' ``disclosure,'' ``electronic media,'' ``electronic protected 
health information,'' ``health care,'' ``health care clearinghouse,'' 
``health care provider,'' ``health information,'' ``health plan,'' 
``individual,'' ``individually identifiable health information,'' 
``implementation specification,'' ``organized health care 
arrangement,'' ``protected health information,'' ``standard,'' ``use,'' 
and ``workforce.'' These terms were discussed in connection with the 
Transaction and Privacy Rules and with the exception of the terms 
``covered entity'' ``disclosure'' ``electronic protected health 
information,'' ``health information,'' ``individual,'' ``organized 
health care arrangement,'' ``protected health information,'' and 
``use,'' we will not discuss them in this document. We note that the 
definition of those terms are not changed in the final rule.
    Sec.  162.103: We have moved the definition of ``electronic media'' 
at Sec.  162.103 to Sec.  160.103 and have modified it to clarify that 
the term includes storage of information. The term ``electronic media'' 
is used in the definition of ``protected health information.'' Both the 
privacy and security standards apply to information ``at rest'' as well 
as to information being transmitted.
    We note that we have deleted the reference to Sec.  162.103 in 
paragraph (1)(ii) of the definition of ``protected health 
information,'' since both definitions, ``electronic media'' and 
``protected health information,'' have been moved to this section. 
Also, it is unnecessary, because the definitions of Sec.  160.103 apply 
to all of the rule in parts 160, 162, and 164.
    We have also clarified that the physical movement of electronic 
media from place to place is not limited to magnetic tape, disk, or 
compact disk. This clarification removes a restriction as to what is 
considered to be physical electronic media, thereby allowing for future 
technological innovation. We further clarified that transmission of 
information not in electronic form before the transmission, for 
example, paper or voice, is not covered by this definition.
    Sec.  164.103: The following term ``plan sponsor'' now appears in 
the new Sec.  164.103, which consists of definitions of terms common to 
both subpart C and subpart E (the privacy standards). This definition 
was moved, without substantive change, from Sec.  164.501 and has the 
meaning given to it in that section, and comments relating to this 
definition are discussed in connection with that section in the Privacy 
Rule at 65 FR 82607, 82611 through 82613, 82618 through 82622, and 
82629.
    Sec.  164.304: Definitions specifically applicable to the Security 
Rule appear in Sec.  164.304, and these are discussed below. These 
definitions are from, or derived from, currently accepted definitions 
in industry publications, such as, the International Organization for 
Standards (ISO) 7498-2 and the American Society for Testing and 
Materials (ASTM) E1762-95.
    The following terms in Sec.  164.304 are taken from the proposed 
rule text or the glossary in Addendum 2 of the proposed rule (63 FR 
43271), were not commented on, and/or are unchanged or have only minor 
technical changes for purposes of clarification and are not discussed 
below: ``access,'' ``authentication,'' ``availability,'' 
``confidentiality,'' ``encryption,'' ``password,'' and ``security.''
    Sec.  164.314: Four terms were defined in Sec.  164.504(a) of the 
Privacy Rule (``common control,'' ``common ownership,'' ``health care 
component,'' and ``hybrid entity''). Because these terms apply to both 
security and privacy, their definitions have been moved to Sec.  
164.103 without change. Those terms are discussed in the Privacy Rule 
at 65 FR 82502 through 82503 and at 67 FR 53203 through 53207.
1. Covered Entity (Sec.  160.103)
    Comment: One commenter asked if transcription services were covered 
entities. The question arose because transcription is often the first 
electronic or printed source of clinical information. Concern was 
expressed about the application of physical safeguard standards to the 
transcribers working for transcription companies or health care 
providers, either as employees or as independent contractors.
    Another commenter expressed concern that scalability was limited to 
only small providers. The commenter explained that Third Party 
Administrators (TPAs) allow claim processors to work at home. Some TPAs 
have noted that it would be impossible to comply with the security 
standards for home-based claims processors.
    Response: A covered entity's responsibility to implement security 
standards extends to the members of its workforce, whether they work at 
home or on-site. Because a covered entity is responsible for ensuring 
the security of the information in its care, the covered entity must 
include ``at home'' functions in its security process. While an 
independent transcription company or a TPA may not be covered entities, 
they will be a business associate of the covered entity because their 
activities fall under paragraph (1)(i)(a) of the definition of that 
term. For business associate provisions see proposed preamble section 
III.E.8. and Sec.  164.308(b)(1) and Sec.  164.314(c) of this final 
rule.
2. Health Care and Medical Care (Sec.  160.103)
    Comment: One commenter asked whether ``medical care,'' which is 
defined in the proposed rule, and ``health care,'' which is not, are 
synonymous.
    Response: The term ``medical care,'' as used in the proposed rule 
(63 FR 43242), was intended to be synonymous with ``health care.'' The 
term ldquo;medical care'' is not included in this final rule. It is, 
however, included in the definition of ``health plan,'' where its 
meaning is not synonymous with ``health care.'' For a full discussion 
of this issue and its resolution, see the Privacy Rule (65 FR 82578).

[[Page 8340]]

3. Health Information and Individually Identifiable Health Information 
160.103)
    We note that the definitions of ``health information'' and 
``individually identifiable health information'' remain unchanged from 
those published in the Transactions and Privacy Rules.
    a. Comment: A number of commenters asked that the definition of 
``health information'' be expanded to include information collected by 
additional entities. Several commenters wanted the definition to 
include health information collected, maintained, or transmitted by any 
entity, and one commenter suggested the inclusion of aggregated 
information not identifiable to an individual. Several commenters asked 
that eligibility information be excluded from the definition of 
information. Several commenters wanted the definition broadened to 
include demographics.
    Response: Our definition of health information is taken from the 
definition in section 1171(4) of the Act, which provides that health 
information relates to the health or condition of an individual, the 
provision of health care to an individual, or payment for the provision 
of health care to an individual. The statutory definition also 
specifies the entities by which health information is created or 
received. We note that, because ``individually identifiable health 
information'' is a subset of ``health information'' and by statute 
includes demographic information, ``health information'' necessarily 
includes demographic information. We think this is clear as a matter of 
statutory construction and does not require further regulatory change.
    b. Comment: Several commenters asked that we clarify the difference 
between ``health information'' and ``individually identifiable'' and 
``health information pertaining to an individual'' as used in the 
August 12, 1998 proposed rule (63 FR 43242). Additionally, commenters 
asked that we be more consistent in the use of these terms and 
recommended use of the term ``individually identifiable health 
information.''
    Two commenters stated that it is important to distinguish between 
``health information pertaining to an individual'' and ``individually 
identifiable health information,'' as in reporting statistics at 
various levels there will always be a need to bring forth information 
pertaining to an individual.
    One commenter recommended that the standards apply only to 
individually identifiable health information. Another stated that in 
Sec.  142.306(b) of the proposed rule, ``health information pertaining 
to an individual'' should be changed to ``individually identifiable 
health information,'' as nonidentifiable information can be used for 
utilization review and other purposes. As written, the regulation text 
could limit the ability to use data, for example, from a clearinghouse 
for compliance monitoring.
    Response: In general, we agree with these commenters, and note that 
these comments are largely mooted by the decision, reflected in Sec.  
164.306 below and discussed in section III.D.1. of this final rule, to 
cover only electronic protected health information in this final rule.
    c. Comment: Several commenters stated that the definition of 
``individually identifiable health information'' is not in the 
regulations and should be added.
    Response: We note that the definition of ``individually 
identifiable health information'' appears at Sec.  160.103, which 
applies to this final rule.
4. Protected Health Information (Sec.  160.103)
    This term is moved from Sec.  164.501 to Sec.  160.103 because it 
applies to both subparts C (security) and E (privacy). See 67 FR 53192 
through 531936 regarding the definition of ``protected health 
information.''
    Also, the term ``electronic media'' is included in paragraphs 
(1)(i) and (ii) of the definition of ``protected health information,'' 
as specified in this section.
    In addition, we added the definitions of ``covered functions,'' 
``plan sponsor,'' and ``Required by law'' to Sec.  164.103.
5. Breach (Sec.  164.304)
    Comment: One commenter asked that ``breach'' be defined.
    Response: The term ``breach'' has been deleted and therefore not 
defined. Instead, we define the term ``security incident,'' which 
better describes the types of situations we were referring to as 
breaches.
6. Facility (Sec.  164.304)
    This new term has been added as a result of changing the name of 
the ``physical access control'' standard to ``facility access 
control.'' This change was made based on comments indicating that the 
original term was not descriptive. We have defined the term 
``facility'' as the physical premises and interior and exterior of a 
building.
7. Security Incident (Sec.  164.304)
    Comment: We received comments asking that this term be defined.
    Response: This final rule defines ``Security incident'' in Sec.  
164.304 as ``the attempted or successful unauthorized access, use, 
disclosure, modification, or destruction of information or interference 
with system operations in an information system.''
8. System (Sec.  164.304)
    Comment: One commenter asked that ``system'' be defined.
    Response: This final rule defines ``system,'' in the context of an 
information system, in Sec.  164.304 as ``an interconnected set of 
information resources under the same direct management control that 
shares common functionality. A system normally includes hardware, 
software, information, data, applications, communications, and 
people.''
9. Workstation (Sec.  164.304)
    Comment: One commenter expressed concern that the use of the term 
``workstation'' implied limited applicability to fixed devices (such as 
terminals), excluding laptops and other portable devices.
    Response: We have added a definition of the term ``workstation'' to 
clarify that portable devices are also included. This final rule 
defines workstation as ``an electronic computing device, for example, a 
laptop or desktop computer, or any other device that performs similar 
functions, and electronic media stored in its immediate environment.''
10. Definitions Not Adopted
    Several definitions in the proposed regulations text and glossary 
are not adopted as definitions in the final rule: ``participant,'' 
``contingency plan,'' ``risk,'' ``role-based access control,'' and 
``user-based access control.'' The terms ``participant,'' ``role-based 
access control,'' and ``user-based access control'' are not used in 
this final rule and thus are not defined. ``Risk'' is not defined as 
its meaning is generally understood. While we do not define the term, 
we address ``contingency plan'' as a standard in Sec.  164.308(a)(7) 
below.
    a. Comment: We received comments requesting that we define the 
following terms: ``token'' and ``documentation.''
    Response: These terms were defined in Addendum 2 of the proposed 
rule. In this final rule, we do not adopt a definition for ``token'' 
because it is not used in the final rule. ``Documentation'' is 
discussed in Sec.  164.316 below.
    b. Comment: We received several comments that ``small'' and 
``rural'' should be defined as those terms apply

[[Page 8341]]

to providers. We received an equal number of comments stating that 
there is no need to define these terms. One commenter stated that 
definitions for these terms would be necessary only if special 
exemptions existed for small and rural providers. Several commenters 
suggested initiation of a study to determine limitations and potential 
barriers small and rural providers will have in implementing these 
regulations.
    Response: The statute requires that we address the needs of small 
and rural providers. We believe that we have done this through the 
provisions, which require the risk assessment and the response to be 
assessment based on the needs and capabilities of the entity. This 
scalability concept takes the needs of those providers into account and 
eliminates any need to define those terms.
    c. Comment: In the proposed rule, we proposed the following 
definition for the term ``Access control'': ``A method of restricting 
access to resources, allowing only privileged entities access. Types of 
access control include, among others, mandatory access control, 
discretionary access control, time-of-day, classification, and subject-
object separation.'' One commenter believed the proposed definition is 
too restrictive and requested revision of the definition to read: 
``Access control refers to a method of restricting access to resources, 
allowing access to only those entities which have been specifically 
granted the desired access rights.'' Another commenter wanted the 
definition expanded to include partitioned rule-based access control 
(PRBAC).
    Response: We agree with the commenter who suggested that the 
definition as proposed seemed too restrictive. In this case, as in many 
others, a number of commenters believed the examples given in the 
proposed rule provided the only acceptable compliance actions. As 
previously noted, in order to clarify that the examples listed were not 
to be considered all-inclusive, we have generalized the proposed 
requirements in this final rule. In this case, we have also generalized 
the requirements and placed the substantive provisions governing access 
control at Sec.  164.308(a)(4), Sec.  164.310(a)(1), and Sec.  
164.312(a)(1). With respect to PRBAC, the access control standard does 
not exclude this control, and entities should adopt it if appropriate 
to their circumstances.

D. General Rules (Sec.  164.306)

    In the proposed rule, we proposed to cover all health information 
maintained or transmitted in electronic form by a covered entity. We 
proposed to adopt, in Sec.  142.308, a nation-wide security standard 
that would require covered entities to implement security measures that 
would be technology-neutral and scalable, and yet integrate all the 
components of security (administrative procedures, physical safeguards, 
technical security services, and technical security mechanisms) that 
must be in place to preserve health information confidentiality, 
integrity, and availability (three basic elements of security). Since 
no comprehensive, scalable, and technology-neutral set of standards 
currently exists, we proposed to designate a new standard, which would 
define the security requirements to be fulfilled.
    The proposed rule proposed to define the security standard as a set 
of scalable, technology-neutral requirements with implementation 
features that providers, plans, and clearinghouses would have to 
include in their operations to ensure that health information 
pertaining to an individual that is electronically maintained or 
electronically transmitted remains safeguarded. The proposed rule would 
have required that each affected entity assess its own security needs 
and risks and devise, implement, and maintain appropriate security to 
address its own unique security needs. How individual security 
requirements would be satisfied and which technology to use would be 
business decisions that each entity would have to make.
    In the final rule we adopt this basic framework. In Sec.  164.306, 
we set forth general rules pertaining to the security standards. In 
paragraph (a), we describe the general requirements. Paragraph (a) 
generally reflects section 1173(d)(2) of the Act, but makes explicit 
the connection between the security standards and the privacy standards 
(see Sec.  164.306(a)(3)). In Sec.  164.306(a)(1), we provide that the 
security standards apply to all electronic protected health information 
the covered entity creates, receives, maintains, or transmits. In 
paragraph (b)(1), we provide explicitly for the scalability of this 
rule by discussing the flexibility of the standards, and paragraph 
(b)(2) of Sec.  164.306 discusses various factors covered entities must 
consider in complying with the standards.
    The provisions of Sec.  164.306(c) provide the framework for the 
security standards, and establish the requirement that covered entities 
must comply with the standards. The administrative, physical, and 
technical safeguards a covered entity employs must be reasonable and 
appropriate to accomplish the tasks outlined in paragraphs (1) through 
(4) of Sec.  164.306(a). Thus, an entity's risk analysis and risk 
management measures required by Sec.  164.308(a)(1) must be designed to 
lead to the implementation of security measures that will comply with 
Sec.  164.306(a).
    It should be noted that the implementation of reasonable and 
appropriate security measures also supports compliance with the privacy 
standards, just as the lack of adequate security can increase the risk 
of violation of the privacy standards. If, for example, a particular 
safeguard is inadequate because it routinely permits reasonably 
anticipated uses or disclosures of electronic protected health 
information that are not permitted by the Privacy Rule, and that could 
have been prevented by implementation of one or more security measures 
appropriate to the scale of the covered entity, the covered entity 
would not only be violating the Privacy Rule, but would also not be in 
compliance with Sec.  164.306(a)(3) of this rule.
    Paragraph (d) of Sec.  164.306 establishes two types of 
implementation specifications, required and addressable. It provides 
that required implementation specifications must be met. However, with 
respect to implementation specifications that are addressable, Sec.  
164.306(d)(3) specifies that covered entities must assess whether an 
implementation specification is a reasonable and appropriate safeguard 
in its environment, which may include consideration of factors such as 
the size and capability of the organization as well as the risk. If the 
organization determines it is a reasonable and appropriate safeguard, 
it must implement the specification. If an addressable implementation 
specification is determined not to be a reasonable and appropriate 
answer to a covered entity's security needs, the covered entity must do 
one of two things: implement another equivalent measure if reasonable 
and appropriate; or if the standard can otherwise be met, the covered 
entity may choose to not implement the implementation specification or 
any equivalent alternative measure at all. The covered entity must 
document the rationale behind not implementing the implementation 
specification. See the detailed discussion in section II.A.3.
    Paragraph (e) of Sec.  164.306 addresses the requirement for 
covered entities to maintain the security measures

[[Page 8342]]

implemented by reviewing and modifying the measures as needed to 
continue the provision of reasonable and appropriate protections, for 
example, as technology moves forward, and as new threats or 
vulnerabilities are discovered.
1. Scope of Health Information Covered by the Rule (Sec.  164.306(a))
    We proposed to cover health information maintained or transmitted 
by a covered entity in electronic form. We have modified, by narrowing, 
the scope of health information to be safeguarded under this rule from 
that which was proposed. The statute requires the privacy standards to 
cover individually identifiable health information. The Privacy Rule 
covers all individually identifiable information except for: (1) 
Education records covered by the Family and Educational Rights and 
Privacy Act (FERPA); (2) records described in 20 U.S.C. 
1232g(a)(4)(B)(iv); and (3) employment records. (see the Privacy Rule 
at 65 FR 82496. See also 67 FR 53191 through 53193). The scope of 
information covered in the Privacy Rule is referred to as ``protected 
health information.'' Based upon the comments we received, we align the 
requirements of the Security and Privacy Rules with regard to the scope 
of information covered, in order to eliminate confusion and ease 
implementation. Thus, this final rule requires protection of the same 
scope of information as that covered by the Privacy Rule, except that 
it only covers that information if it is in electronic form.
    We note that standards for the security of all health information 
or protected health information in nonelectronic form may be proposed 
at a later date.
    a. Comment: One commenter stated that the rule should apply to 
aggregate information that is not identifiable to an individual. In 
contrast, another commenter asked that health information used for 
statistical analysis be exempted if the covered entity may reasonably 
expect that the removed information cannot be used to re-identify an 
individual.
    Response: As a general proposition, any electronic protected health 
information received, created, maintained, or transmitted by a covered 
entity is covered by this final rule. We agree with the second 
commenter that certain information, from which identifiers have been 
stripped, does not come within the purview of this final rule. 
Information that is de-identified, as defined in the Privacy Rule at 
Sec.  164.502(d) and Sec.  164.514(a), is not ``individually 
identifiable'' within the meaning of these rules and, thus, does not 
come within the definition of ``protected health information.'' It 
accordingly is not covered by this final rule. For a full discussion of 
the issues of de-identification and re-identification of individually 
identifiable health information see 65 FR 82499 and 82708 through 82712 
and 67 FR 53232 through 53234.
    b. Comment: Several commenters asked whether systems that determine 
eligibility of clients for insurance coverage under broad categories 
such as medical coverage groups are considered health information. One 
commenter asked that we specifically exclude eligibility information 
from the standards.
    Response: We cannot accept the latter suggestion. Eligibility 
information will typically be individually identifiable, and much 
eligibility information will also contain health information. If the 
information is ``individually identifiable'' and is ``health 
information,'' (with three very specific exceptions noted in the 
general discussion above) and it is in electronic form, it is covered 
by the security standards if maintained or transmitted by a covered 
entity.
    c. Comment: Several commenters requested clarification as to 
whether the standards apply to identifiable health information in paper 
form. Some commenters believed the rule should be applicable to paper; 
others argued that it should apply to all confidential, identifiable 
health information.
    Response: While we agree that protected health information in paper 
or other form also should have appropriate security protections, the 
proposed rule proposing the security standards proposed to apply those 
standards to health information in electronic form only. We are, 
accordingly, not extending the scope in this final rule.
    We may establish standards to secure protected health information 
in other media in a future rule, in accordance with our statutory 
authority to do so. See discussion, supra, responding to a comment on 
the definition of ``health information'' and ``individually 
identifiable health information.''
    d. Comment: The proposed rule would have excluded ``telephone voice 
response'' and ``faxback'' systems from the security standards, and we 
specifically solicited comments on that issue. A number of commenters 
agreed that telephone voice response and faxback should be excluded 
from the regulation, suggesting that the privacy standards rather than 
the security standards should apply. Others wanted those systems 
included, on the grounds that inclusion is necessary for consistency 
and in keeping with the intent of the Act. Still others specifically 
wanted personal computer-fax transmissions included. One commenter 
asked for clarification of when we would cover faxes, and another 
commenter asked why we were excluding them. Several commenters 
suggested that the other security requirements provide for adequate 
security of these systems.
    Response: In light of these comments, we have decided that 
telephone voice response and ``faxback'' (that is, a request for 
information from a computer made via voice or telephone keypad input 
with the requested information returned as a fax) systems fall under 
this rule because they are used as input and output devices for 
computers, not because they have computers in them. Excluding these 
features would provide a huge loophole in any system concerned with 
security of the information contained and/or processed therein. It 
should be noted that employment of telephone voice response and/or 
faxback systems will generally require security protection by only one 
of the parties involved, and not the other. Information being 
transmitted via a telephone (either by voice or a DTMP tone pad) is not 
in electronic form (as defined in the first paragraph of the definition 
of ``electronic media'') before transmission and therefore is not 
subject to the Security Rule. Information being returned via a 
telephone voice response system in response to a telephone request is 
data that is already in electronic form and stored in a computer. This 
latter transmission does require protection under the Security Rule.
    Although most recently made electronic devices contain 
microprocessors (a form of computer) controlled by firmware (an 
unchangeable form of computer program), we intend the term ``computer'' 
to include only software programmable computers, for example, personal 
computers, minicomputers, and mainframes. Copy machines, fax machines, 
and telephones, even those that contain memory and can produce multiple 
copies for multiple people are not intended to be included in the term 
``computer.'' Therefore, because ``paper-to-paper'' faxes, person-to-
person telephone calls, video teleconferencing, or messages left on 
voice-mail were not in electronic form before the transmission, those 
activities are not covered by this rule. See also the definition of 
``electronic media'' at Sec.  160.103.

[[Page 8343]]

    We note that this guidance differs from the guidance regarding the 
applicability of the Transactions Rule to faxback and voice response 
systems. HHS has stated that faxback and voice response systems are not 
required to follow the standards mandated in the Transactions Rule. 
This new guidance refers only to this rule.
    e. Comment: One commenter asked whether there is a need to 
implement special security practices to address the shipping and 
receiving of health information and asked that we more fully explain 
our expectations and solutions in the final rules.
    Response: If the handling of electronic protected health 
information involves shipping and receiving, appropriate measures must 
be taken to protect the information. However, specific solutions are 
not provided within this rule, as discussed in section III.A.3 of this 
final rule. The device and media controls standard under Sec.  
164.310(d)(1) addresses this situation.
    f. Comment: One commenter wanted the ``HTML'' statement reworded to 
eliminate a specific exemption for HTML from the regulation.
    Response: The Transactions Rule did not adopt the proposed 
exemption for HTML. The use of HTML or any other electronic protocol is 
not exempt from the security standards. Generally, if protected health 
information is contained in any form of electronic transmission, it 
must be appropriately safeguarded.
    g. Comment: One commenter asked to what degree ``family history'' 
is considered health information under this rule and what protections 
apply to family members included in a patient's family history.
    Response: Any health-related ``family history'' contained in a 
patient's record that identifies a patient, including a person other 
than the patient, is individually identifiable health information and, 
to the extent it is also electronic protected health information, must 
be afforded the security protections.
    h. Comment: Two commenters asked that the rule prohibit re-
identification of de-identified data. In contrast, several commenters 
asked that we identify a minimum list or threshold of specific re-
identification data elements (for example, name, city, and ZIP) that 
would fall under this final rule so that, for example, the rule would 
not affect numerous systems, for example, network adequacy and 
population-based clinical analysis databases. One commenter asked that 
we establish a means to use re-identified information if the entity 
already has access to the information or is authorized to have access.
    Response: The issue of re-identification is addressed in the 
Privacy Rule at Sec.  164.502(d) and Sec.  164.514(c). The reader is 
referred to those sections and the related discussion in the preamble 
to the Privacy Rule (65 FR 82712) and the preamble to the Privacy 
Modifications (67 FR 53232 through 53234) for a full discussion of the 
issues of re-identification. We note that once information in the 
possession (or constructive possession) of a covered entity is re-
identified and meets the definition of electronic protected health 
information, the security standards apply.
2. Technology-Neutral Standards
    Comment: Many commenters expressed support for our efforts to 
develop standards for the security of health information. A number of 
comments were made in support of the technology-neutral approach of the 
proposed rule. For example, one commenter stated, ``By avoiding 
prescription of the specific technologies health care entities should 
use to meet the law's requirements, you are opening the door for 
industry to apply innovation. Technologies that don't currently exist 
or are impractical today could, in the near future, enhance health 
information security while minimizing the overall cost.'' Several other 
commenters stated that the requirements should be general enough to 
withstand changes to technology without becoming obsolete. One 
commenter anticipates no problems with meeting the standards.
    In contrast, one commenter suggested that whenever possible, 
specific technology recommendations should provide sufficient detail to 
promote systems interoperability and decrease the tendency toward 
adoption of multiple divergent standards. Several commenters stated 
that by letting each organization determine its own rules, the rules 
impose procedural burdens without any substantive benefit to security.
    Response: The overwhelming majority of comments supported our 
position. We do not believe it is appropriate to make the standards 
technology-specific because technology is simply moving too fast, for 
example, the increased use and sophistication of internet-enabled hand 
held devices. We believe that the implementation of these rules will 
promote the security of electronic protected health information by (1) 
providing integrity and confidentiality; (2) allowing only authorized 
individuals access to that information; and (3) ensuring its 
availability to those authorized to access the information. The 
standards do not allow organizations to make their own rules, only 
their own technology choices.
3. Miscellaneous Comments
    a. Comment: Some commenters stated that the requirements and 
implementation features set out in the proposed rule were not specific 
enough to be considered standards, and that the actual standards are 
delegated to the discretion of the covered entities, at the expense of 
medical record privacy. Several commenters stated that it was 
inappropriate to balance the interests of those seeking to use 
identifiable medical information without patient consent against the 
interest of patients. Several other commenters believe that allowing 
covered entities to make their own decisions about the adequacy and 
balance of security measures undermined patient confidentiality 
interests, and stated that the proposed rule did not appear to 
adequately consider patient concerns and viewpoints.
    Response: Again, the overwhelming majority of commenters supported 
our approach. This final rule sets forth requirements with which 
covered entities must comply and labels those requirements as standards 
and implementation specifications. Adequate implementation of this 
final rule by covered entities will ensure that the electronic 
protected health information in a covered entity's care will be as 
protected as is feasible for that entity.
    We disagree that covered entities are given complete discretion to 
determine their security polices under this rule, resulting in effect, 
in no standards. While cost is one factor a covered identity may 
consider in determining whether to implement a particular 
implementation specification, there is nonetheless a clear requirement 
that adequate security measures be implemented, see 45 CFR 164.306(b). 
Cost is not meant to free covered entities from this responsibility.
    b. Comment: Several commenters requested we withdraw the 
regulations, citing resource shortages due to Y2K preparation, upcoming 
privacy legislation, and/or the ``excessive micro-management'' 
contained in the rules. One commenter stated that, to insurers, these 
rules were onerous, not necessary, and not justified as cost-effective, 
as they already have effective practices for computer security and are 
subject to rigorous State laws for the safeguarding of health 
information. Another

[[Page 8344]]

commenter stated that these rules would adversely affect a provider's 
practice environment.
    Response: The HIPAA statute requires us to promulgate a rule 
adopting security standards for health information. Resource concerns 
due to Y2K should no longer be an issue. Covered entities will have 2 
years (or, in the case of small health plans, 3 years) from the 
adoption of this final rule in which to comply. Concerns relative to 
effective and compliance dates and the Privacy Rule are discussed under 
Sec.  164.318, Compliance dates for initial implementation, below and 
at 65 FR 82751 through 82752.
    We disagree that these standards will adversely affect a provider's 
practice environment. The scalability of the standards allows each 
covered entity to implement security protections that are appropriate 
to its specific needs, risks, and environments. These protections are 
necessary to maintain the confidentiality, integrity, and availability 
of patient data. A covered entity that lacks adequate protections risks 
inadvertent disclosure of patient data, with resulting loss of public 
trust, and potential legal action. For example, a covered entity with 
poor facility access controls and procedures would be susceptible to 
hacking of its databases. A provider with appropriate security 
protections already in place would only need to ensure that the 
protections are documented and are reassessed periodically to ensure 
that they continue to be appropriate and are actually being 
implemented. Our decision to classify many implementation 
specifications as addressable, rather than mandatory, provides even 
more flexibility to covered entities to develop cost-effective 
solutions. We believe that insurers who already have effective security 
programs in place will have met many of the requirements of this 
regulation.
    c. Comment: One commenter believes the rule is arbitrary and 
capricious in its requirements without any justification that they will 
significantly improve the security of medical records and with the 
likelihood that their implementation may actually increase the 
vulnerability of the data. The commenter noted that the data backup 
requirements increase access to data and that security awareness 
training provides more information to employees.
    Response: The standards are based on generally accepted security 
procedures, existing industry standards and guidelines, and 
recommendations contained in the National Research Council's 1997 
report For The Record: Protecting Electronic Health Information, 
Chapter 6. We also consulted extensively with experts in the field of 
security throughout the health care industry. The standards are 
consistent with generally accepted security principles and practices 
that are already in widespread use.
    Data backup need not result in increased access to that data. 
Backups should be stored in a secure location with controlled access. 
The appropriate secure location and access control will vary, based 
upon the security needs of the covered entity. For example, a procedure 
as simple as locking backup diskettes in a safe place and restricting 
who has access to the key may be suitable for one entity, whereas 
another may need to store backed-up information off-site in a secure 
computer facility. The information provided in security awareness 
training heightens awareness of security anomalies and helps to prevent 
security incidents.
    d. Comment: Several commenters suggested that the proposed rule 
appears to reflect the Medicare program's perspective on security risks 
and solutions, and that it should be noted that not all industry 
segments share all the same risks as Medicare. One commenter stated 
that as future proposed rules are drafted, we should solicit input from 
those most significantly affected, for example, providers, plans, and 
clearinghouses.
    Others stated that Medicaid agencies were not sufficiently involved 
in the discussions and debate. Still another stated that States would 
be unable to perform some basic business functions if all the standards 
are not designed to meet their needs.
    Response: We believe that the standards are consistent with common 
industry practices and equitable, and that there has been adequate 
consultation with interested parties in the development of the 
standards. These standards are the result of an intensive process of 
public consultation. We consulted with the National Uniform Billing 
Committee, the National Uniform Claim Committee, the American Dental 
Association, and the Workgroup for Electronic Data Interchange, in the 
course of developing the proposed rule. Those organizations were 
specifically named in the Act to advise the Secretary, and their 
membership is drawn from the full spectrum of industry segments. In 
addition, the National Committee on Vital and Health Statistics 
(NCVHS), an independent advisory group to the Secretary, held numerous 
public hearings to obtain the views of interested parties. Again, many 
segments of the health care industry, including provider groups, health 
plans, clearinghouses, vendors, and government programs participated 
actively. The NCVHS developed recommendations to the Secretary, which 
were relied upon as we developed the proposed rule. Finally, we note 
that the opportunity to comment was available to all during the public 
comment period.
    e. Comment: One commenter stated that there is a need to ensure the 
confidentiality of risk analysis information that may contain sensitive 
information.
    Response: The information included in a risk analysis would not be 
subject to the security standards if it does not include electronic 
protected health information. We agree that risk analysis data could 
contain sensitive information, just as other business information can 
be sensitive. Covered entities may wish to develop their own business 
rules regarding access to and protections for risk analysis data.
    f. Comment: One commenter expressed concern over the statement in 
the preamble of the proposed rule (63 FR 43250) that read: ``No one 
item is considered to be more important than another.'' The commenter 
suggested that security management should be viewed as most critical 
and perhaps what forms the foundation for all other security actions.
    Response: The majority of comments received on this subject 
requested that we prioritize the standards. In response, we have 
regrouped the standards and implementation specifications in what we 
believe is a logical order within each of three categories: 
``Administrative safeguards,'' ``Physical safeguards,'' and ``Technical 
safeguards.'' In this final rule, we order the standards in such a way 
that the ``Security management process'' is listed first under the 
``Administrative safeguards'' section, as we believe this forms the 
foundation on which all of the other standards depend. The 
determination of the specific security measures to be implemented to 
comply with the standards will, in large part, be dependent upon 
completion of the implementation specifications within the security 
management process standard (see Sec.  164.308(a)(1)). We emphasize, 
however, that an entity implementing these standards may choose to 
implement them in any order, as long as the standards are met.
    g. Comment: One commenter stated that there is a need for 
requirements concerning organizational practices (for example, 
education, training, and security and confidentiality policies), as

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well as technical practices and procedures.
    Response: We agree. Section 164.308 of this final rule describes 
administrative safeguards that address these topics. Section 164.308 
requires covered entities to implement standards and required 
implementation specifications, as well as consider and implement, when 
appropriate and reasonable, addressable implementation specifications. 
For example, the security management process standard requires 
implementation of a risk analysis, risk management, a sanction policy, 
and an information system activity review. The information access 
management standard requires consideration, and implementation where 
appropriate and reasonable, of access authorization and access 
establishment and modification policies and procedures. Other areas 
addressed are assigned security responsibility, workforce security, 
security awareness and training, security incident procedures, 
contingency planning, business associate contracts, and evaluation.
    h. Comment: One commenter stated that internal and external 
security requirements should be separated and dealt with independently.
    Response: The presentation of the standards within this final rule 
could have been structured in numerous ways, including by addressing 
separate internal and external security standards. We chose the current 
structure as we considered it a logical breakout for purposes of 
display within this final rule. Under our structure a covered entity 
may apply a given standard to internal activities and to external 
activities. Had we displayed separately the standards for internal 
security and the standards for external security, we would have needed 
to describe a number of the standards twice, as many apply to both 
internal and external security. However, a given entity may address the 
standards in whatever order it chooses, as long as the standards are 
met.
    i. Comment: Two commenters stated that the standards identified in 
Addendum 3 of the proposed rule may not all have matured to 
implementation readiness.
    Response: Addendum 3 of the proposed rule cross-referred individual 
requirements on the matrix to existing industry standards of varying 
levels of maturity. Addendum 3 was intended to show what we evaluated 
in searching for existing industry standards that could be adopted on a 
national level. No one standard was found to be comprehensive enough to 
be adopted, and none were proposed as the standards to be met under the 
Security Rule.
    j. Comment: One commenter suggested we include a revised preamble 
in the final publication. Another questioned how clarification of 
points in the preamble will be handled if the preamble is not part of 
the final regulation.
    Response: Preambles to proposed rules are not republished in the 
final rule. The preamble in this final rule contains summaries of the 
information presented in the preamble of the proposed rule, summaries 
of the comments received during the public comment period, and 
responses to questions and concerns raised in those comments and a 
summary of changes made. Additional clarification will be provided by 
HHS on an ongoing basis through written documents and postings on HHS's 
websites.
    k. Comment: One commenter asked that we clarify that no third party 
can require implementation of more security features than are required 
in the final rule, for example, a third party could not require 
encryption but may choose to accept it if the other party so desires.
    Response: The security standards establish a minimum level of 
security to be met by covered entities. It is not our intent to limit 
the level of security that may be agreed to between trading partners or 
others above this floor.
    l. Comment: One commenter asked how privacy legislation would 
affect these rules. The commenter inquired whether covered entities 
will have to reassess and revise actions already taken in the spirit of 
compliance with the security regulations.
    Response: We cannot predict if or how future legislation may affect 
the rules below. At present, the privacy standards at subpart E of 42 
CFR part 164 have been adopted, and this final rule is compatible with 
them.
    m. Comment: One commenter stated that a data classification policy, 
that is a method of assigning sensitivity ratings to specific pieces of 
data, should be part of the final regulations.
    Response: We did not adopt such a policy because this final rule 
requires a floor of protection of all electronic protected health 
information. A covered entity has the option to exceed this floor. The 
sensitivity of information, the risks to and vulnerabilities of 
electronic protected health information and the means that should be 
employed to protect it are business determinations and decisions to be 
made by each covered entity.
    n. Comment: One commenter stated that this proposed rule conflicts 
with previously stated rules that acceptable ``standards'' must have 
been developed by ANSI-recognized Standards Development Organizations 
(SDOs).
    Response: In general, HHS is required to adopt standards developed 
by ANSI-accredited SDOs when such standards exist. The currently 
existing security standards developed by ANSI-recognized SDOs are 
targeted to specific technologies and/or activities. No existing 
security standard, or group of standards, is technology-neutral, 
scaleable to the extent required by HIPAA, and broad enough to be 
adopted in this final rule. Therefore, this final rule adopts standards 
under section 1172(c)(2)(B) of the Act, which permits us to develop 
standards when no industry standards exist.
    o. Comment: One commenter stated that this regulation goes beyond 
the scope of the law, unjustifiably extending into business practices, 
employee policies, and facility security.
    Response: We do not believe that this regulation goes beyond the 
scope of the law. The law requires HHS to adopt standards for 
reasonable and appropriate security safeguards concerning such matters 
as compliance by the officers and employees of covered entities, 
protection against reasonably anticipated unauthorized uses and 
disclosures of health information, and so on. Such standards will 
inevitably address the areas the commenter pointed to.
    The intent of this regulation is to provide standards for the 
protection of electronic protected health information in accordance 
with the Act. In order to do this, covered entities are required to 
implement administrative, physical, and technical safeguards. Those 
entities must ensure that data are protected, to the extent feasible, 
from inappropriate access, modification, dissemination, and 
destruction. As noted above, however, this final rule has been modified 
to increase flexibility as to how this protection is accomplished.
    p. Comment: One commenter stated that all sections regarding 
confidentiality and privacy should be removed, since they do not belong 
in this regulation.
    Response: As the discussion in section III.A above of this final 
rule makes clear, the privacy and security standards are very closely 
related. Section 1173(d)(2) of the Act specifically mentions 
``confidentiality'' and authorizes uses and disclosures of information 
as part of what security safeguards must address. Thus, we cannot omit 
all references to confidentiality and privacy in discussions of the 
security standards.

[[Page 8346]]

 However, we have relocated material that relates to both security and 
privacy (including definitions) to the general section of part 164.
    q. Comment: One commenter asked that data retention be addressed 
more specifically, since this will become a significant issue over 
time. It is recommended that a national work group be convened to 
address this issue.
    Response: The commenter's concern is noted. While the documentation 
relating to Security Rule implementation must be retained for a period 
of 6 years (see Sec.  164.316(b)(2)), it is not within the scope of 
this final rule to address data retention time frames for 
administrative or clinical records.
    r. Comment: One commenter stated that requiring provider practices 
to develop policies, procedures, and training programs and to implement 
record keeping and documentation systems would be tremendously 
resource-intensive and increase the costs of health care.
    Response: We expect that many of the standards of this final rule 
are already being met in one form or another by covered entities. For 
example, as part of normal business operations, health care providers 
already take measures to protect the health information in their 
keeping. Health care providers already keep records, train their 
employees, and require employees to follow office policies and 
procedures. Similarly, health plans are already frequently required by 
State law to keep information confidential. While revisions to a 
practice's or plan's current activities may be necessary, the 
development of entirely new systems or procedures may not be necessary.
    s. Comment: One commenter stated that there is no system for which 
risk has been eliminated and expressed concern over phrases such as 
covered entities must ``assure that electronic health information 
pertaining to an individual remains secure.''
    Response: We agree with the commenter that there is no such thing 
as a totally secure system that carries no risks to security. 
Furthermore, we believe the Congress' intent in the use of the word 
``ensure'' in section 1173(d) of the Act was to set an exceptionally 
high goal for the security of electronic protected health information. 
However, we note that the Congress also recognized that some trade-offs 
would be necessary, and that ``ensuring'' protection did not mean 
providing protection, no matter how expensive. See section 
1173(d)(1)(A)(ii) of the Act. Therefore, when we state that a covered 
entity must ensure the safety of the information in its keeping, we 
intend that a covered entity take steps, to the best of its ability, to 
protect that information. This will involve establishing a balance 
between the information's identifiable risks and vulnerabilities, and 
the cost of various protective measures, and will also be dependent 
upon the size, complexity, and capabilities of the covered entity, as 
provided in Sec.  164.306(b).

E. Administrative Safeguards (Sec.  164.308)

    We proposed that measures taken to comply with the rule be 
appropriate to protect the health information in a covered entity's 
care. Most importantly, we proposed to require that both the measures 
taken and documentation of those measures be kept current, that is, 
reviewed and updated periodically to continue appropriately to protect 
the health information in the care of covered entities. We would have 
required the documentation to be made available to those individuals 
responsible for implementing the procedure.
    We proposed a number of administrative requirements and supporting 
implementation features, and required documentation for those 
administrative requirements and implementation features.
    In this final rule, we have placed these administrative standards 
in Sec.  164.308. We have reordered them, deleted much of the detail of 
the proposed requirements, as discussed below, and omitted two of the 
proposed sets of requirements (system configuration requirements and a 
requirement for a formal mechanism for processing records) as discussed 
in paragraph 10 of the discussion of Sec.  164.308 of section III.E. of 
this preamble. Otherwise, the basic elements of the administrative 
safeguards are adopted in this final rule as proposed.
1. Security Management Process (Sec.  164.308(a)(1)(i))
    We proposed the establishment of a formal security management 
process to involve the creation, administration, and oversight of 
policies to address the full range of security issues and to ensure the 
prevention, detection, containment, and correction of security 
violations. This process would include implementation features 
consisting of a risk analysis, risk management, and sanction and 
security policies.
    We also proposed, in a separate requirement under administrative 
procedures, an internal audit, which would be an in-house review of the 
records of system activity (for example, logins, file accesses, and 
security incidents) maintained by an entity.
    In this final rule, risk analysis, risk management, and sanction 
policy are adopted as required implementation specifications although 
some of the details are changed, and the proposed internal audit 
requirement has been renamed as ``information system activity review'' 
and incorporated here as an additional implementation specification.
    a. Comment: Three commenters asked that this requirement be 
deleted. Two commenters cited this requirement as a possible burden. 
Several commenters asked that the implementation features be made 
optional.
    Response: This standard and its component implementation 
specifications form the foundation upon which an entity's necessary 
security activities are built. See NIST SP 800-30, ``Risk Management 
Guide for Information Technology Systems,'' chapters 3 and 4, January 
2002. An entity must identify the risks to and vulnerabilities of the 
information in its care before it can take effective steps to eliminate 
or minimize those risks and vulnerabilities. Some form of sanction or 
punishment activity must be instituted for noncompliance. Indeed, we 
question how the statutory requirement for safeguards ``to ensure 
compliance * * * by a [covered entity's] officers and employees'' could 
be met without a requirement for a sanction policy. See section 
1176(d)(2)(C) of the Act. Accordingly, implementation of these 
specifications remains mandatory. However, it is important to note that 
covered entities have the flexibility to implement the standard in a 
manner consistent with numerous factors, including such things as, but 
not limited to, their size, degree of risk, and environment. We have 
deleted the implementation specification calling for an organizational 
security policy, as it duplicated requirements of the security 
management and training standard.
    We note that the implementation specification for a risk analysis 
at Sec.  164.308(a)(1)(ii)(A) does not specifically require that a 
covered entity perform a risk analysis often enough to ensure that its 
security measures are adequate to provide the level of security 
required by Sec.  164.306(a). In the proposed rule, an assurance of 
adequate security was framed as a requirement to keep security measures 
``current.'' We continue to believe that security measures must remain 
current, and have added regulatory language in Sec.  164.306(e) as a 
more precise way of communicating that security measures

[[Page 8347]]

in general that must be periodically reassessed and updated as needed.
    The risk analysis implementation specification contains other terms 
that merit explanation. Under Sec.  164.308(a)(1)(ii)(A), the risk 
analysis must look at risks to the covered entity's electronic 
protected health information. A thorough and accurate risk analysis 
would consider ``all relevant losses'' that would be expected if the 
security measures were not in place. ``Relevant losses'' would include 
losses caused by unauthorized uses and disclosures and loss of data 
integrity that would be expected to occur absent the security measures.
    b. Comment: Relative to the development of an entity's sanction 
policy, one commenter asked that we describe the sanction penalties for 
breach of security. Another suggested establishment of a standard to 
which one's conduct could be held and adoption of mitigating 
circumstances so that the fact that a person acted in good faith would 
be a factor that could be used to reduce or otherwise minimize any 
sanction imposed. Another commenter suggested sanction activities not 
be implemented before the full implementation and testing of all 
electronic transaction standards.
    Response: The sanction policy is a required implementation 
specification because--(1) the statute requires covered entities to 
have safeguards to ensure compliance by officers and employees; (2) a 
negative consequence to noncompliance enhances the likelihood of 
compliance; and (3) sanction policies are recognized as a usual and 
necessary component of an adequate security program. The type and 
severity of sanctions imposed, and for what causes, must be determined 
by each covered entity based upon its security policy and the relative 
severity of the violation.
    c. Comment: Commenters requested the definitions of ``risk 
analysis'' and ``breach.''
    Response: ``Risk analysis'' is defined and described in the 
specification of the security management process standard, and is 
discussed in the preamble discussion of Sec.  164.308(a)(1)(ii)(A) of 
this final rule. The term breach is no longer used and is, therefore, 
not defined.
    d. Comment: One commenter asked whether all health information is 
considered equally ``sensitive,'' the thought being that, in 
determining risk, an entity may consider the loss of a smaller amount 
of extraordinarily sensitive data to be more significant than the loss 
of a larger amount of routinely collected data. The commenter stated 
that common reasoning would suggest that the smaller amount of data 
would be considered more sensitive.
    Response: All electronic protected health information must be 
protected at least to the degree provided by these standards. If an 
entity desires to protect the information to a greater degree than the 
risk analysis would indicate, it is free to do so.
    e. Comment: One commenter asked that we add ``threat assessment'' 
to this requirement.
    Response: We have not done this because we view threat assessment 
as an inherent part of a risk analysis; adding it would be redundant.
    f. Comment: We proposed a requirement for internal audit, the in-
house review of the records of system activity (for example, logins, 
file accesses, and security incidents) maintained by an entity. Several 
commenters wanted this requirement deleted. One suggested the audit 
trail requirement should not be mandatory, while another stated that 
internal audits would be unnecessary if physical security requirements 
are implemented.
    A number of commenters asked that we clarify the nature and scope 
of what an internal audit covers and what the audit time frame should 
be. Several commenters offered further detail concerning what should 
and should not be required in an internal audit for security purposes. 
One commenter stated that ongoing intrusion detection should be 
included in this requirement. Another wanted us to specify the 
retention times for archived audit logs.
    Several commenters had difficulty with the term ``audit'' and 
suggested we change the title of the requirement to ``logging and 
violation monitoring.''
    A number of commenters stated this requirement could result in an 
undue burden and would be economically unfeasible.
    Response: Our intent for this requirement was to promote the 
periodic review of an entity's internal security controls, for example, 
logs, access reports, and incident tracking. The extent, frequency, and 
nature of the reviews would be determined by the covered entity's 
security environment. The term ``internal audit'' apparently, based on 
the comments received, has certain rigid formal connotations we did not 
intend. We agree that the implementation of formal internal audits 
could prove burdensome or even unfeasible, to some covered entities due 
to the cost and effort involved. However, we do not want to overlook 
the value of internal reviews. Based on our review of the comments and 
the text to which they refer, it is clear that this requirement should 
be renamed for clarity and that it should actually be an implementation 
specification of the security management process rather than an 
independent standard. We accordingly remove ``internal audit'' as a 
separate requirement and add ``information system activity review'' 
under the security management process standard as a mandatory 
implementation specification.
2. Assigned Security Responsibility (Sec.  164.308(a)(2))
    We proposed that the responsibility for security be assigned to a 
specific individual or organization to provide an organizational focus 
and importance to security, and that the assignment be documented. 
Responsibilities would include the management and supervision of (1) 
the use of security measures to protect data, and (2) the conduct of 
personnel in relation to the protection of data.
    In this final rule, we clarify that the final responsibility for a 
covered entity's security must be assigned to one official. The 
requirement for documentation is retained, but is made part of Sec.  
164.316 below. This policy is consistent with the analogous policy in 
the Privacy Rule, at 45 CFR 164.530(a), and the same considerations 
apply. See 65 FR 82744 through 87445. The same person could fill the 
role for both security and privacy.
    a. Comment: Commenters were concerned that delegation of assigned 
security responsibility, especially in large organizations, needs to be 
to more than a single individual. Commenters believe that a large 
health organization's security concerns would likely cross many 
departmental boundaries requiring group responsibility.
    Response: The assigned security responsibility standard adopted in 
this final rule specifies that final security responsibility must rest 
with one individual to ensure accountability within each covered 
entity. More than one individual may be given specific security 
responsibilities, especially within a large organization, but a single 
individual must be designated as having the overall final 
responsibility for the security of the entity's electronic protected 
health information. This decision also aligns this rule with the final 
Privacy Rule provisions concerning the Privacy Official.
    b. Comment: One commenter disagreed with placing assigned security 
responsibility as part of physical safeguards. The commenter suggested 
that assigned security responsibility should be included under the 
Administrative Procedures.

[[Page 8348]]

    Response: Upon review of the matrix and regulations text, we agree 
with the commenter, because this requirement involves an administrative 
decision at the highest levels of who should be responsible for 
ensuring security measures are implemented and maintained. Assigned 
security responsibility has been removed from ``Physical safeguards'' 
and is now located under ``Administrative safeguards'' at Sec.  
164.308.
3. Workforce Security (Sec.  164.308(a)(3)(i))
    We proposed implementation of a number of features for personnel 
security, including ensuring that maintenance personnel are supervised 
by a knowledgeable person, maintaining a record of access 
authorizations, ensuring that operating and maintenance personnel have 
proper access authorization, establishing personnel clearance 
procedures, establishing and maintaining personnel security policies 
and procedures, and ensuring that system users have proper training.
    In this final rule, to provide clarification and reduce 
duplication, we have combined the ``Assure supervision of maintenance 
personnel by authorized, knowledgeable person'' implementation feature 
and the ``Operating, and in some cases, maintenance personnel have 
proper access authorization'' feature into one addressable 
implementation specification titled ``Authorization and/or 
supervision.''
    In a related, but separate, requirement entitled ``Termination 
procedures,'' we proposed implementation features for the ending of an 
employee's employment or an internal or external user's access. These 
features would include things such as changing combination locks, 
removal from access lists, removal of user account(s), and the turning 
in of keys, tokens, or cards that allow access.
    In this final rule, ``Termination procedures'' has been made an 
addressable implementation specification under ``Workforce security.'' 
This is addressable because in certain circumstances, for example, a 
solo physician practice whose staff consists only of the physician's 
spouse, formal procedures may not be necessary.
    The proposed ``Personnel security policy/procedure'' and ``record 
of access authorizations'' implementation features have been removed 
from this final rule, as they have been determined to be redundant. 
Implementation of the balance of the ``Workforce security'' 
implementation specifications and the other standards contained within 
this final rule will result in assurance that all personnel with access 
to electronic protected health information have the required access 
authority as well as appropriate clearances.
    a. Comment: The majority of comments concerned the supervision of 
maintenance personnel by an authorized knowledgeable person. Commenters 
stated this would not be feasible in smaller settings. For example, the 
availability of technically knowledgeable persons to ensure this 
supervision would be an issue. We were asked to either reword this 
implementation feature or delete it.
    Response: We agree that a ``knowledgeable'' person may not be 
available to supervise maintenance personnel. We have accordingly 
modified this implementation specification so that, in this final rule, 
we are adopting an addressable implementation specification titled, 
``Authorization and/or supervision,'' requiring that workforce members, 
for example, operations and maintenance personnel, must either be 
supervised or have authorization when working with electronic protected 
health information or in locations where it resides (see Sec.  
164.308(a)(3)(ii)(A)). Entities can decide on the feasibility of 
meeting this specification based on their risk analysis.
    b. Comment: The second largest group of comments requested 
assurance that, with regard to the proposed ``Personnel clearance 
procedure'' implementation feature, having appropriate clearances does 
not mean performing background checks on everyone. We were asked to 
delete references to ``clearance'' and use the term ``authorization'' 
in its place.
    Response: We agree with the commenters concerning background 
checks. This feature was not intended to be interpreted as an absolute 
requirement for background checks. We retain the use of the term 
``clearance,'' however, because we believe that it more accurately 
conveys the screening process intended than does the term 
``authorization.'' We have attempted to clarify our intent in the 
language of Sec.  164.308(a)(3)(ii)(B), which now reads, ``Implement 
procedures to determine that the access of a workforce member to 
electronic protected health information is appropriate.'' The need for 
and extent of a screening process is normally based on an assessment of 
risk, cost, benefit, and feasibility as well as other protective 
measures in place. Effective personnel screening processes may be 
applied in a way to allow a range of implementation, from minimal 
procedures to more stringent procedures based on the risk analysis 
performed by the covered entity. So long as the standard is met and the 
underlying standard of Sec.  164.306(a) is met, covered entities have 
choices in how they meet these standards. To clarify the intent of this 
provision, we retitle the implementation specification ``Workforce 
clearance procedure.''
    c. Comment: One commenter asked that we expand the implementation 
features to include the identification of the restrictions that should 
be placed on members of the workforce and others.
    Response: We have not adopted this comment in the interest of 
maintaining flexibility as discussed in Sec.  164.306. Restrictions 
would be dependent upon job responsibilities, the amount and type of 
supervision required and other factors. We note that a covered entity 
should consider in this regard the applicable requirements of the 
Privacy Rule (see, for example, Sec.  164.514(d)(2) (relating to 
minimum necessary requirements), and Sec.  164.530(c) (relating to 
safeguards).
    Comment: One commenter believes that the proposed ``Personnel 
security'' requirement was reasonable, since an administrative 
determination of trustworthiness is needed before allowing access to 
sensitive information. Two commenters asked that we delete the 
requirement entirely. A number of commenters requested that we delete 
the implementation features. Another commenter stated that all the 
implementation features may not be applicable or even appropriate to a 
given entity and should be so qualified.
    Response: While we do not believe this requirement should be 
eliminated, we agree that all the implementation specifications may not 
be applicable or even appropriate to a given entity. For example, a 
personal clearance may not be reasonable or appropriate for a small 
provider whose only assistant is his or her spouse. The implementation 
specifications are not mandatory, but must be addressed. This final 
rule has been changed to reflect this approach (see Sec.  
164.308(a)(3)(ii)(B)).
    e. Comment: The majority of commenters on the ``Termination 
procedures'' requirement asked that it be made optional, stating that 
it may not be applicable or even appropriate in all circumstances and 
should be so qualified or posed as guidelines. A number of commenters 
stated that the requirement should be deleted. One commenter stated 
that much of the material covered under the ``Termination procedures'' 
requirement is already covered in ``Information access control.'' A 
number of commenters stated that this requirement

[[Page 8349]]

was too detailed and some of the requirements excessive.
    Response: Based upon the comments received, we agree that 
termination procedures should not be a separate standard; however, 
consideration of termination procedures remains relevant for any 
covered entity with employees, because of the risks associated with the 
potential for unauthorized acts by former employees, such as acts of 
retribution or use of proprietary information for personal gain. We 
further agree with the reasoning of the commenters who asked that these 
procedures be made optional; therefore, ``Termination procedures'' is 
now reflected in this final rule as an addressable implementation 
specification. We also removed reference to all specific termination 
activities, for example, changing locks, because, although the 
activities may be considered appropriate for some covered entities, 
they may not be reasonable for others.
    f. Comment: One commenter asked whether human resource employee 
termination policies and procedures must be documented to show the 
types of security breaches that would result in termination.
    Response: Policies and procedures implemented to adhere to this 
standard must be documented (see Sec.  164.316 below). The purpose of 
termination procedure documentation under this implementation 
specification is not to detail when or under which circumstances an 
employee should be terminated. This information would more 
appropriately be part of the entity's sanction policy. The purpose of 
termination procedure documentation is to ensure that termination 
procedures include security-unique actions to be followed, for example, 
revoking passwords and retrieving keys when a termination occurs.
4. Information Access Management (Sec.  164.308(a)(4))
    We proposed an ``information access control'' requirement for 
establishment and maintenance of formal, documented policies and 
procedures defining levels of access for all personnel authorized to 
access health information, and how access is granted and modified. In 
Sec.  164.308(a)(4)(ii)(B) and (C) below, the proposed implementation 
features are made addressable specifications. We have added in Sec.  
164.308(a)(4)(ii)(A), a required implementation specification to 
isolate health care clearinghouse functions to address the provisions 
of section 1173(d)(1)(B) of the Act which related to this area.
    a. Comment: One commenter asked that the requirement be deleted, 
expressing the opinion that this requirement goes beyond ``reasonable 
boundaries'' into regulating common business practices. In contrast, 
another asked that we expand this requirement to identify participating 
parties and access privileges relative to specific data elements.
    Response: We disagree that this requirement improperly imposes upon 
business functions. Restricting access to those persons and entities 
with a need for access is a basic tenet of security. By this mechanism, 
the risk of inappropriate disclosure, alteration, or destruction of 
information is minimized. We cannot, however, specifically identify 
participating parties and access privileges relative to data elements 
within this regulation. These will vary depending upon the entity, the 
needs within the user community, the system in which the data resides, 
and the specific data being accessed. This standard is consistent with 
Sec.  164.514(d) in the Privacy Rule (minimum necessary requirements 
for use and disclosure of protected health information), and is, 
therefore, being retained.
    b. Comment: Several commenters asked that we not mandate the 
implementation features, but leave them as optional, a suggested means 
of compliance. The commenters noted that this might make the rules more 
scalable and flexible, since this approach would allow providers to 
implement safeguards that best addressed their needs. Along this line, 
one commenter expressed the belief that each organization should 
implement features deemed necessary based on its own risk assessment.
    Response: While the information access management standard in this 
final rule must be met, we agree that the implementation specifications 
at Sec.  164.308(a)(4)(ii)(B) and (C) should not be mandated but posed 
as a suggested means of compliance, which must be addressed. These 
specifications may not be applicable to all entities based on their 
size and degree of automation. A fully automated covered entity 
spanning multiple locations and involving hundreds of employees may 
determine it has a need to adopt a formal policy for access 
authorization, while a small provider may decide that a desktop 
standard operating procedure will meet the specifications. The final 
rule has been revised accordingly.
    c. Comment: Clarification was requested concerning the meaning of 
''formal.''
    Response: The word ``formal'' has caused considerable concern among 
commenters, as it was thought ``formal'' carried the connotation of a 
rigidly defined structure similar to what might be found in the 
Department of Defense instructions. As used in the proposed rule, this 
word was not intended to convey such a strict structure. Rather, it was 
meant to convey that documentation should be an official organizational 
statement as opposed to word-of-mouth or cryptic notes scratched on a 
notepad. While documentation is still required (see Sec.  164.316), to 
alleviate confusion, the word ``formal'' has been deleted.
    d. Comment: One commenter asked that we clarify that this 
requirement relates to both the establishment of policies for the 
access control function and to access control (the implementation of 
those policies).
    Response: ``Information access management'' does address both the 
establishment of access control policies and their implementation. We 
use the term ``implement'' to clarify that the procedures must be in 
use, and we believe that the requirement to implement policies and 
procedures requires, as an antecedent condition, the establishment or 
adaptation of those policies and procedures.
5. Security Awareness and Training (Sec.  164.308(a)(5)(i))
    We proposed, under the requirement ``Training,'' that security 
training be required for all staff, including management. Training 
would include awareness training for all personnel, periodic security 
reminders, user education concerning virus protection, user education 
in the importance of monitoring login success/failure, and how to 
report discrepancies, and user education in password management.
    In this final rule, we adopt this proposed requirement in modified 
form. For the standard ``Security awareness and training,'' in Sec.  
164.308(a)(5), we require training of the workforce as reasonable and 
appropriate to carry out their functions in the facility. All proposed 
training features have been combined as implementation specifications 
under this standard. Specific implementation specifications relative to 
content are addressable. The ``Virus protection'' implementation 
feature has been renamed ``protection from malicious software,'' 
because we did not intend by the nomenclature to exclude coverage of 
malicious acts that might not come within the prior term, such as 
worms.
    a. Comment: One commenter believes that security awareness training 
for all

[[Page 8350]]

system users would be too difficult to do in a large organization.
    Response: We disagree with the commenter. Security awareness 
training is a critical activity, regardless of an organization's size. 
This feature would typically become part of an entity's overall 
training program (which would include privacy and other information 
technology items as well). For example, the Government Information 
Systems Reform ACT (GISRA) of 2000 requires security awareness training 
as part of Federal agencies' information security programs, including 
Federal covered entities, such as the Medicare program. In addition, 
National Institute of Standards and Technology (NIST) SP 800-16, 
Information Technology Security Training Requirements, A role and 
performance base model, April 1998, provides an excellent source of 
information and guidance on this subject and is targeted at industry as 
well as government activities. We also note that covered entities must 
have discretion in how they implement the requirement, so they can 
incorporate this training in other existing activities. One approach 
would be to require this training as part of employee orientation.
    b. Comment: A number of commenters asked that this requirement be 
made optional or used as a guideline only. Several commenters stated 
that this requirement is too specific and is burdensome. Several asked 
that the implementation features be removed.
    Several others stated that this requirement is not appropriate for 
agents or contractors. One commenter asked how to apply this 
requirement to outsiders having access to data. Another asked if this 
requirement included all subcontractor staff. Others stated that 
contracts, signed by entities such as consultants, that address 
training should be sufficient.
    Response: Security training remains a requirement because of its 
criticality; however, we have revised the implementation specifications 
to indicate that the amount and type of training needed will be 
dependent upon an entity's configuration and security risks. Business 
associates must be made aware of security policies and procedures, 
whether through contract language or other means. Covered entities are 
not required to provide training to business associates or anyone else 
that is not a member of their workforce.
    c. Comment: Several commenters questioned why security awareness 
training appeared in two places, under ``Physical safeguards'' as well 
as ``Administrative safeguards.'' Others questioned the appropriateness 
of security awareness training under ``Physical safeguards.''
    Response: We reviewed the definitions of the proposed ``Awareness 
training for all personnel'' (``Administrative safeguards'') 
implementation feature and the proposed ``Security awareness training'' 
(``Physical safeguards'') requirement. We agree that, to avoid 
confusion and eliminate redundancy, security awareness and training 
should appear in only one place. We believe the appropriate location 
for it is under ``Administrative safeguards,'' as such training is 
essentially an administrative function.
    d. Comment: Several commenters objected to the blanket requirement 
for security awareness training of individuals who may be on site for a 
limited time period (for example, a single day).
    Response: Each individual who has access to electronic protected 
health information must be aware of the appropriate security measures 
to reduce the risk of improper access, uses, and disclosures. This 
requirement does not mean lengthy training is appropriate in every 
instance; there are alternative methods to inform individuals of 
security responsibilities (for example, provisions of pamphlets or 
copies of security policies, and procedures).
    e. Comment: One commenter asked that ``training'' be changed to 
``orientation.''
    Response: We believe the term ``training,'' as presented within 
this rule is the more appropriate term. The rule does not contemplate a 
one-time type of activity as connoted by ``orientation,'' but rather an 
on-going, evolving process as an entity's security needs and procedures 
change.
    f. Comment: Several commenters asked how often training should be 
conducted and asked for a definition of ``periodic,'' as it appears in 
the proposed implementation feature ``Periodic security reminders.'' 
One asked if the training should be tailored to job need.
    Response: Amount and timing of training should be determined by 
each covered entity; training should be an on-going, evolving process 
in response to environmental and operational changes affecting the 
security of electronic protected health information. While initial 
training must be carried out by the compliance date, we provide 
flexibility for covered entities to construct training programs. 
Training can be tailored to job need if the covered entity so desires.
6. Security Incident Procedures (Sec.  164.308(a)(6))
    We proposed a requirement for implementation of accurate and 
current security incident procedures: formal, documented report and 
response procedures so that security violations would be reported and 
handled promptly. We adopt this standard in the final rule, along with 
an implementation specification for response and reporting, since 
documenting and reporting incidents, as well as responding to incidents 
are an integral part of a security program.
    a. Comment: Several commenters asked that we further define the 
scope of a breach of security. Along this same line, another commenter 
stated that the proposed security incident procedures were too vague as 
stated. We were asked to specify what a security incident would be, 
what the internal chain for reporting procedures would be, and what 
should be included in the documentation (for example, hardware/
software, personnel responses).
    Response: We define a security incident in Sec.  164.304. Whether a 
specific action would be considered a security incident, the specific 
process of documenting incidents, what information should be contained 
in the documentation, and what the appropriate response should be will 
be dependent upon an entity's environment and the information involved. 
An entity should be able to rely upon the information gathered in 
complying with the other security standards, for example, its risk 
assessment and risk management procedures and the privacy standards, to 
determine what constitutes a security incident in the context of its 
business operations.
    b. Comment: One commenter asked what types of incidents must be 
reported to outside entities. Another commented that we clarify that 
incident reporting is internal.
    Response: Internal reporting is an inherent part of security 
incident procedures. This regulation does not specifically require any 
incident reporting to outside entities. External incident reporting is 
dependent upon business and legal considerations.
    c. Comment: One commenter stated that network activity should be 
included here.
    Response: We see no reason to exclude network activity under this 
requirement. Improper network activity should be treated as a security 
incident, because, by definition, it represents an improper instance of 
access to or use of information.

[[Page 8351]]

    d. Comment: One commenter stated that this requirement should 
address suspected misuse also.
    Response: We agree that security incidents include misuse of data; 
therefore, this requirement is addressed.
    e. Comment: Several commenters asked that this requirement be 
deleted. One commenter asked that we delete the implementation 
features.
    Response: As indicated above, we have adopted the proposed standard 
and combined the implementation specifications.
7. Contingency Plan (Sec.  164.308(a)(7)(i))
    We proposed that a contingency plan must be in effect for 
responding to system emergencies. The plan would include an 
applications and data criticality analysis, a data backup plan, a 
disaster recovery plan, an emergency mode operation plan, and testing 
and revision procedures.
    In this final rule, we make the implementation specifications for 
testing and revision procedures and an applications and data 
criticality analysis addressable, but otherwise require that the 
contingency features proposed be met.
    a. Comment: Several commenters suggested the contingency plan 
requirement be deleted. Several thought that this aspect of the 
proposed regulation went beyond its intended scope. Another believed 
that more discussion and development is needed before developing 
regulatory guidance on contingency plans. Others wanted this to be an 
optional requirement. In contrast, one commenter requested more 
guidance concerning contingency planning. Still others wanted to 
require that a contingency plan be in place but stated that we should 
not regulate its contents. One comment stated that data backup, 
disaster recovery, and emergency mode operation should not be part of 
this requirement.
    Response: A contingency plan is the only way to protect the 
availability, integrity, and security of data during unexpected 
negative events. Data are often most exposed in these events, since the 
usual security measures may be disabled, ignored, or not observed.
    Each entity needs to determine its own risk in the event of an 
emergency that would result in a loss of operations. A contingency plan 
may involve highly complex processes in one processing site, or simple 
manual processes in another. The contents of any given contingency plan 
will depend upon the nature and configuration of the entity devising 
it.
    While the contingency plan standard must be met, we agree that the 
proposed testing and revision implementation feature should be an 
addressable implementation specification in this final rule. Dependent 
upon the size, configuration, and environment of a given covered 
entity, the entity should decide if testing and revision of all parts 
of a contingency plan should be done or if there are more reasonable 
alternatives. The same is true for the proposed applications and data 
criticality analysis implementation feature. We have revised the final 
rule to reflect this approach.
    b. Comment: One commenter believed that adhering to this 
requirement could prove burdensome. Another stated that testing of 
certain parts of a contingency plan would be burdensome, and even 
infeasible, for smaller entities.
    Response: Without contingency planning, a covered entity has no 
assurance that its critical data could survive an emergency situation. 
Recent events, such as September 11, 2001, illustrate the importance of 
such planning. Contingency planning will be scalable based upon, among 
other factors, office configuration, and risk assessment. However, in 
response to the scalability issue raised by the commenter, we have made 
the testing and revision implementation specification addressable (see 
Sec.  164.308(a)(7)(ii)).
    c. Comment: Two commenters considered a 2-year implementation time 
frame for this requirement inadequate for large health plans. Another 
commenter stated that implementation of measures against natural 
disaster would be too big an issue for this regulation.
    Response: The statute sets forth the compliance dates for the 
initial standards. The statute requires that compliance with initial 
standards is not later than 2 years after adoption of the standards for 
all covered entities except small health plans for which the compliance 
date is not later than 3 years after adoption.
    The final rule calls for covered entities to consider how natural 
disasters could damage systems that contain electronic protected health 
information and develop policies and procedures for responding to such 
situations. We consider this to be a reasonable precautionary step to 
take since in many cases the risk would be deemed to be low.
    d. Comment: A commenter requested clarification of the term 
``Emergency mode'' with regard to the proposed ``Emergency mode 
operation plan'' implementation feature.
    Response: We have clarified the ``Emergency mode operations plan'' 
to show that it only involves those critical business processes that 
must occur to protect the security of electronic protected health 
information during and immediately after a crisis situation.
8. Evaluation (Sec.  164.308(a)(8))
    We proposed that certification would be required and could be 
performed internally or by an external accrediting agency. We solicited 
input on appropriate mechanisms to permit an independent assessment of 
compliance. We were particularly interested in input from those 
engaging in health care electronic data interchange (EDI), as well as 
independent certification and auditing organizations addressing issues 
of documentary evidence of steps taken for compliance; need for, or 
desirability of, independent verification, validation, and testing of 
system changes; and certifications required for off-the-shelf products 
used to meet the requirements of this regulation. We also solicited 
comments on the extent to which obtaining external certification would 
create an undue burden on small or rural providers.
    In this final rule, we require covered entities to periodically 
conduct an evaluation of their security safeguards to demonstrate and 
document their compliance with the entity's security policy and the 
requirements of this subpart. Covered entities must assess the need for 
a new evaluation based on changes to their security environment since 
their last evaluation, for example, new technology adopted or responses 
to newly recognized risks to the security of their information.
    a. Comment: We received several comments that certification should 
be performed externally. A larger group of commenters preferred self-
certification. The majority of the comments, however, were to the 
effect that external certification should be encouraged but not 
mandated.
    A number of commenters thought that mandating external 
certification would create an undue financial burden, regardless of the 
size of the entity being certified. One commenter stated that external 
certification would not place an undue burden on a small or rural 
provider.
    Response: Evaluation by an external entity is a business decision 
to be left to each covered entity. Evaluation is required under Sec.  
164.308(a)(8), but a covered entity may comply with this standard 
either by using its own workforce or an external accreditation agency, 
which would be acting as a business associate. External evaluation may 
be too costly an option for small entities.

[[Page 8352]]

    b. Comment: Several commenters stated that the certification should 
cover all components of the proposed rule, not just the information 
systems.
    Response: We agree. We have revised this section to reflect that 
evaluation would be both technical and nontechnical components of 
security.
    c. Comment: A number of commenters expressed a desire for the 
creation of certification guides or models to complement the rule.
    Response: We agree that creation of compliance guidelines or models 
for different business environments would help in the implementation 
and evaluation of HIPAA security requirements and we encourage 
professional associations and others to do so. We may develop technical 
assistance materials, but do not intend to create certification 
criteria because we do not have the resources to address the large 
number of different business environments.
    d. Comment: Some commenters asked how certification is possible 
without specifying the level of risk that is permissible.
    Response: The level of risk that is permissible is specified by 
Sec.  164.306(a). How such risk is managed will be determined by a 
covered entity through its security risk analysis and the risk 
mitigation activities it implements in order to ensure that the level 
of security required by Sec.  164.306 is provided.
    e. Comment: Several commenters requested creation of a list of 
Federally ``certified'' security software and off-the-shelf products. 
Several others stated that this request was not feasible. Regarding 
certification of off-the-shelf products, one commenter thought this 
should be encouraged, but not mandated; several thought this would be 
an impractical endeavor.
    Response: While we will not assume the task of certifying software 
and off-the-shelf products for the reason described above, we have 
noted with interest that other Government agencies such as the National 
Institute of Standards and Technology (NIST) are working towards that 
end. The health care industry is encouraged to monitor the activity of 
NIST and provide comments and suggestions when requested (see http://www.niap.nist.gov.).
    f. Comment: One commenter stated, ``With HCFA's publishing of these 
HIPAA standards, and their desire to retain the final responsibility 
for determining violations and imposing penalties of the statute, it 
also seems appropriate for HCFA to also provide certifying services to 
ensure security compliance.''
    Response: In view of the enormous number and variety of covered 
entities, we believe that evaluation can best be handled through the 
marketplace, which can develop more usable and targeted evaluation 
instruments and processes.
8. Business Associate Contracts or Other Arrangements (Sec.  
164.308(b)(1))
    In the proposed rule Sec.  142.308(a)(2) ``Chain of trust'' 
requirement, we proposed that covered entities be required to enter 
into a chain of trust partner agreement with their business partners, 
in which the partners would agree to electronically exchange data and 
protect the integrity, confidentiality, and availability of the data 
exchanged. This standard has been modified from the proposed 
requirement to reflect, in Sec.  164.308(b)(1) ``Business associate 
contracts and other arrangements,'' the business associate structure 
put in place by the Privacy Rule.
    In this final rule, covered entities must enter into a contract or 
other arrangement with persons that meet the definition of business 
associate in Sec.  160.103. The covered entity must obtain satisfactory 
assurances from the business associate that it will appropriately 
safeguard the information in accordance with these standards (see Sec.  
164.314(a)(1)).
    The comments received on the proposed chain of trust partner 
agreements are discussed in section 2 ``Business associate contracts 
and other arrangements'' of the discussion of Sec.  164.314 below.
9. Proposed Requirements Not Adopted in This Final Rule
a. Security Configuration Management
    We proposed that an organization would be required to implement 
measures, practices, and procedures regarding security configuration 
management. They would be coordinated and integrated with other system 
configuration management practices for the security of information 
systems. These would include documentation, hardware and/or software 
installation and maintenance review and testing for security features, 
inventory procedures, security testing, and virus checking.
    Comment: Several commenters asked that the entire requirement be 
deleted. Several others asked that the inventory and virus checking 
implementation features be removed as they believe those features are 
not germane to security configuration management. A number of 
commenters requested that security testing be deleted because this 
implementation feature is too detailed, unreasonable, impractical, and 
beyond the scope of the legislation. Others stated that the testing 
would be very complex and expensive. Others wanted more clarification 
of what we intend by security testing, and how much would be enough. A 
number of commenters asked that all of the implementation features be 
deleted. Others asked that the implementation features be made 
optional. Several commenters wanted to know the scope of organizational 
integration required. Several others asked if what we meant by Security 
Configuration Management was change or version control.
    Response: Upon review, this requirement appears unnecessary because 
it is redundant of other requirements we are adopting in this rule. A 
covered entity will have addressed the activities described by the 
features under this proposed requirement by virtue of having 
implemented the risk analysis, risk management measures, sanction 
policies, and information systems criticality review called for under 
the security management process. The proposed documentation 
implementation feature has been made a separate standard (see Sec.  
164.316). As a result, the Security Configuration Management 
requirement is not adopted in this final rule.
b. Formal Mechanism for Processing Records
    The proposed rule proposed requiring a formal mechanism for 
processing records, and documented policies and procedures for the 
routine and nonroutine receipt, manipulation, storage, dissemination, 
transmission, and/or disposal of health information. This requirement 
has not been adopted in the final rule.
    Comment: Several commenters thought this requirement concerned the 
regulation of formal procedures for how an entity does business and 
stated that such procedures should not be regulated. Others asked for 
additional clarification of what is meant by this requirement. One 
commenter thought the requirement too ambiguous and asked for 
clarification as to whether we meant such things as ``the proper 
handling of storage media, databases, transmissions,'' or ``the 
clinical realm of processes.''
    Two commenters asked how extensive this requirement would be and 
whether systems' user manuals and policies and procedures for handling 
health information would suffice and what level of detail would be 
expected.

[[Page 8353]]

    Several thought this requirement could result in a significant 
resource and monetary burden to develop and maintain formal procedures. 
Two asked for an explanation of the benefit to be derived from this 
requirement.
    One asked that covered entities be required to document processes 
that create a security risk only and suggested that a risk assessment 
would determine the need for this documentation.
    Response: We agree with the commenters that the standard is 
ambiguous, and upon review, is unnecessary because the remaining 
standards, for example, device and media controls, provide adequate 
safeguards. Accordingly, this requirement is not adopted in this final 
rule.

F. Physical Safeguards (Sec.  164.310)

    We proposed requirements and implementation features for documented 
physical safeguards to guard data integrity, confidentiality, and 
availability. We proposed to require safeguards in the following areas: 
Assigned security responsibility; media controls; physical access 
controls; policies and guidelines on workstation use; a secure 
workstation location; and security awareness training. A number of 
specific implementation features were proposed under the media controls 
and physical access controls requirements.
    In Sec.  164.310 of this final rule, most of the proposed 
implementation features are adopted as addressable implementation 
specifications. The proposed requirements for the assigned security 
responsibility and security awareness training requirements are 
relocated in Sec.  164.308.
1. General Comments
    a. Comment: Several commenters made suggestions to modify the 
language to more clearly describe ``Physical safeguards.''
    Response: In response to comments, we have revised the definition 
of ``Physical safeguards'' to read as follows: ``Physical safeguards 
are security measures to protect a covered entity's electronic 
information systems and related buildings and equipment, from natural 
and environmental hazards, and unauthorized intrusion.''
    b. Comment: One commenter was concerned that electronic security 
systems could not be used in lieu of physical security systems.
    Response: This final rule does not preclude the use of electronic 
security systems in lieu of, or in combination with, physical security 
systems to meet a ``Physical safeguard'' standard.
2. Facility Access Controls (Sec.  164.310(a)(1))
    We proposed, under the ``Physical access controls'' requirement, 
formal, documented policies and procedures for limiting physical access 
to an entity while ensuring that properly authorized access is allowed. 
These controls would include the following implementation features: 
disaster recovery, emergency mode operation, equipment control (into 
and out of site), a facility security plan, procedures for verifying 
access authorizations before physical access, maintenance records, 
need-to-know procedures for personnel access, sign-in for visitors and 
escort, if appropriate, and testing and revision.
    In Sec.  164.310(a)(2) below, we combine and restate these as 
addressable implementation specifications. These are contingency 
operations, facility security plan, access control and validation 
procedures, and maintenance records.
    a. Comment: Many commenters were concerned because the proposed 
language would require implementation of all physical access control 
features. Other commenters were concerned that the language did not 
allow entities to use the results of their risk assessment and risk 
management process to arrive at the appropriate solutions for them.
    Response: We agree that implementation of all implementation 
specifications may not be appropriate in all situations. While the 
facility access controls standard must be met, we agree that the 
implementation specifications should not be required in all 
circumstances, but should be addressable. In this final rule, all four 
implementation specifications are addressable.
    We have also determined, based on ``level of detail'' comments 
requesting consolidation of the list of implementation features, that 
the proposed implementation feature ``Equipment control (into and out 
of site)'' was redundant. ``Equipment control'' is already covered 
under the ``Device and media controls'' standard at Sec.  
164.310(d)(1). Accordingly, we have eliminated it as a separate 
implementation specification.
    b. Comment: One commenter raised the issue of a potential conflict 
of authority between those having access to the data and those 
responsible for checking and maintaining access controls.
    Response: Any potential conflicts should be identified, addressed, 
and resolved in the policies and procedures developed according to the 
standards under Sec.  164.308.
    c. Comment: Several commenters questioned whether ``Physical Access 
Controls'' was a descriptive phrase to describe a technology to be 
used, or whether the phrase referred to a facility.
    Response: We agree that the term ``Physical'' may be misleading; to 
remove any confusion, the requirement is reflected in this final rule 
as a standard titled ``Facility access controls.'' We believe this is a 
more precise term to describe that the standard, and its associated 
implementation specifications, is applicable to an entity's business 
location or locations.
    d. Comment: Several commenters requested that the disaster recovery 
and emergency mode operations features be moved to ``Administrative 
safeguards.'' Other commenters recommended that disaster recovery and 
emergency mode operations should be replaced by, and included in, a 
``Contingency Operations'' implementation feature.
    Response: The ``Administrative safeguards'' section addresses the 
contingency planning that must be done to contend with emergency 
situations. The placement of the disaster recovery and emergency mode 
operations implementation specifications in the ``Physical safeguards'' 
section is also appropriate, however, because ``Physical safeguards'' 
defines the physical operations (processes) that provide access to the 
facility to implement the associated plans, developed under Sec.  
164.308. We agree, however, that the term ``contingency operations'' 
better describes, and would include, disaster recovery and emergency 
mode operations, and have modified the regulation text accordingly (see 
Sec.  164.310(a)(1)).
    e. Comment: Commenters were concerned about having to address in 
their facility security plan the exterior/interior security of a 
building when they are one of many occupants rather than the sole 
occupant. Additional commenters were concerned that the responsibility 
for physical security of the building could not be delegated to a third 
party when the covered entity shares the building with other offices.
    Response: The facility security plan is an addressable 
implementation specification. However, the covered entity retains 
responsibility for considering facility security even where it shares 
space within a building with other organizations. Facility security 
measures taken by a third party must be considered and documented in 
the covered entity's facility security plan, when appropriate.

[[Page 8354]]

3. Workstation Use (Sec.  164.310(b))
    We proposed policy and guidelines on workstation use that included 
documented instructions/procedures delineating the proper functions to 
be performed and the manner in which those functions are to be 
performed (for example, logging off before leaving a workstation 
unattended) to maximize the security of health information. In this 
final rule, we adopt this standard.
    Comment: One commenter was concerned most people may be misled by 
the use of ``terminal'' as an example in the definition of workstation. 
The concern was that the standard only addresses ``fixed location 
devices,'' while in many instances the workstation has become a laptop 
computer.
    Response: For clarity, we have added the definition of 
``workstation'' to Sec.  164.304 and deleted the word ``terminal'' from 
the description of workstation use in Sec.  164.310(b).
4. Workstation Security (Sec.  164.310(c))
    We proposed that each organization would be required to put in 
place physical safeguards to restrict access to information. In this 
final rule, we retain the general requirement for a secure workstation.
    Comment: Comments were directed toward the example profiled in the 
definition of a secure workstation location. It was believed that what 
constitutes a secure workstation location must be dependent upon the 
entity's risk management process.
    Response: We agree that what constitutes an appropriate solution to 
a covered entity's workstation security issues is dependent on the 
entity's risk analysis and risk management process. Because many 
commenters incorrectly interpreted the examples as the required and 
only solution for securing the workstation location, we have modified 
the regulations text description to generalize the requirement (see 
Sec.  164.310(c)). Also, for clarity, the title ``Secure workstation 
location'' has been changed to ``Workstation security'' (see also the 
definition of ``Workstation'' at Sec.  164.304).
5. Device and Media Controls (Sec.  164.310(d)(1))
    We proposed that covered entities have media controls in the form 
of formal, documented policies and procedures that govern the receipt 
and removal of hardware and/or software (for example, diskettes and 
tapes) into and out of a facility. Implementation features would have 
included ``Access control,'' ``Accountability'' (tracking mechanism), 
``Data backup,'' ``Data storage,'' and ``Disposal.''
    In this final rule, we adopt most of these provisions as 
addressable implementation specifications and add a specification for 
media re-use. We change the name from ``Media controls'' to ``Device 
and media controls'' to more clearly reflect that this standard 
concerns hardware as well as electronic media. The proposed ``Access 
control'' implementation feature has been removed, as it is addressed 
as part of other standards (see section III.C.12.c of this preamble).
    a. Comment: One commenter was concerned about the exclusion of 
removable media devices from examples of physical types of hardware 
and/or software.
    Response: The media examples used were not intended to represent 
all possible physical types of hardware and/or software. Removable 
media devices, although not specifically listed, are not intended to be 
excluded.
    b. Comment: Comments were made that the issue of equipment re-use 
or recycling of media containing mass storage was not addressed in 
``Media controls.''
    Response: We agree that equipment re-use or recycling should be 
addressed, since this equipment may contain electronic protected health 
information. The ``Device and media controls'' standard is accordingly 
expanded to include a required implementation specification that 
addresses the re-use of media (see Sec.  164.310(d)(2)(ii)).
    c. Comment: Several commenters asked for a definition of the term 
``facility,'' as used in the proposed ``Media controls'' requirement 
description. Commenters were unclear whether we were talking about a 
corporate entity or the physical plant.
    Response: The term ``facility'' refers to the physical premises and 
the interior and exterior of a building(s). We have added this 
definition to Sec.  164.304.
    d. Comment: Several commenters believe the ``Media controls'' 
implementation features are too onerous and should be deleted.
    Response: While the ``Device and media controls'' standard must be 
met, we believe, based upon further review, that implementation of all 
specifications would not be necessary in every situation, and might 
even be counter-productive in some situations. For example, small 
providers would be unlikely to be involved in large-scale moves of 
equipment that would require systematic tracking, unlike, for example, 
large health care providers or health plans. We have, therefore, 
reclassified the ``Accountability and data backup'' implementation 
specification as addressable to provide more flexibility in meeting the 
standard.
    e. Comment: One commenter was concerned about the accountability 
impact of audit trails on system resources and the pace of system 
services.
    Response: The proposed audit trail implementation feature appears 
as the addressable ``Accountability'' implementation specification. The 
name change better reflects the purpose and intended scope of the 
implementation specification. This implementation specification does 
not address audit trails within systems and/or software. Rather it 
requires a record of the actions of a person relative to the receipt 
and removal of hardware and/or software into and out of a facility that 
are traceable to that person. The impact of maintaining accountability 
on system resources and services will depend upon the complexity of the 
mechanism to establish accountability. For example, the appropriate 
mechanism for a given entity may be manual, such as receipt and removal 
restricted to specific persons, with logs kept. Maintaining 
accountability in such a fashion should have a minimal, if any, effect 
on system resources and services.
    f. Comment: A commenter was concerned about the resource 
expenditure (system and fiscal) for total e-mail backup and wanted a 
clarification of the extensiveness of data backup.
    Response: The data an entity needs to backup, and which operations 
should be used to carry out the backup, should be determined by the 
entity's risk analysis and risk management process. The data backup 
plan, which is part of the required contingency plan (see Sec.  
164.308(a)(7)(ii)(A)), should define exactly what information is needed 
to be retrievable to allow the entity to continue business ``as usual'' 
in the face of damage or destruction of data, hardware, or software. 
The extent to which e-mail backup would be needed would be determined 
through that analysis.

G. Technical Safeguards (Sec.  164.312)

    We proposed five technical security services requirements with 
supporting implementation features: Access control; Audit controls; 
Authorization control; Data authentication; and Entity authentication. 
We also proposed specific technical security mechanisms for data 
transmitted over a communications network, Communications/network 
controls with supporting implementation features; Integrity controls; 
Message authentication; Access controls;

[[Page 8355]]

Encryption; Alarm; Audit trails; Entity authentication; and Event 
reporting.
    In this final rule, we consolidate these provisions into Sec.  
164.312. That section now includes standards regarding access controls, 
audit controls, integrity (previously titled data authentication), 
person or entity authentication, and transmission security. As 
discussed below, while certain implementation specifications are 
required, many of the proposed security implementation features are now 
addressable implementation specifications. The function of 
authorization control has been incorporated into the information access 
management standard under Sec.  164.308, Administrative safeguards.
1. Access Control (Sec.  164.312(a)(1))
    In the proposed rule, we proposed to require that the access 
controls requirement include features for emergency access procedures 
and provisions for context-based, role-based, and/or user-based access; 
we also proposed the optional use of encryption as a means of providing 
access control. In this final rule, we require unique user 
identification and provision for emergency access procedures, and 
retain encryption as an addressable implementation specification. We 
also make ``Automatic logoff'' an addressable implementation 
specification. ``Automatic logoff'' and ``Unique user identification'' 
were formerly implementation features under the proposed ``Entity 
authentication'' (see Sec.  164.312(d)).
    a. Comment: Some commenters believe that in specifying ``Context,'' 
``Role,'' and ``User'' based controls, use of other controls would 
effectively be excluded, for example, ``Partition rule-based access 
controls,'' and the development of new access control technology.
    Response: We agree with the commenters that other types of access 
controls should be allowed. There was no intent to limit the 
implementation features to the named technologies and this final rule 
has been reworded to make it clear that use of any appropriate access 
control mechanism is allowed. Proposed implementation features titled 
``Context-based access,'' ``Role-based access,'' and ``User-based 
access'' have been deleted and the access control standard at Sec.  
164.312(a)(1) states the general requirement.
    b. Comment: A large number of comments were received objecting to 
the identification of ``Automatic logoff'' as a mandatory 
implementation feature. Generally the comments asked that we not be so 
specific and allow other forms of inactivity lockout, and that this 
type of feature be made optional, based more on the particular 
configuration in use and a risk assessment/analysis.
    Response: We agree with the comments that mandating an automatic 
logoff is too specific. This final rule has been written to clarify 
that the proposed implementation feature of automatic logoff now 
appears as an addressable access control implementation specification 
and also permits the use of an equivalent measure.
    c. Comment: We received comments asking that encryption be deleted 
as an implementation feature and stating that encryption is not 
required for ``data at rest.''
    Response: The use of file encryption is an acceptable method of 
denying access to information in that file. Encryption provides 
confidentiality, which is a form of control. The use of encryption, for 
the purpose of access control of data at rest, should be based upon an 
entity's risk analysis. Therefore, encryption has been adopted as an 
addressable implementation specification in this final rule.
    d. Comment: We received one comment stating that the proposed 
implementation feature ``Procedure for emergency access,'' is not 
access control and recommending that emergency access be made a 
separate requirement.
    Response: We believe that emergency access is a necessary part of 
access controls and, therefore, is properly a required implementation 
specification of the ``Access controls'' standard. Access controls will 
still be necessary under emergency conditions, although they may be 
very different from those used in normal operational circumstances. For 
example, in a situation when normal environmental systems, including 
electrical power, have been severely damaged or rendered inoperative 
due to a natural or man-made disaster, procedures should be established 
beforehand to provide guidance on possible ways to gain access to 
needed electronic protected health information.
2. Audit Controls (Sec.  164.312(b))
    We proposed that audit control mechanisms be put in place to record 
and examine system activity. We adopt this requirement in this final 
rule.
    a. Comment: We received a comment stating that ``Audit controls'' 
should be an implementation feature rather than the standard, and 
suggesting that we change the title of the standard to 
``Accountability,'' and provide additional detail to the audit control 
implementation feature.
    Response: We do not adopt the term ``Accountability'' in this final 
rule because it is not descriptive of the requirement, which is to have 
the capability to record and examine system activity. We believe that 
it is appropriate to specify audit controls as a type of technical 
safeguard. Entities have flexibility to implement the standard in a 
manner appropriate to their needs as deemed necessary by their own risk 
analyses. For example, see NIST Special Publication 800-14, Generally 
Accepted Principles and Practices for Securing Information Technology 
Systems and NIST Special Publication 800-33, Underlying Technical 
Models for Information Technology Security.
    b. Comment: One commenter recommended that this final rule state 
that audit control mechanisms should be implemented based on the 
findings of an entity's risk assessment and risk analysis. The 
commenter asserted that audit control mechanisms should be utilized 
only when appropriate and necessary and should not adversely affect 
system performance.
    Response: We support the use of a risk assessment and risk analysis 
to determine how intensive any audit control function should be. We 
believe that the audit control requirement should remain mandatory, 
however, since it provides a means to assess activities regarding the 
electronic protected health information in an entity's care.
    c. Comment: One commenter was concerned about the interplay of 
State and Federal requirements for auditing of privacy data and 
requested additional guidance on the interplay of privacy rights, laws, 
and the expectation for audits under the rule.
    Response: In general, the security standards will supercede any 
contrary provision of State law. Security standards in this final rule 
establish a minimum level of security that covered entities must meet. 
We note that covered entities may be required by other Federal law to 
adhere to additional, or more stringent security measures. Section 
1178(a)(2) of the statute provides several exceptions to this general 
rule. With regard to protected health information, the preemption of 
State laws and the relationship of the Privacy Rule to other Federal 
laws is discussed in the Privacy Rule beginning at 65 FR 82480; the 
preemption provisions of the rule are set out at 45 CFR part 160, 
subpart B.
    It should be noted that although the Privacy Rule does not 
incorporate a requirement for an ``audit trail'' function, it does call 
for providing an accounting of certain disclosures of protected health 
information to an

[[Page 8356]]

individual upon request. There has been a tendency to assume that this 
Privacy Rule requirement would be satisfied via some sort of process 
involving audit trails. We caution against assuming that the Security 
Rule's requirement for an audit capability will satisfy the Privacy 
Rule's requirement regarding accounting for disclosures of protected 
health information. The two rules cover overlapping, but not identical 
information. Further, audit trails are typically used to record uses 
within an electronic information system, while the Privacy Rule 
requirement for accounting applies to certain disclosures outside of 
the covered entity (for example, to public health authorities).
3. Integrity (Sec.  164.312(c)(1))
    We proposed under the ``Data authentication'' requirement, that 
each organization be required to corroborate that data in its 
possession have not been altered or destroyed in an unauthorized manner 
and provided examples of mechanisms that could be used to accomplish 
this task. We adopt the proposed requirement for data authentication in 
the final rule as an addressable implementation specification 
``Mechanism to authenticate data,'' under the ``Integrity'' standard.
    a. Comment: We received a large number of comments requesting 
clarification of the ``Data authentication'' requirement. Many of these 
comments suggested that the requirement be called ``Data integrity'' 
instead of ``Data authentication.'' Others asked for guidance regarding 
just what ``data'' must be authenticated. A significant number of 
commenters indicated that this requirement would put an extraordinary 
burden on large segments of the health care industry, particularly when 
legacy systems are in use. Requests were received to make this an 
``optional'' requirement, based on an entity's risk assessment and 
analysis.
    Response: We adopt the suggested ``integrity'' terminology because 
it more clearly describes the intent of the standard. We retain the 
meaning of the term ``Data authentication'' under the addressable 
implementation specification ``Mechanism to authenticate data,'' and 
provide an example of a potential means to achieve data integrity.
    Error-correcting memory and magnetic disc storage are examples of 
the built-in data authentication mechanisms that are ubiquitous in 
hardware and operating systems today. The risk analysis process will 
address what data must be authenticated and should provide answers 
appropriate to the different situations faced by the various health 
care entities implementing this regulation.
    Further, we believe that this standard will not prove difficult to 
implement, since there are numerous techniques available, such as 
processes that employ digital signature or check sum technology to 
accomplish the task.
    b. Comment: We received numerous comments suggesting that ``Double 
keying'' be deleted as a viable ``Data authentication'' mechanism, 
since this practice was generally associated with the use of punched 
cards.
    Response: We agree that the process of ``Double keying'' is 
outdated. This final rule omits any reference to ``Double keying.''
4. Person or Entity Authentication (Sec.  164.312(d))
    We proposed that an organization implement the requirement for 
``Entity authentication'', the corroboration that an entity is who it 
claims to be. ``Automatic logoff'' and ``Unique user identification'' 
were specified as mandatory features, and were to be coupled with at 
least one of the following features: (1) A ``biometric'' identification 
system; (2) a ``password'' system; (3) a ``personal identification 
number''; and (4) ``telephone callback,'' or a ``token'' system that 
uses a physical device for user identification.
    In this final rule, we provide a general requirement for person or 
entity authentication without the specifics of the proposed rule.
    Comment: We received comments from a number of organizations 
requesting that the implementation features for entity authentication 
be either deleted in their entirety or at least be made optional. On 
the other hand, comments were received requesting that the use of 
digital signatures and soft tokens be added to the list of 
implementation features.
    Response: We agree with the commenters that many different 
mechanisms may be used to authenticate entities, and this final rule 
now reflects this fact by not incorporating a list of implementation 
specifications, in order to allow covered entities to use whatever is 
reasonable and appropriate. ``Digital signatures'' and ``soft tokens'' 
may be used, as well as many other mechanisms, to implement this 
standard.
    The proposed mandatory implementation feature, ``Unique user 
identification,'' has been moved from this standard and is now a 
required implementation specification under ``Access control'' at Sec.  
164.312(a)(1). ``Automatic logoff'' has also been moved from this 
standard to the ``Access control'' standard and is now an addressable 
implementation specification.
5. Transmission Security (Sec.  164.312(e)(1))
    Under ``Technical Security Mechanisms to Guard Against Unauthorized 
Access to Data that is Transmitted Over a Communications Network,'' we 
proposed that ``Communications/network controls'' be required to 
protect the security of health information when being transmitted 
electronically from one point to another over open networks, along with 
a combination of mandatory and optional implementation features. We 
proposed that some form of encryption must be employed on ``open'' 
networks such as the Internet or dial-up lines.
    In this final rule, we adopt integrity controls and encryption, as 
addressable implementation specifications.
    a. Comment: We received a number of comments asking for overall 
clarification as well as a definition of terms used in this section. A 
definition for the term ``open networks'' was the most requested 
action, but there was a general expression of dislike for the manner in 
which we approached this section, with some comments suggesting that 
the entire section be rewritten. A significant number of comments were 
received on the question of encryption requirements when dial-up lines 
were to be employed as a means of connectivity. The overwhelming 
majority strongly urged that encryption not be mandatory when using any 
transmission media other than the Internet, but rather be considered 
optional based on individual entity risk assessment/analysis. Many 
comments noted that there are very few known breaches of security over 
dial-up lines and that nonjudicious use of encryption can adversely 
affect processing times and become both financially and technically 
burdensome. Only one commenter suggested that ``most'' external traffic 
should be encrypted.
    Response: In general, we agree with the commenters who asked for 
clarification and revision. This final rule has been significantly 
revised to reflect a much simpler and more direct requirement. The term 
``Communications/network controls'' has been replaced with 
``Transmission security'' to better reflect the requirement that, when 
electronic protected health information is transmitted from one point 
to another, it must be protected in a manner commensurate with the 
associated risk.

[[Page 8357]]

    We agree with the commenters that switched, point-to-point 
connections, for example, dial-up lines, have a very small probability 
of interception.
    Thus, we agree that encryption should not be a mandatory 
requirement for transmission over dial-up lines. We also agree with 
commenters who mentioned the financial and technical burdens associated 
with the employment of encryption tools. Particularly when considering 
situations faced by small and rural providers, it became clear that 
there is not yet available a simple and interoperable solution to 
encrypting e-mail communications with patients. As a result, we decided 
to make the use of encryption in the transmission process an 
addressable implementation specification. Covered entities are 
encouraged, however, to consider use of encryption technology for 
transmitting electronic protected health information, particularly over 
the internet.
    As business practices and technology change, there may arise 
situations where electronic protected health information being 
transmitted from a covered entity would be at significant risk of being 
accessed by unauthorized entities. Where risk analysis showed such risk 
to be significant, we would expect covered entities to encrypt those 
transmissions, if appropriate, under the addressable implementation 
specification for encryption.
    We do not use the term ``open network'' in this final rule because 
its meaning is too broad. We include as an addressable implementation 
specification the requirement that transmissions be encrypted when 
appropriate based on the entity's risk analysis.
    b. Comment: We received comments requesting that the implementation 
features be deleted or made optional. Three commenters asked that the 
requirement for an alarm be deleted.
    Response: This final rule has been revised to reflect deletion of 
the following implementation features: (1) The alarm capability; (2) 
audit trail; (3) entity authentication; and (4) event reporting. These 
features were associated with a proposed requirement for 
``Communications/network controls'' and have been deleted since they 
are normally incorporated by telecommunications providers as part of 
network management and control functions that are included with the 
provision of network services. A health care entity would not expect to 
be responsible for these technical telecommunications features. 
``Access controls'' has also been deleted from the implementation 
features since the consideration of the use of encryption will satisfy 
the intent of this feature. We retain as addressable implementation 
specifications two features: (1) ``Integrity controls'' and 
``encryption''. ``Message authentication'' has been deleted as an 
implementation feature because the use of data authentication codes 
(called for in the ``integrity controls'' implementation specification) 
satisfies the intent of ``Message authentication.''
    c. Comment: A number of comments were received asking that this 
final rule establish a specific (or at least a minimum) cryptographic 
algorithm strength. Others recommended that the rule not specify an 
encryption strength since technology is changing so rapidly. Several 
commenters requested guidelines and minimum encryption standards for 
the Internet. Another stated that, since an example was included (small 
or rural providers for example), the government should feel free to 
name a specific encryption package. One commenter stated that the 
requirement for encryption on the Internet should reference the ``CMS 
Internet Security Policy.''
    Response: We remain committed to the principle of technology 
neutrality and agree with the comment that rapidly changing technology 
makes it impractical and inappropriate to name a specific technology. 
Consistent with this principle, specification of an algorithm strength 
or specific products would be inappropriate. Moreover, rapid advances 
in the success of ``brute force'' cryptanalysis techniques suggest that 
any minimum specification would soon be outmoded. We maintain that it 
is much more appropriate for this final rule to state a general 
requirement for encryption protection when necessary and depend on 
covered entities to specify technical details, such as algorithm types 
and strength. Because ``CMS Internet Security Policy'' is the policy of 
a single organization and applies only to information sent to CMS, and 
not between all covered entities, we have not referred to it here.
    d. Comment: The proposed definition of ``Integrity controls'' 
generated comments that asked that the word ``validity'' be changed to 
``Integrity.'' Commenters were concerned about the ability of an entity 
to ensure that information was ``valid.''
    Response: We agree with the commenters about the meaning of the 
word ``validity'' in the context of the proposed definition of 
``Integrity controls.'' We have named ``integrity controls'' as an 
implementation specification in this final rule to require mechanisms 
to ensure that electronically transmitted information is not improperly 
modified without detection (see Sec.  164.312(c)(1)).
    e. Comment: Three commenters asked for clarification and guidance 
regarding the unsolicited electronic receipt of health information in 
an unsecured manner, for example, when the information was submitted by 
a patient via e-mail over the Internet. Commenters asked for guidance 
as to what was their obligation to protect data received in this 
manner.
    Response: The manner in which electronic protected health 
information is received by a covered entity does not affect the 
requirement that security protection must subsequently be afforded to 
that information by the covered entity once that information is in 
possession of the covered entity.
6. Proposed Requirements Not Adopted in This Final Rule
a. Authorization Control
    We proposed, under ``Technical Security Services to Guard Data 
Integrity, Confidentiality, and Availability,'' that a mechanism be 
required for obtaining consent for the use and disclosure of health 
information using either ``Role-based access'' or ``User-based access'' 
controls. In this final rule, we do not adopt this requirement.
    Comment: We received a large number of comments regarding use of 
the word ``consent.'' It was pointed out that this could be construed 
to mean patient consent to the use or disclosure of patient 
information, which would make this a privacy issue, rather than one of 
security. Other comments suggested deletion of the requirement in its 
entirety. We received a comment asking for clarification about the 
distinction between ``Access control'' and ``Authorizations.''
    Response: These requirements were intended to address authorization 
of workforce members and others for the use and disclosure of health 
information, not patient consent. Upon reviewing the differences 
between ``Access control'' and ``Authorization control,'' we found it 
to be unnecessary to retain ``Authorization control'' as a separate 
requirement. Both the access control and the authorization control 
proposed requirements involved implementation of types of automated 
access controls, that is, role-based access and user-based access. It 
can be argued that the process of managing access involves allowing and 
restricting access to those individuals that have been authorized to 
access the data. The intent of the proposed authorization control 
implementation feature is now

[[Page 8358]]

 incorporated in the access authorization implementation specification 
under the information access management standard in Sec.  
164.308(a)(4). Under the information access management standard, a 
covered entity must implement, if appropriate and reasonable to its 
situation, policies and procedures first to authorize a person to 
access electronic protected health information and then to actually 
establish such access. These policies and procedures will enable 
entities to follow the Privacy Rule minimum necessary requirements, 
which provide when persons should have access to information.

H. Organizational Requirements (Sec.  164.314)

    We proposed that each health care clearinghouse must comply with 
the security standards to ensure all health information and activities 
are protected from unauthorized access. If the clearinghouse is part of 
a larger organization, then unauthorized access by the larger 
organization must be prevented. We also proposed that parties 
processing data through a third party would be required to enter into a 
chain of trust partner agreement, a contract in which the parties agree 
to electronically exchange data and to protect the transmitted data in 
accordance with the security standards.
    In this final rule, we have adopted the concepts of hybrid and 
affiliated entities, as previously defined in Sec.  164.504, and now 
defined in Sec.  164.103, and business associates as defined in Sec.  
160.103, to be consistent with the Privacy Rule. General organizational 
requirements related to affiliated covered entities and hybrid entities 
are now contained in a new Sec.  164.105. The proposed chain of trust 
partner agreement has been replaced by the standards for business 
associate contracts or other arrangements and the standards for group 
health plans. Consistent with the statute and the policy of the Privacy 
Rule, this final rule does not require noncovered entities to comply 
with the security standards.
1. Health Care Clearinghouses
    The proposed rule proposed that if a health care clearinghouse were 
part of a larger organization, it would be required to ensure that all 
health information pertaining to an individual is protected from 
unauthorized access by the larger organization; this statement closely 
tracked the statutory language in section 1173(d)(1)(B) of the Act. 
Since the point of the statutory language is to ensure that health care 
information in the possession of a health care clearinghouse is not 
inappropriately accessed by the larger organization of which it is a 
part, this final rule implements the statutory language through the 
information access management provision of Sec.  164.308(a)(4)(ii)(A).
    The final rule, at Sec.  164.105, makes the health care component 
and affiliated entity standards of the Privacy Rule applicable to the 
security standards. Therefore, we have not changed those standards 
substantively. In pertaining to the Privacy Rule, we have simply moved 
them to a new location in part 164. Any differences between Sec.  
164.105 and Sec.  164.504(a) through (d) reflects the addition of 
requirements specific to the security standards.
    The health care component approach was developed in response to 
extensive comment received principally on the Privacy Rule. See 65 FR 
82502 through 82503 and 82637 through 82640 for a discussion of the 
policy concerns underlying the health care component approach. Since 
the security standards are intended to support the protection of 
electronic information protected by the Privacy Rule, it makes sense to 
incorporate organizational requirements that parallel those required of 
covered entities by the Privacy Rule. This policy will also minimize 
the burden of complying with both rules.
    a. Comment: Relative to the following preamble statement (63 FR 
43258): ``If the clearinghouse is part of a larger organization, then 
security must be imposed to prevent unauthorized access by the larger 
organization.'' One commenter asked what is considered to be ``the 
larger organization.'' For example, if a clearinghouse function occurs 
in a department of a larger business entity, will the regulation cover 
all internal electronic communication, such as e-mail, within the 
larger business and all external electronic communication, such as e-
mail with its owners?
    Response: The ``larger organization'' is the overall business 
entity that a clearinghouse would be part of. Under the Security Rule, 
the larger organization must assure that the health care clearinghouse 
function has instituted measures to ensure only that electronic 
protected health information that it processes is not improperly 
accessed by unauthorized persons or other entities, including the 
larger organization. Internal electronic communication within the 
larger organization will not be covered by the rule if it does not 
involve the clearinghouse, assuming that it has designated health care 
components, of which the health care clearinghouse is one. External 
communication must be protected as sent by the clearinghouse, but need 
not be protected once received.
    b. Comment: One commenter asked that the first sentence in Sec.  
142.306(b) of the proposed rule, ``If a health care clearinghouse is 
part of a larger organization, it must assure all health information is 
protected from unauthorized access by the larger organization'' be 
expanded to read, ``If a health care clearinghouse or any other health 
care entity is part of a larger organization . . .''
    Response: The Act specifically provides, at section 1173(d)(1)(B), 
that the Secretary must adopt standards to ensure that a health care 
clearinghouse, if part of a larger organization, has policies and 
security procedures to protect information from unauthorized access by 
the larger organization.
    Health care providers and health plans are often part of larger 
organizations that are not themselves health care providers or health 
plans. The security measures implemented by health plans and covered 
health care providers should protect electronic protected health 
information in circumstances such as the one identified by the 
commenter. Therefore, we agree with the comment that the requirement 
should be expanded as suggested by the commenter. In this final rule, 
those components of a hybrid entity that are designated as health care 
components must comply with the security standards and protect against 
unauthorized access with respect to the other components of the larger 
entity in the same way as they must deal with separate entities.
2. Business Associate Contracts and Other Arrangements
    We proposed that parties processing data through a third party 
would be required to enter into a chain of trust partner agreement, a 
contract in which the parties agree to electronically exchange data and 
to protect the transmitted data. This final rule narrows the scope of 
agreements required. It essentially tracks the provisions in Sec.  
164.502(e) and Sec.  164.504(e) of the Privacy Rule, although 
appropriate modifications have been made in this rule to the required 
elements of the contract.
    In this final rule, a contract between a covered entity and a 
business associate must provide that the business associate must--(1) 
implement safeguards that reasonably and appropriately protect the 
confidentiality, integrity, and availability of the electronic 
protected health information that it creates,

[[Page 8359]]

receives, maintains, or transmits on behalf of the covered entity; (2) 
ensure that any agent, including a subcontractor, to whom it provides 
this information agrees to implement reasonable and appropriate 
safeguards; (3) report to the covered entity any security incident of 
which it becomes aware; (4) make its policies and procedures, and 
documentation required by this subpart relating to such safeguards, 
available to the Secretary for purposes of determining the covered 
entity's compliance with this subpart; and (5) authorize termination of 
the contract by the covered entity if the covered entity determines 
that the business associate has violated a material term of the 
contract.
    When a covered entity and its business associate are both 
governmental entities, an ``other arrangement'' is sufficient. The 
covered entity is in compliance with this standard if it enters into a 
memorandum of understanding with the business associate that contains 
terms that accomplish the objectives of the above-described business 
associate contract. However, the covered entity may omit from this 
memorandum the termination authorization required by the business 
associate contract provisions if this authorization is inconsistent 
with the statutory obligations of the covered entity or its business 
associate. If other law (including regulations adopted by the covered 
entity or its business associate) contains requirements applicable to 
the business associate that accomplish the objectives of the above-
described business associate contract, a contract or agreement is not 
required. If a covered entity enters into other arrangements with 
another governmental entity that is a business associate, such 
arrangements may omit provisions equivalent to the termination 
authorization required by the business associate contract, if 
inconsistent with the statutory obligation of the covered entity or its 
business associate.
    If a business associate is required by law to perform a function or 
activity on behalf of a covered entity or to provide a service 
described in the definition of business associate in Sec.  160.103 of 
this subchapter to a covered entity, the covered entity may permit the 
business associate to receive, create, maintain, or transmit electronic 
protected health information on its behalf to the extent necessary to 
comply with the legal mandate without meeting the requirements of the 
above-described business associate contract, provided that the covered 
entity attempts in good faith to obtain satisfactory assurances as 
required by the above described business associate contract and 
documents the attempt and the reasons that these assurances cannot be 
obtained.
    We have added a standard for group health plans that parallels the 
provisions of the Privacy Rule. It became apparent during the course of 
the security and privacy rulemaking that our original chain of trust 
approach was both overly broad in scope and failed to address 
appropriately the circumstances of certain covered entities, 
particularly the ERISA group health plans. These latter considerations 
and the solutions arrived at in the Privacy Rule are described in 
detail in the Privacy Rule at 65 FR 82507 through 82509. Because the 
purpose of the security standards is in part to reinforce privacy 
protections, it makes sense to align the organizational policies of the 
two rules. This decision should also make compliance less burdensome 
for covered entities than would a decision to have different 
organizational requirements for the two sets of rules.
    Thus, we have added at Sec.  164.314(b) a standard for group health 
plan that tracks the standard at Sec.  164.504(f) very closely. The 
purpose of these provisions is to ensure that, except when the 
electronic protected health information disclosed to a plan sponsor is 
summary health information or enrollment or disenrollment information 
as provided for by Sec.  164.504(f), group health plan documents 
provide that the plan sponsor will reasonably and appropriately 
safeguard electronic protected health information created, received, 
maintained or transmitted to or by the plan sponsor on behalf of the 
group health plan. The plan documents of the group health plan must be 
amended to incorporate provisions to require the plan sponsor to 
implement reasonable and appropriate safeguards to protect the 
confidentiality, integrity, and availability of the electronic 
protected health information that it creates, receives, maintains, or 
transmits on behalf of the group health plan; ensure that the adequate 
separation required by Sec.  164.504(f)(2)(iii) is supported by 
reasonable and appropriate security measures; ensure that any agents, 
including a subcontractor, to whom it provides this information agrees 
to implement reasonable and appropriate safeguards to protect the 
information; report to the group health plan any security incident of 
which it becomes aware; and make its policies and procedures and 
documentation relating to these safeguards available to the Secretary 
for purposes of determining the group health plan's compliance with 
this subpart.
    a. Comment: Several commenters expressed confusion concerning the 
applicability of proposed Sec.  142.104 to security.
    Response: The proposed preamble included language generally 
applicable to most of the proposed standards under HIPAA. Proposed 
Sec.  142.104 concerned general requirements for health plans relative 
to processing transactions. We proposed that plans could not refuse to 
conduct a transaction as a standard transaction, or delay or otherwise 
adversely affect a transaction on the grounds that it was a standard 
transaction; health information transmitted and received in connection 
with a transaction must be in the form of standard data elements; and 
plans conducting transactions through an agent must ensure that the 
agent met all the requirements that applied to the health plan. Except 
for the statement that a plan's agent (``business associate'' in the 
final rule) must meet the requirements (which would include security) 
that apply to the health plan, this proposed section did not pertain to 
the security standards and was addressed in the Transaction Rule.
    b. Comment: The majority of comments concerned proposed rule 
language stating ``the same level of security will be maintained at all 
links in the chain * * *'' Commenters believed the current language 
will have an adverse impact on one of the security standard's basic 
premises, which is scalability. It was requested that the language be 
changed to indicate that, while appropriate security must be 
maintained, all partners do not need to maintain the same level of 
security.
    A number of commenters expressed some confusion concerning their 
responsibility for the security of information once it has passed from 
their control to their trading partner's control, and so on down the 
trading partner chain. Requests were made that we clarify that chain of 
trust partner agreements were really between two parties, and that, if 
a trading partner agreement has been entered into, any given partner 
would not be responsible, or liable, for the security of data once it 
is out of his or her control.
    In line with this concern, several commenters were concerned that 
they would have some responsibility to ensure the level of security 
maintained by their trading partner.
    Several commenters believe a chain of trust partner agreement 
should not be a security requirement. One commenter stated that because 
covered entities must already conform to the regulation

[[Page 8360]]

requirements, a ``chain of trust'' agreement does not add to overall 
security. Compliance with the regulation should be sufficient.
    Response: We believe the commenters are correct that the rule as 
proposed would--(1) not allow for scalability; and (2) would lead an 
entity to believe it is responsible, and liable, for making sure all 
entities down the line maintain the same level of security. The 
confusion here seems to come from the phrase ``same level of 
security.'' Our intention was that each trading partner would maintain 
reasonable and appropriate safeguards to protect the information. We 
did not mean that partners would need to implement the same security 
technology or measures and procedures.
    We have replaced the proposed ``Chain of trust'' standard with a 
standard for ``Business associate contracts and other arrangements.''
    When another entity is acting as a business associate of a covered 
entity, we require the covered entity to require the other entity to 
protect the electronic protected health information that it creates, 
receives, maintains or transmits on the covered entity's behalf. The 
level of security afforded particular electronic protected health 
information should not decrease just because the covered entity has 
made the business decision to entrust a business associate with using 
or disclosing that information in connection with the performance of 
certain functions instead of doing those functions itself. Thus, the 
rule below requires covered entities to require their business 
associates to implement certain safeguards and take other measures to 
ensure that the information is safeguarded (see Sec.  164.308(b)(1) and 
Sec.  164.314(a)(1)).
    The specific requirements of Sec.  164.314(a)(1) are drawn from the 
analogous requirements at 45 CFR 164.504(e) of the Privacy Rule, 
although they have been adapted to reflect the objectives and context 
of the security standards. Compare, in particular, 45 CFR 
164.504(e)(2)(ii) with Sec.  164.314(a)(1). We have not imported all of 
the requirements of 45 CFR 164.504(e), however, as many have no clear 
analog in the security context (see, for example, 45 CFR 
164.504(e)(2)(i) regarding permitted and required uses and disclosures 
made by a business associate). HHS had previously committed to 
reconciling its security and privacy policies regarding business 
associates (see 65 FR 82643). The close relationship of many of the 
organizational requirements in section 164.314 with the analogous 
requirements of the Privacy Rule should facilitate the implementation 
and coordination of security and privacy policies and procedures by 
covered entities.
    In contrast, when another entity is not acting as a business 
associate for the covered entity, but rather is acting in the capacity 
of some other sort of trading partner, we do not require the covered 
entity to require the other entity to adopt particular security 
measures, as previously proposed. This policy is likewise consistent 
with the general approach of the Privacy Rule (see the discussion in 
the Privacy Rule at 65 FR 82476). The covered entity is free to 
negotiate security arrangements with its non-business associate trading 
partners, but this rule does not require it to do so.
    A similar approach underlies Sec.  164.314(b) below. These 
provisions are likewise drawn from, and intended to support, the 
analogous privacy protections provided for by 45 CFR 164.504(f) (see 
the discussion of Sec.  164.504(f) of the Privacy Rule at 65 FR 82507 
through 82509, and 82646 through 82648). As with the business associate 
contract provisions, however, they are imported and adapted only to the 
extent they make sense in the security context. Thus, for example, the 
requirement at Sec.  164.504(f)(2)(ii)(C) prohibits the plan documents 
from permitting disclosure of protected health information to the plan 
sponsor for employment-related purposes. As this prohibition goes 
entirely to the permissibility of a particular type of disclosure, it 
has no analog in Sec.  164.314(b).
    c. Comment: Several commenters stated that if security features are 
determined by agreements established between ``trading partners,'' as 
stated in the proposed regulations, there should be some guidelines or 
boundaries for those agreements so that extreme or unusual provisions 
are not permitted.
    Response: This final rule sets a baseline, or minimum level, of 
security measures that must be taken by a covered entity and stipulates 
that a business associate must also implement reasonable and 
appropriate safeguards. This final rule does not, however, prohibit a 
covered entity from employing more stringent security measures or from 
requiring a business associate to employ more stringent security 
measures. A covered entity may determine that, in order to do business 
with it, a business associate must also employ equivalent measures. 
This would be a business decision and would not be governed by the 
provisions of this rule. Security mechanisms relative to the 
transmission of electronic protected health information between 
entities may need to be agreed upon by both parties in order to 
successfully complete the transmission. However, the determination of 
the specific transmission mechanisms and the specific security features 
to be implemented remains a business decision.
    d. Comment: Several commenters asked whether existing contracts 
could be used to meet the requirement for a trading partner agreement, 
or does the rule require entry into a new contract specific to this 
purpose. Also, the commenters want to know about those whose working 
agreements do not involve written contractual agreement: Do they now 
need to set up formal agreements and incur the additional expense that 
would entail?
    Response: This final rule requires written agreements between 
covered entities and business associates. New contracts do not have to 
be entered into specifically for this purpose, if existing written 
contracts adequately address the applicable requirements (or can be 
amended to do so).
    e. Comment: Several commenters asked whether covered entities are 
responsible for the security of all individual health information sent 
to them, or only information sent by chain of trust partners. They also 
asked if they can refuse to process standard transactions sent to them 
in an unsecured fashion. In addition, they inquired if they can refuse 
to send secured information in standard transactions to entities not 
required by law to secure the information. One commenter asked if there 
is a formula for understanding in any particular set of relationships 
where the ultimate responsibility for compliance with the standards 
would lie.
    Response: Pursuant to the Transactions Rule, if a health plan 
receives an unsecured standard transaction, it may not refuse to 
process that transaction simply because it was sent in an unsecured 
manner. The health plan is not responsible under this rule, for how the 
transaction was sent to it (unless the transmission was made by a 
business associate, in which case different considerations apply); 
however, once electronic protected health information is in the 
possession of a covered entity, the covered entity is responsible for 
the security of the electronic protected health information received. 
The covered entity must implement technical security mechanisms to 
guard against unauthorized access to electronic protected health 
information that is transmitted over an electronic communication 
network. In addition, the rule requires the transmitting

[[Page 8361]]

covered entity to obtain written assurance from a business associate 
receiving the transmission that it will provide an adequate level of 
protection to the information. For the business associate provisions, 
see Sec.  164.308(b) and Sec.  164.314(a) of this final rule.
    f. Comment: One commenter asked what security standards a vendor 
having access to a covered entity's health information during 
development, testing, and repair must meet and wanted to know whether 
the rule anticipates having a double layer of security compliance (one 
at the user level and one at the vendor level). If so, the commenter 
believes this will cause duplication of work.
    Response: In the situation described, the vendor would be acting as 
a business associate. The covered entity must require the business 
associate to implement reasonable and appropriate security protections 
of electronic protected health information. This requirement, however, 
does not impose detailed requirements for how that level of protection 
must be achieved. The resulting flexibility should permit entities and 
their business associates to adapt their security safeguards in ways 
that make sense in their particular environments.
    g. Comment: A number of commenters requested sample contract 
language or models of contracts. We also received one comment that 
suggested that we should not dictate the contents of contracted 
agreements.
    Response: We will consider developing sample contract language as 
part of our guideline development.

I. Policies and Procedures and Documentation Requirements (Sec.  
164.316)

    We proposed requiring documented policies and procedures for the 
routine and nonroutine receipt, manipulation, storage, dissemination, 
transmission, and/or disposal of health information. We proposed that 
the documentation be reviewed and updated periodically.
    We have emphasized throughout this final rule the scalability 
allowed by the security standards. This final rule requires covered 
entities to implement policies and procedures that are reasonably 
designed, taking into account the size and type of activities of the 
covered entity that relate to electronic protected health information, 
and requires that the policies and procedures must be documented in 
written form, which may be in electronic form. This final rule also 
provides that a covered entity may change its policies and procedures 
at any time, provided that it documents and implements the changes in 
accordance with the applicable requirements. Covered entities must also 
document designations, for example, of affiliation between covered 
entities (see Sec.  164.105(b)), and other actions, as required by 
other provisions of the subpart.
    1. Comment: One commenter wanted development of written policies 
regarding such things as confidentiality and privacy rights for access 
to medical records, and approval of research by a review board when 
appropriate.
    Response: These issues are covered in the Privacy Rule (65 FR 
82462) (see, in particular, Sec.  164.512(i), Sec.  164.524, and Sec.  
164.530(i)).
    2. Comment: One commenter asked if standards will override 
agreements that require others to maintain hardcopy documentation (for 
example, signature on file) and no longer require submitters to 
maintain hardcopy documentation.
    Response: The security standards will require a minimum level of 
documentation of security practices. Any agreements between trading 
partners for the exchange of electronic protected health information 
that impose additional documentation requirements will not be 
overridden by this final rule.
    3. Comment: One commenter stated that there should be a requirement 
to document only applications deemed necessary by an applications and 
data criticality assessment.
    Response: Electronic protected health information must be afforded 
security protection under this rule regardless of what application it 
resides in. The measures taken to protect that information must be 
documented.
    4. Comment: One commenter asked how detailed the documentation must 
be. Another commenter asked what ``kept current'' meant.
    Response: Documentation must be detailed enough to communicate the 
security measures taken and to facilitate periodic evaluations pursuant 
to Sec.  164.308(a)(8). While the term ``current'' is not in the final 
rule, this concept has been adopted in the requirement that 
documentation must be updated as needed to reflect security measures 
currently in effect.
    5. Comment: We received one comment concerning review and updating 
of implementing documentation suggesting that ``periodically'' be 
changed to ``at least annually.''
    Response: We believe that the requirement should remain as written, 
in order to allow individual entities to establish review and update 
cycles as deemed necessary. The need for review and update will vary 
dependent upon a given entity's size, configuration, environment, 
operational changes, and the security measures implemented.

J. Compliance Dates for Initial Implementation (Sec.  164.318)

    We proposed that how the security standard would be implemented by 
each covered entity would be dependent upon industry trading partner 
agreements for electronic transmissions. Covered entities would be able 
to adapt the security matrix to meet business needs. We suggested that 
requirements of the security standard may be implemented earlier than 
the compliance date. However, we would require implementation to be 
complete by the applicable compliance date, which is 24 months after 
adoption of the standard, and 36 months after adoption of the standard 
for small health plans, as provided by the Act. In the proposed rule, 
we suggested that an entity choosing to convert from paper to standard 
EDI transactions, before the effective date of the security standard, 
consider implementing the security standard at the same time.
    In this final rule the dates by which entities must be in 
compliance with the standards are called ``compliance dates,'' 
consistent with our practice in the Transactions, Privacy, and Employer 
Identifier Rules. Section 164.318 in this final rule is also organized 
consistent with the format of those rules. The substantive 
requirements, which are statutory, remain unchanged.
    Many of the comments received concerning effective dates and 
compliance dates, including the compliance dates for modifications of 
standards, were addressed in the Transactions Rule. Those that were not 
addressed in that publication are presented below.
    1. Comment: A number of commenters expressed support for the 
effective dates of the rules and stated that they should not be 
delayed. In contrast, one commenter stated that we should delay this 
rule to allow for an open consensus building debate to occur concerning 
security. One commenter asked that the rule be delayed until after 
implementation of the ICD-CM changes.
    A number of comments were received expressing the opinion that the 
security regulation should not be published until either the Congress 
has enacted legislation governing standards with respect to the privacy 
of individually identifiable health information, or the Secretary of 
HHS has promulgated final regulations containing these standards. One 
commenter stated, ``we find

[[Page 8362]]

ourselves in the difficult position of reacting to proposed rules 
setting the standards for how information should be physically and 
electronically protected, without having reached agreement on the 
larger issues of consent for and disclosure of individual medical 
information.''
    Response: The effective date of the final rule is 60 days after 
this final rule is published in the Federal Register. The statute sets 
forth the compliance dates for the standards. Covered entities must 
comply with this final rule no later than 24 months (36 months for 
small plans) after the effective date.
    The final Privacy Rule has already been published. We note that 
numerous comments concerning the timing of the adoption of privacy and 
security standards were also received in the privacy rulemaking and are 
discussed in the Privacy Rule at 65 FR 82752.
    2. Comment: One commenter asked that proposed Sec.  142.312 be 
rewritten to separate the effective dates for the Security Rule and the 
Transactions Rule.
    Response: The proposed rule incorporated general language 
applicable to all the proposed Administrative Simplification standards. 
Language concerning standards other than Security is not included in 
Sec.  164.318. Because this final rule is adopted after the 
Transactions Rule was adopted, the compliance dates for the security 
standards differ from those for the transactions standards. Comments 
concerning general effective dates were addressed in the Transactions 
Rule. Comments specific to the security standards are addressed here.
    3. Comment: Several commenters suggested that we not allow early 
implementation of the Security Rules. A number of others asked that we 
allow, but not require, early implementation by willing trading 
partners. Another commenter suggested that early implementation by 
willing trading partners be allowed as long as the data content 
transmitted is equal to that required by statute. Another commenter 
requested that it be stipulated that entities cannot implement less 
than 1 year from the date of this final rule and then only after 
successful testing, and that a ``start testing by'' date be defined.
    Response: Whether or not to implement before the compliance date is 
a business decision that each covered entity must make. Moreover, the 
vast majority of the standards address internal policies and procedures 
that can be implemented at any time without any impact on trading 
partners.
    4. Comment: One commenter asked us to establish a research site or 
test laboratory for a trial implementation.
    Response: The concept of a ``trial implementation'' that would have 
widespread relevance is inconsistent with our basic principles of 
flexibility, scalability, and technology-neutrality.
    5. Comment: One commenter stated that the 2-year time frame for 
implementation of a contingency plan is too short for health plans that 
serve multiple regions of the country.
    Response: The Congress mandated that entities must be in compliance 
2 years from the initial standard's adoption date (3 years for small 
plans).

K. Appendix

    The proposed rule contained three addenda. Addendum 1 set out in 
matrix form the proposed requirements and related implementation 
features of the proposed rule. Addendum 2 set out in list form a 
glossary of terms with citations to the sources of those terms. 
Addendum 3 identified and mapped areas of overlap in the proposed 
security standard and implementation features.
    This final rule retains only the first proposed addendum, the 
matrix, as an appendix, that is modified to reflect the changes in the 
administrative, physical, and technical safeguard portions of the rule 
below. Numerous terms in the glossary now appear in the rule below, 
typically (but not always) as definitions.
    1. Comment: Over two-thirds of the comments received on this topic 
asked that the matrix be incorporated into the final rule. One 
commenter asked that a simplified version be made part of the final 
rule. Six commenters wanted it kept in this final rule as an addendum. 
One commenter stated that it should be in an appendix to the rule, 
while others stated that it should not be included in this final rule.
    Response: Since a significant majority of commenters requested 
retention of the matrix, it has been incorporated into this final rule 
as an appendix. The matrix displays, in tabular form, the 
administrative, physical, and technical safeguard standards and 
relating implementation specifications described in this final rule in 
Sec.  164.308, Sec.  164.310, and Sec.  164.312. It should be noted 
that the requirements of Sec.  164.105, Sec.  164.314, and Sec.  
164.316 are not presented in the matrix.
    2. Comment: A large majority of commenters stated that the glossary 
located in Addendum 2 of the proposed rule should be included as part 
of the final rule. Several commenters asked that it be incorporated 
into the definitions section of the final rule. One commenter stated 
that the glossary should not be part of this final rule.
    Response: The terms defined in the glossary in Addendum 2 of the 
proposed rule are found throughout this final rule, either as part of 
the text of Sec.  164.306 through Sec.  164.312 or under Sec.  164.304, 
as appropriate. We included only terms relevant to the particular 
standards and implementation specifications being adopted.
    3. Comment: Several commenters requested that the mapped matrix 
located in Addendum 3 of the proposed rule be included in this final 
rule, either as part of the rule or as an addendum, while others stated 
that it should not be part of this final rule. Several commenters cited 
items to be added to the mapped matrix.
    Response: The mapped matrix was merely a snapshot of current 
standards and guidelines that the implementation team was able to 
obtain for review during the development of the security and electronic 
signature requirements and was provided in the proposed rule as 
background material. Since this matrix has not been fully populated or 
kept up-to-date, it is not being published as part of this final rule. 
Where relevant, we do reference various standards and guidelines 
indicated in the matrix in this preamble.

L. Miscellaneous Issues

1. Preemption
    The statute requires generally that the security standards 
supersede contrary provisions of State law including State law 
requiring medical or health plan records to be maintained or 
transmitted in written rather than electronic formats. The statute 
provides certain exceptions to the general rule; section 1178(a)(2) of 
the Act identifies conditions under which an exception applies. The 
proposed rule did not provide for a process for making exception 
determinations; rather, a process was proposed in the privacy 
rulemaking and was adopted with the Privacy Rule (see part 160, subpart 
B). This process applies to exception determinations for all of the 
Administrative Simplification rules, including this rule.
    a. Comment: Several commenters stated that the proposed rule does 
not include substantive protections for the privacy rights of patients' 
electronic medical records, while the rule attempts to preempt State 
privacy laws with respect to these records. Comments stated that, by 
omitting a clarification of State privacy law applicability, the 
proposed rule creates confusion. They believe that the rule must 
contain

[[Page 8363]]

express and specific exemptions of State laws with respect to medical 
privacy.
    Response: The Privacy Rule establishes standards for the rights of 
patients in regard to the privacy of their medical records and for the 
allowable uses and disclosures of protected health information. The 
identified concerns were discussed in the Privacy Rule (see 65 FR 82587 
through 82588). The security standards do not specifically address 
privacy but will safeguard electronic protected health information 
against unauthorized access or modification.
    b. Comment: One commenter asked how these regulations relate to 
confidentiality laws, which vary from State to State.
    Response: It is difficult to respond to this question in the 
abstract without the benefit of reference to a specific State statute. 
However, in general, these security standards will preempt contrary 
State laws. Per section 1178(a)(2) of the Act, this general rule would 
not hold if the Secretary determines that a contrary provision of State 
law is necessary for certain identified purposes to prevent fraud and 
abuse; to ensure appropriate State regulation of insurance and health 
plans; for State reporting on health care delivery costs; or if it 
addresses controlled substances. See 45 CFR part 160 subpart B. In such 
case, the contrary provision of State law would preempt a Federal 
provision of these security standards. State laws that are related but 
not contrary to this final rule, will not be affected.
    Section 1178 of the Act also limits the preemptive effect of the 
Federal requirements on certain State laws other than where the 
Secretary makes certain determinations. Section 1178(b) of the Act 
provides that State laws for reporting of disease and other conditions 
and for public health surveillance, investigation, or intervention are 
not invalidated or limited by the Administrative Simplification rules. 
Section 1178(c) of the Act provides that the Federal requirements do 
not limit States' abilities to require that health plans report or 
provide access to certain information.
    c. Comment: Several commenters stated that allowing State law to 
establish additional security restrictions conflicts with the purpose 
of the Federal rule and/or would make implementation very difficult. 
One commenter asked for clarification as to whether additional 
requirements tighter than the requirements outlined in the proposed 
rule may be imposed.
    Response: The general rule is that the security standards in this 
final rule supersede contrary State law. Only where the Secretary has 
granted an exception under section 1178(a)(2)(A) of the Act, or in 
situations under section 1178(b) or (c) of the Act, will the general 
rule not hold true. Covered entities may be required to adhere to 
stricter State-imposed security measures that are not contrary to this 
final rule.
2. Enforcement
    The proposed rule did not contain specific enforcement provisions. 
This final rule likewise does not contain specific enforcement 
provisions; it is expected that enforcement provisions applicable to 
all Administrative Simplification rules will be proposed in a future 
rulemaking.
    a. Comment: One commenter voiced support for the proposed rule's 
approach. Another stated that the process is poorly defined. One 
commenter stated that fines should be eliminated, or the scope of 
activity subject to fines should be more narrowly defined.
    While a number of commenters were of the opinion that HHS must 
retain enforcement responsibility, stating that it would be 
unconstitutional to give it to a private entity, several others stated 
that it may not be practical for HHS to retain the responsibility for 
determining violations and imposing penalties specified by the statute. 
A concern was voiced over HHS's ability to fairly and consistently 
apply the rules due to budget constraints. Several commenters support 
industry solutions to enforcement with some level of government 
involvement. One commenter recommended a single audit process using 
accrediting bodies already in place. Another stated that entities 
providing accreditation services should not be involved in enforcement 
as this would result in a conflict of interest.
    Clarification was requested, including the use of examples, 
concerning what constitutes a violation, and how a penalty applies to a 
``person.'' Commenters asked if the term ``person'' referred to the 
people responsible for the system and how penalties would apply to 
corporations and other entities.
    Response: It is expected that enforcement of HIPAA standards will 
be addressed in regulations to be issued at a later date.
    b. Comment: Several commenters stated that enforcement of the 
security standards will be arbitrarily delegated to private businesses 
that compete with physicians and with each other.
    Response: These comments are premature for the reasons stated 
above.
3. Comment Period
    The comment period on the proposed rule was 60 days.
    Comment: We received comments suggesting that significant changes 
to the standards could occur in the final rule as a result of changes 
made in response to comments. The commenter believes such changes could 
adversely affect payers and providers, and suggested that the rule 
should be republished as a proposed rule with a new comment period to 
allow additional comments concerning any changes. A ``work-in-
progress'' approach was also suggested, to give all stakeholders time 
to read, analyze, and comment upon evolving versions of a particular 
proposed rule.
    Response: We have not accepted these suggestions. The numerous 
comments received were thoughtful, analytical, detailed, and addressed 
every area of the proposed rule. This response to the proposed rule 
indicates that the public had ample time to read, analyze, and comment 
upon the proposed rule. If we were to treat the rule as a ``work-in-
progress'' and issue evolving versions, allowing for comments to each 
version, we would never implement the statute and achieve 
administrative simplification as directed by the Congress.

M. Proposed Impact Analysis

    The preamble to the Transactions Rule contains comments and 
responses on the impact of all the administrative simplification 
standards in general except privacy. Comments and responses specific to 
the relative impact of implementing this final rule are presented 
below.
    a. Comment: Several commenters stated that the proposed security 
standards are complex, costly, administratively burdensome, and could 
result in decreased use of EDI. One commenter stated that this rule 
runs counter to the explicit intent of Administrative Simplification 
that requires, ``any standard adopted under this part shall be 
consistent with the objective of reducing the administrative costs of 
providing and paying for health care.''
    Several commenters expressed concern that there was no cost benefit 
analysis provided for these proposed regulations, stating that, faced 
with increasingly limited resources, it is essential that a security 
standards cost/benefit analysis for all health care trading partners be 
provided. Another said an independent cost estimate by the General 
Accounting Office (GAO) should be performed on these rules and

[[Page 8364]]

HHS cost estimates should be publicized for comparison purposes.
    Still another commenter stated that HHS must provide accurate 
public sector implementation cost figures and provide funds to offset 
the cost burden.
    One commenter asked for cost benefit evaluations to understand the 
relationship between competing technologies, levels of security and 
potential threats to be guarded against. These would demonstrate the 
costs and the benefits to be gained for both large and small 
organizations and would provide an understanding of how the levels of 
security vary by organization size and what the inducements and support 
available to facilitate adoption are. One commenter suggested that we 
establish a workgroup to more fully assess the costs and provide 
Federal funds to offset implementation costs.
    One commenter noted a seeming disconnect between two statements in 
the preamble. Section A, Security standards, states, ``no individual 
small entity is expected to experience direct costs that exceed 
benefits as a result of this rule.'' In contrast, section E, Factors in 
establishing the security standards reads, ``We cannot estimate the 
per-entity cost of implementation because there is no information 
available regarding the extent to which providers', plans', and 
clearinghouses' current security practices are deficient.''
    Response: We are unable to estimate, of the nation's 2 million-plus 
health plans and 1 million-plus providers that conduct electronic 
transactions, the number of entities that would require new or modified 
security safeguards and procedures beyond what they currently have in 
place. Nor are we able to estimate the number of entities that neither 
conduct electronic transactions nor maintain individually identifiable 
electronic health information but may become covered entities at some 
future time. As we are unable to estimate the number of entities and 
what measures are or are not already in place, or what specific 
implementation will be chosen to meet the requirements of the 
regulation, we are also unable to estimate the cost to those entities.
    However, the use of electronic technology to maintain or transmit 
health information results in many new and potentially large risks. 
These risks represent expected costs, both monetary and social. Leaving 
risk assessment up to individual entities will minimize the impact and 
ensure that security effort is proportional to security risk.
    As discussed earlier, the security requirements are both scalable 
and technically flexible. We have made significant changes to this 
final rule, reducing the number of required implementation features and 
providing for greater flexibility in satisfaction of the requirements. 
In other words, we have focused more on what needs to be done and less 
on how it should be accomplished.
    We have removed the statement regarding the extent of costs versus 
benefits for small entities.
    b. Comment: One commenter stated that on page 43262 of the proposed 
rule, it indicate that complexity of conversion to the security 
standards would be affected by the choice to use a clearinghouse. The 
commenter stated that this choice would have little effect on 
implementation of security standards. Another commenter stated that the 
complexity (and cost) of the conversion to meet the security standards 
is affected by far more than just the ``volume of claims health plans 
process electronically and the desire to transmit the claims or to use 
the services of a VAN or clearinghouse'' as is stated on page 43262. 
Because the security standards apply to internal systems as well as to 
transactions between entities, a number of additional factors must be 
considered, for example, modification of existing security mechanisms, 
legacy systems, architecture, and culture.
    Response: We agree. We have modified the Regulatory Impact Analysis 
section to take into account that there are other factors involved, 
such as the architecture and technology limitations of existing 
systems.
    c. Comment: One commenter stated that States will need 90 percent 
funding of development and implementation, without the burden of an 
advanced planning documents requirement, from us for this costly 
process to succeed. Any new operational obligation should be 100 
percent funded. Also human resource obligations will be significant. 
Some States believe they will have difficulty obtaining the budget 
funds for the State share of the costs. State Medicaid agencies, as 
purchasers, may also face paying the implementation costs of health 
care providers, clearinghouses, and health plans in the form of higher 
rates.
    Response: The statute does not authorize any new or special funding 
for implementation of the regulations. Medicaid system changes, simply 
because they are ``HIPAA related'' do not automatically qualify for 90 
percent Federal funding participation. As with any systems request, the 
usual rules will be applied to determine funding eligibility for State 
HIPAA initiatives. Nevertheless, HHS recognizes that there are 
significant issues regarding the funding and implementation of HIPAA by 
Medicaid State agencies, and intends to address them through normal 
channels of communication with States.
    d. Comment: One commenter stated that the proposed rule does not 
establish how the security standards will contribute to reduced cost 
for providers. One commenter expected the unintended result of this 
regulation will be impediment of EDI growth and perhaps even a decline 
in EDI use by providers. Another stated that the proposed rule actively 
discourages physician EDI participation by suggesting a fallback to 
paper processing for those unable to meet the cost of highly complex 
security compliance.
    Response: Ensuring the integrity of an electronic message, its 
delivery to the correct person, and its confidentiality must be an 
integral part of conducting electronic commerce. We believe that the 
consistent application of the measures provided in this rule will 
actually encourage use of EDI because it will provide increased 
confidence in the reliability and confidentiality of health information 
to all parties involved. Also, the implementation of these security 
requirements will reduce the potential overall cost of risk to a 
greater extent than additional security controls will increase costs. 
Put another way, the potential cost of not reasonably addressing 
security risks could substantially exceed the cost of compliance.
    e. Comment: One commenter stated that the implementation impact of 
the technical safeguards is clearly understated for physicians who use 
digitally-based equipment that has been in place for some time. The 
commenter believes that the rule will likely have greatest impact on 
the installed base of digital systems, including imaging modalities and 
other medical devices that store or transmit patient information 
because software for legacy systems will likely require retrofitting or 
replacement to come into compliance. The commenter believes that this 
is a negative impact and would outweigh any benefits derived from the 
potential risk of security breaches. The commenter recommended 
compliance for digital imaging devices be extended by an additional 3 
years to allow time to upgrade systems and defray the associated costs.
    Response: Compliance dates for the initial implementation of the 
initial standards are statutorily prescribed; therefore, we are unable 
to allow additional time outside of the statutory timeframes for 
compliance.
    f. Comment: A commenter stated that, as a new regulatory mandate, 
HIPAA

[[Page 8365]]

costs must be factored into any base year calculations for the proposed 
prospective payment system. Without an adjustment, this will be another 
regulatory mandate that comes at the cost of patient care.
    Response: Costs included in the prospective payment system are 
legislatively mandated. The Congress did not direct the inclusion of 
HIPAA costs into the system, so they are not included. However, the 
Department believes that the HIPAA standards will provide savings to 
the provider community over the next 10 years.
    g. Comment: One commenter suggested that we include requirements 
for how a compliant business could dually operate--(1) in a HIPAA 
compliant manner; and (2) in their former noncompliant manner in order 
to accommodate doing business with other organizations that are not yet 
compliant.
    Response: The statute imposes a 2-year implementation period 
between the adoption of the initial standards and the date by which 
covered entities (except small health plans) must be in compliance. An 
entity may come into compliance at any point in time during the 2 
years. Therefore, the rule does not require a covered entity to comply 
before the established compliance date. Those entities that come into 
compliance before the 2-year deadline should decide how best to deal 
with entities that are not yet compliant. Further, we note that, 
generally speaking, compliance by a covered entity with these security 
rules will not hinge on compliance by other entities.
    h. Comment: One commenter stated that privacy legislation could 
impose significant changes to written policies and procedures on 
authorization, access to health information, and how sensitive 
information is disclosed to others. The commenter believes these 
changes could mean the imposition of security requirements different 
from those contained in the proposed rule, and money spent complying 
with the security provisions could be ill spent if significant new 
requirements result from the privacy legislation.
    Response: The privacy standards at subpart E of 42 CFR part 164 are 
now in effect, and this final rule is compatible with them. If, in the 
future, the Congress passes a law whose provisions differ from these 
standards, the standards would have to be modified.
    i. Comment: One commenter stated that the private sector should 
develop educational tools or models in order to assist physicians, 
other providers, and health plans to comply with the security 
regulations.
    Response: We agree. The health care industry is striving to do 
this. HHS is also considering provider outreach and education 
activities.

IV. Provisions of the Final Regulation

    We have made the following changes to the provisions of the August 
12, 1998 proposed rule. Specifically, we have--
    [sbull] Changed the CFR part from 142 to 164.
    [sbull] Removed information throughout the document pertaining to 
electronic signature standards. Electronic signature standards will be 
published in a separate final rule.
    [sbull] Replaced the word ``requirement,'' when referring to a 
standard, with ``standard.'' Replaced ``Implementation feature'' with 
``Implementation specification.''
    [sbull] Made minor modifications to the text throughout the 
document for purposes of clarity.
    [sbull] Modified numerous implementation features so that they are 
now addressable rather than mandatory.
    [sbull] Removed the word ``formal'' when referring to 
documentation.
    [sbull] Revised the phrase ``health information pertaining to an 
individual'' to ``electronic protected health information.''
    [sbull] Added the following definitions to Sec.  160.103: 
``Disclosure,'' ``Electronic protected health information,'' 
``Electronic media,'' ``Organized health care arrangement,'' and 
``Use.''
    [sbull] Removed proposed Sec.  142.101 as this information is 
conveyed in Sec.  160.101 and Sec.  160.102 of the Privacy Rule (65 FR 
82798). Removed proposed Sec.  142.102 as it is redundant.
    [sbull] Removed the following definitions from proposed Sec.  
142.103 since they are pertinent to other administrative simplification 
regulations and are defined elsewhere: code set, health care 
clearinghouse, health care provider, health information, health plan, 
medical care, small health plan, standard, and transaction.
    [sbull] Moved the following definitions from Sec.  164.501 to Sec.  
164.103 (proposed Sec.  142.103): `` ``Plan sponsor'' and ``Protected 
health information.'' Added definitions of ``Covered functions'' and 
``Required by law.''
    [sbull] Removed proposed Sec.  142.104, ``General requirements for 
health plans,'' and proposed Sec.  142.105, ``Compliance using a health 
care clearinghouse,'' since these sections are not pertinent to the 
security standards.
    [sbull] Removed proposed Sec.  142.106, ``Effective dates of a 
modification to a standard or implementation specification,'' since 
this information is covered in the ``Standards for Electronic 
Transactions'' final rule (65 FR 50312).
    [sbull] Moved proposed Sec.  142.302 to Sec.  164.302. Changed the 
section heading from ``Applicability and scope'' to ``Applicability.'' 
Modified language to state that covered entities must comply with the 
security standards.
    [sbull] Moved proposed Sec.  142.304 to Sec.  164.304. Modified 
language to remove definitions of words and concepts not used in this 
final rule: ``Access control,'' ``Contingency plan,'' ``Participant,'' 
``Role-based access control,'' ``Token,'' and ``User-based access.''
    [sbull] Moved proposed Sec.  142.304 to Sec.  164.304. Modified 
language to add definitions requested by commenters; previously 
published in Addendum 2 but not in the draft regulation itself; or 
necessitated by the change of scope to electronic protected health 
information and alignment with the Privacy Rule to include: 
``Administrative safeguards,'' ``Availability,'' ``Confidentiality,'' 
``Data,'' ``Data authentication Code,'' ``Integrity,'' ``Electronic 
protected health information,'' ``Facility,'' ``Information System,'' 
``Security or security measures,'' ``Security incident,'' ``Technical 
safeguards,'' ``User,'' and ``Workstation.''
    [sbull] Moved definitions related to privacy from Sec.  164.504 to 
new Sec.  164.103: ``Common control,'' ``Common ownership,'' ``Health 
care component,'' ``Hybrid entity.''
    [sbull] Moved proposed Sec.  142.306, ``Rules for the security 
Standard,'' to Sec.  164.306. Modified language to more clearly state 
the general requirements of the final rule relative to the standards 
and implementation specifications contained therein. Retitled the 
section as ``Security standards: General Rules.''
    [sbull] Moved proposed Sec.  142.308 to Sec.  164.308. Where this 
section was proposed to contain all of the security standards in 
paragraphs (a) through (d), it now encompasses the Administrative 
safeguards.
    [sbull] Moved and reorganized proposed Sec.  142.308 (a) through 
(d) requirements to Sec.  164.308, Sec.  164.310, and Sec.  164.312.
    [sbull] Moved proposed Sec.  142.308(a)(1), ``Certification,'' to 
Sec.  164.308(a)(8). Modified language to indicate both technical and 
nontechnical evaluation is involved and renamed ``Evaluation''.
    [sbull] Moved proposed Sec.  142.308(a)(2), ``Chain of trust,'' to 
Sec.  164.308(b)(1), renamed to ``Business associate contracts and 
other arrangements,'' and revised language to redefine who must enter 
into a contract under this rule for the protection of electronic 
protected health information.
    [sbull] Moved proposed Sec.  142.308(a)(3), ``Contingency plan,'' 
to

[[Page 8366]]

Sec.  164.308(a)(7)(i). Modified language to state that two 
implementation specifications, ``Applications and data criticality 
analysis'' and ``Testing and revision procedures,'' are addressable.
    [sbull] Removed ``Formal mechanism for processing records'' 
(proposed Sec.  142.308(a)(4)) since this requirement was determined to 
be in part intrusive into business functions and in part redundant.
    [sbull] Moved proposed Sec.  142.308(a)(5), ``Information access 
control,'' to Sec.  164.308(a)(4)(i) and renamed as ``Information 
access management.'' Removed the word ``formal'' from description. 
Modified language to state that two implementation specifications 
(``Access Authorization'' and Access Establishment and Modification'') 
are addressable.
    [sbull] Moved proposed Sec.  142.308(a)(6), ``Internal audit,'' to 
Sec.  164.308(a)(1)(ii)(D) as an implementation specification under the 
``Security management process'' standard since this was determined to 
be a more logical placement of this item. Retitled, for clarity, 
``Information system activity review.''
    [sbull] Moved proposed Sec.  142.308(a)(7), ``Personnel security,'' 
to Sec.  164.308(a)(3)(i) and retitled ``Workforce security.'' Modified 
language to state that implementation specifications are addressable.
    [sbull] Combined proposed Sec.  142.308(a)(7)(i), and Sec.  
142.308(a)(7)(iii) (``Assuring supervision of maintenance personnel by 
an authorized, knowledgeable person'' and ``Assuring that operations 
and maintenance personnel have proper access authorization,'') under 
Sec.  164.308(a)(3)(ii)(A) and renamed to ``Authorization and/or 
supervision.'' Modified description for clarity.
    [sbull] Moved proposed Sec.  142.308(a)(7)(iv), ``Personnel 
clearance procedure,'' to Sec.  164.308(a)(3)(ii)(B), renamed to 
``Workforce clearance procedure,'' and modified description for 
clarity.
    [sbull] Removed proposed Sec.  142.308(a)(7)(v), ``Personnel 
security policies and procedures,'' as this feature was determined to 
require redundant effort.
    [sbull] Removed proposed Sec.  142.308(a)(7)(vi), ``Security 
awareness training.'' Information concerning this subject has been 
incorporated under Sec.  164.308(a)(5)(i), ``Security awareness and 
training.''
    [sbull] Removed proposed Sec.  142.308(a)(8), ``Security 
configuration management,'' and all implementation features, except 
``Documentation'' (hardware and/or software installation, Inventory, 
Security testing, and Virus checking), since this requirement was 
determined to be redundant. ``Documentation'' has been made a discrete 
standard at Sec.  164.316.
    [sbull] Moved proposed Sec.  142.308(a)(9), ``Security incident 
procedures,'' to Sec.  164.308(a)(6)(i) and reworded for clarity. 
Combined ``Report procedures'' and ``Response procedures'' features 
into a single required implementation specification, named ``Response 
and Reporting'' at Sec.  164.308(a)(6)(ii).
    [sbull] Moved proposed Sec.  142.308(a)(10), ``Security management 
process,'' to Sec.  164.308(a)(1).
    [sbull] Moved proposed Sec.  142.308(a)(10)(i), ``Risk analysis,'' 
to Sec.  164.308(a)(1)(ii)(A).
    [sbull] Moved proposed Sec.  142.308(a)(10)(ii), ``Risk 
management,'' to Sec.  164.308(a)(1)(ii)(B).
    [sbull] Moved proposed Sec.  142.308(a)(10)(iii), ``Sanction 
policy,'' to Sec.  164.308(a)(1)(ii)(C).
    [sbull] Removed proposed Sec.  142.308(a)(10)(iv), ``Security 
policy,'' since this requirement was determined to be redundant.
    [sbull] Moved proposed Sec.  142.308(a)(11), ``Termination,'' to 
Sec.  164.308(a)(3)(ii)(C) as an addressable implementation 
specification under the ``Workforce security'' standard, and renamed as 
``Termination procedures''. Removed ``Termination'' implementation 
features (changing locks, removal from access lists, removal of user 
accounts, turning in of keys, tokens, or cards) since these were 
determined to be too specific.
    [sbull] Moved proposed Sec.  142.308(a)(12), ``Training,'' to Sec.  
164.308(a)(5)(i) and renamed as ``Security awareness and training.'' 
Language modified to incorporate all training information under this 
one standard. Revised and made addressable all implementation 
specifications under this standard.
    [sbull] Moved proposed Sec.  142.308(b), ``Physical safeguards to 
guard data integrity, confidentiality and availability,'' to Sec.  
164.310 and renamed as ``Physical safeguards.'' Removed specific 
reference to locks and keys.
    [sbull] Moved proposed Sec.  142.308(b)(1), ``Assigned security 
responsibility requirement,'' to Sec.  164.308(a)(2) since this has 
been determined to be an administrative procedure. Modified language to 
clarify that responsibility could be assigned to more than one 
individual.
    [sbull] Moved proposed Sec.  142.308(b)(2), ``Media controls,'' to 
Sec.  164.310(d)(1) and renamed as ``Device and media controls.'' 
Removed the word ``formal.'' Added ``Media re-use'' as a required 
implementation specification at Sec.  164.310(d)(2)(ii).
    [sbull] Removed proposed Sec.  142.308(b)(2)(i), ``Access 
control,'' implementation feature as it was determined to be redundant.
    [sbull] Moved proposed Sec.  142.308(b)(2)(ii), ``Accountability'' 
implementation feature to Sec.  164.310(d)(2)(iii), and made it an 
addressable implementation specification.
    [sbull] Combined proposed Sec.  142.308(b)(2)(iii), ``Data 
backup,'' implementation feature with proposed Sec.  142.308(b)(2)(iv), 
``Data storage'' implementation feature, renamed as ``Data backup and 
storage'', moved to Sec.  164.310(d)(2)(iv), and made it an addressable 
implementation specification.
    [sbull] Moved proposed Sec.  142.308(b)(2)(v), ``Data disposal,'' 
implementation feature to Sec.  164.310(d)(2)(i) and made it a required 
implementation specification.
    [sbull] Moved proposed Sec.  142.308(b)(3),``Physical access 
controls,'' to Sec.  164.310(a)(1) and renamed as ``Facility access 
controls.'' Removed word ``formal.''
    [sbull] Moved proposed Sec.  142.308(b)(3)(i), ``Disaster 
recovery,'' implementation feature to Sec.  164.310(a)(2)(i). It is now 
part of the ``Contingency operations'' implementation specification.
    [sbull] Moved proposed Sec.  142.308(b)(3)(ii), ``Emergency mode 
operations,'' implementation feature to Sec.  164.310(a)(2)(i). It is 
now part of the ``Contingency operations'' implementation 
specification.
    [sbull] Removed proposed Sec.  142.308(b)(3)(iii), ``Equipment 
control (into and out of site),'' as this information is now covered 
under Sec.  164.310(d)(1), ``Device and media controls.''
    [sbull] Moved proposed Sec.  142.308(b)(3)(iv), ``A facility 
security plan,'' to Sec.  164.310(a)(2)(ii).
    [sbull] Moved proposed Sec.  142.308(b)(3)(v), ``Procedure for 
verifying access authorizations,'' to Sec.  164.310(a)(2)(iii) and 
renamed as ``Access control and validation procedures.'' Removed the 
word ``formal'' from text.
    [sbull] Moved proposed Sec.  142.308(b)(3)(vi), ``Maintenance 
records,'' to Sec.  164.310(a)(2)(iv).
    [sbull] Moved proposed Sec.  142.308(b)(3)(vii), ``Need to know 
procedures for personnel access,'' to sect; 164.310(a)(2)(iii) and 
renamed as ``Access control and validation procedures.''
    [sbull] Moved proposed Sec.  142.308(b)(3)(viii), ``Procedures to 
sign in visitors and provide escort, if appropriate,'' to Sec.  
164.310(a)(2)(iii) and renamed as ``Access control and validation 
procedures.''

[[Page 8367]]

    [sbull] Moved proposed Sec.  142.308(b)(3)(ix), ``Testing and 
revision,'' to Sec.  164.310(a)(2)(iii) and renamed as ``Access control 
and validation procedures.''
    [sbull] Moved proposed Sec.  142.308(b)(4), ``Policy and guidelines 
on workstation use,'' to Sec.  164.310(b) and renamed as ``Workstation 
use.''
    [sbull] Moved proposed Sec.  142.308(b)(5), ``Secure work station 
location,'' to Sec.  164.310(c) and renamed as ``Workstation 
security.''
    [sbull] Removed proposed Sec.  142.308(b)(6), ``Security awareness 
training,'' as a separate requirement. This requirement has been 
incorporated under Sec.  164.308(a)(5)(i), ``Security awareness and 
training.''
    [sbull] Combined and moved proposed Sec.  142.308(c) and Sec.  
142.308(d), ``Technical security services to guard data integrity, 
confidentiality and availability'' and ``Technical security 
mechanisms,'' to Sec.  164.312 and renamed as ``Technical safeguards.''
    [sbull] Removed proposed Sec.  142.308(c)(1) since it is no longer 
pertinent.
    [sbull] Moved proposed Sec.  142.308(c)(1)(i), ``Access control,'' 
to Sec.  164.312(a)(1).
    [sbull] Moved proposed Sec.  142.308(c)(1)(i)(A), ``Procedure for 
emergency access,'' to Sec.  164.312(a)(2)(ii), and renamed as 
``Emergency access procedures.''
    [sbull] Removed proposed Sec.  142.308(c)(1)(i)(B).
    [sbull] Removed proposed Sec.  142.308(c)(1)(i)(B)(1), ``Context-
based access,'' Sec.  142.308(c)(1)(i)(B)(2), ``Role-based access,'' 
and Sec.  142.308(c)(1)(i)(B)(3), ``User-based access,'' since these 
features were deemed too specific and were perceived as the only 
options permissible.
    [sbull] Moved proposed Sec.  142.308(c)(1)(i)(C), ``Optional use of 
encryption,'' to Sec.  164.312(a)(2)(iv) and retitled ``Encryption and 
decryption.''
    [sbull] Moved proposed Sec.  142.308(c)(1)(ii), ``Audit controls,'' 
to Sec.  164.312(b).
    [sbull] Removed proposed Sec.  142.308(c)(1)(iii), ``Authorization 
control,'' and all implementation features (Role-based access, User-
based access) since this function has been incorporated into Sec.  
164.308(a)(4), ``Information access management.''
    [sbull] Moved proposed Sec.  142.308(c)(1)(iv), ``Data 
authentication,'' to Sec.  164.312(c)(1), and retitled as 
``Integrity.'' Reworded part of description and placed in Sec.  
164.312(c)(2), ``Mechanism to authenticate data,'' a new, addressable 
implementation specification. Removed reference to double keying.
    [sbull] Moved proposed Sec.  142.308(c)(1)(v), ``Entity 
authentication,'' to Sec.  164.312(d) and retitled as ``Person or 
entity authentication.''
    [sbull] Moved proposed Sec.  142.308(c)(1)(v)(A), ``Automatic 
logoff,'' to Sec.  164.312(a)(2)(iii).
    [sbull] Moved proposed Sec.  142.308(c)(1)(v)(B), ``Unique user 
identification,'' to Sec.  164.312(a)(2)(i).
    [sbull] Removed proposed Sec.  142.308(c)(1)(v)(C) since text is no 
longer pertinent.
    [sbull] Removed proposed Sec.  142.308(c)(1)(v)(C)(2), 
``Password,'' as too specific.
    [sbull] Removed proposed Sec.  142.308(c)(1)(v)(C)(3), ``PIN,'' as 
too specific.
    [sbull] Removed proposed Sec.  142.308(c)(1)(v)(C)(4), ``Telephone 
callback,'' as too specific.
    [sbull] Removed proposed Sec.  142.308(c)(1)(v)(C)(5), ``Token,'' 
as too specific.
    [sbull] Removed proposed Sec.  142.308(c)(2), as no longer 
relevant.
    [sbull] Moved proposed Sec.  142.308(d)(1), ``Communications or 
network controls,'' to Sec.  164.312(e)(1) and renamed as 
``Transmission security.''
    [sbull] Removed proposed Sec.  142.308(d)(1)(i), since it is no 
longer pertinent.
    [sbull] Moved proposed Sec.  142.308(d)(1)(i)(A), ``Integrity 
controls,'' to Sec.  164.312(e)(2)(i) and reworded for clarity.
    [sbull] Removed proposed Sec.  142.308(d)(1)(i)(B), ``Message 
authentication,'' since this subject is now covered under Sec.  
164.312(e)(2)(i), ``Integrity controls.''
    [sbull] Removed proposed Sec.  142.308(d)(1)(ii) text since it is 
no longer pertinent.
    [sbull] Removed proposed Sec.  142.308(d)(1)(ii)(A), ``Access 
controls.''
    [sbull] Moved proposed Sec.  142.308(d)(1)(ii)(B), ``Encryption,'' 
to Sec.  164.312(e)(2)(ii) and reworded to enhance flexibility and 
scalability.
    [sbull] Removed proposed Sec.  142.308(d)(2) text regarding: 
``Network controls,'' and all implementation features (``Alarm,'' 
``Audio trail,'' ``Entity authentication,'' ``Event reporting'').
    [sbull] Removed proposed Sec.  142.310, ``Electronic signature,'' 
and all subheadings. This section will be issued as a separate future 
regulation.
    [sbull] Moved proposed Sec.  142.310 ``Electronic signature 
Standard,'' to Sec.  164.310. Where this section was proposed to 
contain the electronic signature standard, it now encompasses the 
``Physical safeguards.''
    [sbull] Moved proposed Sec.  142.312, ``Effective date of the 
implementation of the security and electronic signature standards,'' to 
Sec.  164.318 and retitled as ``Compliance dates for the initial 
implementation of the security standards.'' Reworded and retitled 
subsections.
    [sbull] Added Sec.  164.105, ``Organizational requirements,'' with 
two standards, ``Health care component and ``Affiliated covered 
entities'' with related implementation specifications.
    [sbull] Added Sec.  164.310(d)(2)(ii), ``Media re-use procedures,'' 
implementation specification.
    [sbull] Added Sec.  164.312, ``Technical safeguards,'' encompassing 
the combined technical services and technical mechanisms standards 
(proposed Sec.  142.308(c) and (d)).
    [sbull] Added Sec.  164.314, ``Organizational requirements.''
    [sbull] Added Sec.  164.314(a)(1), ``Business associate contracts 
or other arrangements'' standard and related implementation 
specifications.
    [sbull] Added Sec.  164.314(b)(1), ``Requirements for group health 
plans'' standard and related implementation specifications.
    [sbull] Added Sec.  164.316, ``Policies and procedures and 
documentation requirements.''
    [sbull] Added Sec.  164.316(a), ``Policies and procedures'' 
standard.
    [sbull] Added Sec.  164.316(b)(1), ``Documentation'' standard and 
related implementation specifications.
    [sbull] Added Sec.  164.318, ``Compliance dates for the initial 
implementation of the security standards.''
    [sbull] Renamed Addendum 1 as Appendix A.
    [sbull] Removed Addendum 2. Definitions of terms used in this final 
rule are now incorporated into Sec.  164.103 and Sec.  164.304, or 
within the rule itself.
    [sbull] Removed Addendum 3.

V. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995 (PRA), we are required to 
provide 30-day notice in the Federal Register and solicit public 
comment before a collection of information requirement is submitted to 
the Office of Management and Budget (OMB) for review and approval. In 
order to fairly evaluate whether an information collection should be 
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act 
of 1995 (PRA) requires that we solicit comment on the following issues:
    [sbull] The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
    [sbull] The accuracy of our estimate of the information collection 
burden.
    [sbull] The quality, utility, and clarity of the information to be 
collected.

[[Page 8368]]

    [sbull] Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    As discussed below, we are soliciting comment on the recordkeeping 
requirements, as referenced in Sec.  164.306, Sec.  164.308, Sec.  
164.310, Sec.  164.314, and Sec.  164.316 of this document.

Section 164.306 Security Standards: General Rules

    Under paragraph (d), a covered entity must, if implementing the 
implementation specification is not reasonable and appropriate, 
document why it would not be reasonable and appropriate to implement 
the implementation specification.
    We estimate that 75,000 entities will be affected by this 
requirement and that they will have to create documentation 3 times for 
this requirement. We estimate each instance of documentation will take 
.25 hours, for a one-time total burden of 56,250 hours.

Section 164.308 Administrative Safeguards

    Under this section, a covered entity must document known security 
incidents and their outcomes.
    We estimate that there will be 50 known incidents annually and that 
it will take 8 hours to document this requirement, for an annual burden 
of 400 hours.
    This section further requires that each entity have a contingency 
plan, with specified components.
    We estimate that there will be 60,000 entities affected by this 
requirement and that it will take each entity 8 hours to comply, for a 
total one-time burden of 480,000 hours.
    This section also requires that the written contract or other 
arrangement with a business associate document the satisfactory 
assurances that the business associate will appropriately safeguard the 
information through a written contract or other arrangement with the 
business associate that meets the applicable requirements of Sec.  
164.314(a).
    We believe that the burden associated with this requirement is not 
subject to the PRA. It is good business practice for entities to 
document their arrangements via written contracts and as such is usual 
and customary among the entities subject to them. A burden associated 
with a requirement conducted in the normal course of business is exempt 
from the PRA as defined in 5 CFR 1320.3(b)(2).

Section 164.310 Physical Safeguards

    This section requires that a covered entity implement policies and 
procedures to document repairs and modifications to the physical 
components of a facility that are related to security (for example, 
hardware, walls, doors, and locks).
    We believe that 15,500 entities will have to repair or modify 
physical components, most of which will need to be done in the first 
year of implementation. In the following years, we estimate that 500 
entities will need to make repairs or modifications. We estimate that 
it will take 10 minutes to document each repair or modification for a 
burden of 2,583 hours the first year and 83 hours annually 
subsequently.
    This section requires that a covered entity create a retrievable, 
exact copy of electronic protected health information, where needed, 
before movement of equipment.
    We believe that the burden associated with this requirement is not 
subject to the PRA. It is good business practice for entities to backup 
their data files, and as such is usual and customary among the entities 
subject to them. A burden associated with a requirement conducted in 
the normal course of business is exempt from the PRA as defined in 5 
CFR 1320.3(b)(2).

Section 164.314 Organizational Requirements

    This section requires that a covered entity report to the Secretary 
problems with a business associate's pattern of an activity or practice 
of the business associate that constitute a material breach or 
violation of the business associate's obligation under the contract or 
other arrangement if it is not feasible to terminate the contract or 
arrangement.
    We believe that 10 entities will need to comply with this reporting 
requirement and that it will take them 60 minutes to comply with this 
requirement for an annual burden of 10 hours.
    This section also requires that a covered entity may, if a business 
associate is required by law to perform a function or activity on 
behalf of a covered entity or to provide a service described in the 
definition of business associate as specified in Sec.  160.103 of this 
subchapter to a covered entity, permit the business associate to 
create, receive, maintain, or transmit electronic protected health 
information on its behalf to the extent necessary to comply with the 
legal mandate without meeting the requirements of paragraph (a)(2)(i) 
of this section, provided that the covered entity attempts in good 
faith to obtain satisfactory assurances as required by paragraph 
(a)(2)(ii)(A) of this section, and documents the attempt and the 
reasons that these assurances cannot be obtained.
    We believe that this situation will affect 20 entities and that it 
will take 60 minutes to document attempts to obtain assurances and the 
reasons they cannot be obtained for an annual burden of 20 hours.
    This section further requires that business associate contracts or 
other arrangements and group health plans must require the business 
entity and plan sponsor, respectively, to report to the covered entity 
any security incident of which it becomes aware.
    We believe that the burden associated with this requirement is not 
subject to the PRA. It is good business practice for entities to 
document their agreements via written contracts, and as such is usual 
and customary among the entities subject to them. A burden associated 
with a requirement conducted in the normal course of business is exempt 
from the PRA as defined in 5 CFR 1320.3(b)(2).

Section 164.316 Policies and Procedures and Documentation Requirements

    Paragraph (b)(1), Standard: Documentation, of this section requires 
a covered entity to--
    (i) Maintain the policies and procedures implemented to comply with 
this subpart in written (which may be electronic) form; and
    (ii) If an action, activity, assessment, or designation is required 
by this subpart to be documented, maintain a written (which may be 
electronic) record of the action, activity, assessment, or designation.
    We estimate that it will take the 4,000,000 entities covered by 
this final rule 16 hours to document their policies and procedures, for 
a total one-time burden of 64,000,000 hours.
    The total annual burden of the information collection requirements 
contained in this final rule is 64,539,264 hours. These information 
collection requirements will be submitted to OMB for review under the 
PRA and will not become effective until approved by OMB.
    If you comment on these information collection and recordkeeping 
requirements, please mail copies directly to the following:

Centers for Medicare and Medicaid Services, Office of Strategic 
Operations and Regulatory Affairs, Regulations Development and 
Issuances Group, Attn: Reports

[[Page 8369]]

Clearance Officer, 7500 Security Boulevard, Baltimore, MD 21244-1850, 
Attn: Julie Brown, CMS-0049-F; and
Office of Information and Regulatory Affairs, Office of Management and 
Budget, Room 10235, New Executive Office Building, Washington, DC 
20503, Attn: Brenda Aguilar, CMS Desk Officer.

IV. Regulatory Impact Analysis

A. Overall Impact

    We have examined the impacts of this rule as required by Executive 
Order 12866 (September 1993, Regulatory Planning and Review), the 
Regulatory Flexibility Act (RFA) (September 16, 1980, Pub. L. 96-354), 
section 1102(b) of the Social Security Act, the Unfunded Mandates 
Reform Act of 1995 (Pub. L. 104-4), and Executive Order 13132.
    Executive Order 12866 (as amended by Executive Order 13258, which 
merely reassigns responsibility of duties) directs agencies to assess 
all costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). A 
regulatory impact analysis (RIA) must be prepared for major rules with 
economically significant effects ($100 million or more in any 1 year). 
Although we cannot determine the specific economic impact of the 
standards in this final rule (and individually each standard may not 
have a significant impact), the overall impact analysis makes clear 
that, collectively, all the standards will have a significant impact of 
over $100 million on the economy. Because this rule affects over 2 
million entities, a requirement as low as $50 per entity would render 
this rule economically significant. This rule requires each of these 
entities to engage in, for example, at least some risk assessment 
activity; thus, this rule is almost certainly economically significant 
even though we do not have an estimate of the marginal impact of the 
additional security standards. However, the standards adopted in this 
rule are considerably more flexible than those anticipated in the 
overall impact analysis. Therefore, their implementation costs should 
be lower than those assumed in the impact analysis.
    The RFA requires agencies to analyze options for regulatory relief 
of small businesses. For purposes of the RFA, small entities include 
small businesses, nonprofit organizations, and government agencies. 
Most hospitals and most other providers and suppliers are small 
entities, either by nonprofit status or by having revenues of $6 
million to $29 million in any 1 year. While each standard may not have 
a significant impact on a substantial number of small entities, the 
combined effects of all the standards are likely to have a significant 
effect on a substantial number of small entities. Although we have 
certified this rule as having a significant impact, we have previously 
discussed the impact of small entities in the RFA published as part of 
the August 17, 2000 final regulation for the Standards for Electronic 
Transactions (65 FR 50312), on pages 50359 through 50360. That analysis 
included the impact of the set of HIPAA standards regulations 
(transactions and code sets, identifiers, and security). Although we 
discussed the impact on small entities in the previous analysis, we 
would like to discuss how this final rule has been structured to 
minimize the impact on small entities, compared to the proposed rule.
    The proposed rule mandated 69 implementation features for all 
entities. A large number of commenters indicated that mandating such a 
large number would be burdensome for all entities. As a result, we have 
restructured this final rule to permit greater flexibility. While all 
standards must be met, we are now only requiring 13 implementation 
specifications. The remainder of the implementation specifications is 
``addressable.'' For addressable specifications, an entity decides 
whether each specification is a reasonable and appropriate security 
measure to apply within its particular security framework. This 
decision is based on a variety of factors, for example, the entity's 
risk analysis, what measures are already in place, the particular 
interest to small entities, and the cost of implementation.
    Based on the decision, an entity can--(1) implement the 
specification if reasonable and appropriate; (2) implement an 
alternative security measure to accomplish the purposes of the 
standard; or (3) not implement anything if the specification is not 
reasonable and appropriate and the standard can still be met.
    This approach will provide flexibility for all entities, and 
especially small entities that would be most concerned about the cost 
and complexity of the security standards. Small entities can look at 
the addressable implementation specifications and tailor their 
compliance based on their risks and capabilities of addressing those 
risks.
    The required risk analysis is also a tool to allow flexibility for 
entities in meeting the requirements of this final rule. The risk 
analysis requirement is designed to allow entities to look at their own 
operations and determine the security risks involved. The degree of 
response is determined by the risks identified. We assume that smaller 
entities, who deal with smaller amounts of information would have 
smaller physical facilities, smaller work forces, and therefore, would 
assume less risk. The smaller amount of risk involved means that the 
response to that risk can be developed on a smaller scale than that for 
larger organizations.
    Individuals and States are not included in the definition of a 
small entity. However, the security standards will affect small 
entities, such as providers and health plans, and vendors in much the 
same way as they affect any larger entities. Small providers who 
conduct electronic transactions and small health plans must meet the 
provisions of this regulation and implement the security standards. A 
more detailed analysis of the impact on small entities is part of the 
impact analysis published on August 17, 2000 (65 FR 50312), which 
provided the impact for all of the HIPAA standards, except privacy. As 
we discussed above, the scalability factor of the standards means that 
the requirements placed upon small providers and plans would be 
consistent with the complexity of their operations. Therefore, small 
providers and plans with appropriate security processes in place would 
need to do relatively little in order to comply with the standards. 
Moreover, small plans will have an additional year to come into 
compliance.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 604 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a Metropolitan 
Statistical Area and has fewer than 100 beds. While this rule may have 
a significant impact on small rural hospitals, the impact should be 
minimized by the scalability factors of the standards, as discussed 
above in the impact on all small entities. In addition, we have 
previously discussed the impact of small entities in the RIA published 
as part of the August 17, 2000 final regulation for the Standards for 
Electronic Transactions.
    Section 202 of the Unfunded Mandates Reform Act (UMRA) of 1995

[[Page 8370]]

also requires that agencies assess anticipated costs and benefits 
before issuing any rule that may result in expenditure in any 1 year by 
State, local, or tribal governments, in the aggregate, or by the 
private sector, of $110 million. We estimate that implementation of all 
the standards will require the expenditure of more than $110 million by 
the private sector. Therefore, the rule establishes a Federal private 
sector mandate and is a significant regulatory action within the 
meaning of section 202 of UMRA (2 U.S.C. 1532). We have included the 
statements to address the anticipated effects of these rules under 
section 202.
    These standards also apply to State and local governments in their 
roles as health plans or health care providers. Because these entities, 
in their roles as health plans or providers, must implement the 
requirements in these rules, the rules impose unfunded mandates on 
them. Further discussion of this issue can be found in the previously 
published impact analysis for all standards (65 FR 50360 through 
50361).
    The anticipated benefits and costs of the security standards, and 
other issues raised in section 202 of the UMRA, are addressed in the 
analysis below, and in the combined impact analysis. In addition, as 
required under section 205 of the UMRA (2 U.S.C. 1535), having 
considered a reasonable number of alternatives as outlined in the 
preamble to this rule, HHS has concluded that this final rule is the 
most cost-effective alternative for implementation of HHS's statutory 
objective of administrative simplification.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct requirement costs on State 
and local governments, preempts State law, or otherwise has Federalism 
implications. The proposed rule was published before the enactment of 
Executive Order 13132 of August 4, 1999, Federalism (published in the 
Federal Register on August 10, 1999 (64 FR 43255)), which required 
meaningful and timely input by State and local officials in the 
development of rules that have Federalism implications). However, we 
received and considered comments on the proposed rule from State 
agencies and from entities who conduct transactions with State 
agencies. Several of the comments referred to the costs that will 
result from implementation of the HIPAA standards. As we stated in the 
impact analysis, we are unable to estimate the cost of implementing 
security features as implementation needs will vary dependent upon a 
risk assessment and upon what is already in place. However, the 
previously referenced impact analysis in the August 17, 2000 final rule 
(65 FR 50312) showed that Administrative Simplification costs will be 
offset by future savings.
    In complying with the requirements of part C of title XI, the 
Secretary established interdepartmental implementation teams who 
consulted with appropriate State and Federal agencies and private 
organizations. These external groups consisted of the National 
Committee on Vital and Health Statistics (NCVHS) Subcommittee on 
Standards and Security, the Workgroup for Electronic Data Interchange 
(WEDI), the National Uniform Claim Committee (NUCC), the National 
Uniform Billing Committee (NUBC), and the American Dental Association 
(ADA). The teams also received comments on the proposed regulation from 
a variety of organizations, including State Medicaid agencies and other 
Federal agencies.

B. Anticipated Effects

    The analysis in the August 2000, Transaction Rule included the 
expected costs and benefits of the administrative simplification 
regulations related to electronic systems for 10 years. Although only 
the electronic transaction standards were promulgated in the 
transaction rule, HHS expected affected parties to make systems 
compliance investments collectively because the regulations are so 
integrated. Moreover, the data available to us were also based on the 
collective requirements of this regulation. It is not feasible to 
identify the incremental technological and computer costs for each 
regulation. Although HHS is issuing rules under HIPAA sequentially, 
affected entities and vendors are bundling services, that is, they have 
been anticipating the various needs and are designing relatively 
comprehensive systems as they develop hardware and software. For 
example, a vendor developing a system for electronic billing would also 
anticipate and include security features, even in the absence of any 
regulation. Moreover, a draft of the security rule was first published 
in 1998. Even though the final is different (and less burdensome), 
vendors had a reasonable indication of the direction policy would go. 
Thus, in preparing the electronic transaction rule, we recognized and 
included costs that might theoretically be associated with security or 
other HIPPA rules. Hence, some of the ``costs'' of security have 
already been accounted for in the Standards for Electronic Transactions 
cost estimate (45 CFR parts 160 and 162), which was published in the 
Federal Register on August 17, 2000 (65 FR 50312).
    This analysis showed that the combined impact of the Administrative 
Simplification standards is expected to save the industry $29.9 billion 
over 10 years. We are including in each subsequent rule an impact 
analysis that is specific to the standard or standards in that rule, 
but the impact analysis will assess only the incremental cost of 
implementing a given standard over another. Thus, the following 
discussion contains the impact analysis for the marginal costs of the 
security standards in this final rule.
    The following describes the specific impacts that relate to the 
security standards. The security of electronic protected health 
information is, and has been for some time, a basic business 
requirement that health care entities ignore at their peril. Instances 
of ``hacking'' and other security violations may be widely publicized, 
and can seriously damage an institution's community standing. 
Appropriate security protections are crucial for encouraging the growth 
and use of electronic data interchange. The synergistic effect of the 
employment of the security standards will enhance all aspects of 
HIPAA's Administrative Simplification requirements. In addition, it is 
important to recognize that security is not a one-time project, but 
rather an on-going, dynamic process.

C. Changes From the 1998 Impact Analysis

    The overall impact analysis for Administrative Simplification was 
first published on May 7, 1998 (63 FR 25320) in the proposed rule for 
the National Provider Identifier standard (45 CFR part 142), the first 
of the proposed Administrative Simplification rules. That impact 
analysis was based on the industry situation at that time, used 
statistics which were current at that time, and assumed that all of the 
HIPAA standards would be implemented at roughly the same time, which 
would permit software changes to be made less expensively. While the 
original impact analysis represented our best information at that time, 
we realize that the state of the industry, and of security technology, 
has changed since 1998. We discuss several of those changes and how 
they affect the impact of this regulation.
1. Changes in Technology
    The state of technology for health care security has changed since 
1998. New

[[Page 8371]]

technologies to protect information have been developed over the past 
several years. As a result, HHS has consulted with the Gartner Group, a 
leading technology assessment organization, regarding what impact these 
changes in the industry might have on the expected impact of this 
regulation. The Gartner analysis indicated that the cost of meeting the 
requirements of a reasonable interpretation of the security rule in 
2002 is probably less than 10 percent higher in 2002 than it was in 
1998. This increase is mainly driven by more active threats and 
increased personnel costs offsetting decreases in technology costs over 
the past 4 years. However, spending by companies who have anticipated 
the security rule or who have independently made business decisions to 
implement security policies and procedures as good business practice(s) 
has already occurred, and probably will cancel out the increased costs 
of implementation. Therefore, Gartner expects the cost of complying 
with the HIPAA security standards to be about the same now as it was in 
1998.
2. Synchronizing Standards
    The timelines for the implementation of the initial HIPAA standards 
(transactions, identifiers, and security) are no longer closely 
synchronized. However, we do not believe that this lack of 
synchronization will have a significant impact on the cost of 
implementing security. The analysis provided by the Gartner group 
indicated that implementing security standards is being viewed by 
entities as a separate task from implementing the transaction 
standards, and that this is not having a significant impact on costs. 
As with other HIPAA standards, most current entities will have a 2-year 
implementation period before compliance with the standards is required. 
Covered entities will develop their own implementation schedules, and 
may phase in various security measures over that time period.
3. Relationship to Privacy Standards
    The publication of the final Privacy Rules (45 CFR parts 160 and 
164) on December 28, 2000 in the Federal Register (65 FR 82462) and on 
August 14, 2002 (67 FR 53182) has affected the impact of this 
regulation significantly. Covered entities must implement the privacy 
standards by April 14, 2003 (April 14, 2004 for small health plans). 
The implementation of privacy standards reduces the cost of 
implementing the security standards in two significant areas.
    First, we have made substantial efforts to ensure that the many 
requirements in the security standards parallel those for privacy, and 
can easily be satisfied using the solutions for privacy. Administrative 
requirements like the need for written policies, responsible officers, 
and business associate agreements that are already required by the 
Privacy Rule can also serve to meet the security standards without 
significant additional cost. The analysis of data flows and data uses 
that covered entities are doing so as to comply with the Privacy Rule 
should also serve as the starting point for parallel analysis required 
by this final rule.
    Second, it is likely that covered entities will meet a number of 
the requirements in the security standards through the implementation 
of the privacy requirements. For example, in order to comply with the 
Privacy Rule requirements to make reasonable efforts to limit the 
access of members of the work force to specified categories of 
protected health information, covered entities may implement some of 
the administrative, physical, and technical safeguards that the 
entity's risk analysis and assessment would require under the Security 
Rule. E-mail authentication procedures put into place for privacy 
protection may also meet the security standards, thereby eliminating 
the need for additional investments to meet these standards. As a 
result, covered entities that have moved forward in implementing the 
privacy standards are also implementing security measures at the same 
time. Since the proposed security standards proposed rule represents 
the most authoritative guidance now available on the nature of these 
standards, some entities have been using them to develop their security 
measures. Those entities should face minimal incremental costs in 
implementing the final version of these standards.
    We are unable to quantify these overlaps, but we believe they may 
reduce the cost of implementing these security standards. The analysis 
provided to the HHS by the Gartner Group also stated that compliance 
with the Privacy Rule will have a moderate effect on the cost of 
compliance with the Security Rule, reducing it slightly.
4. Sensitivity to Security Concerns as a Result of September 11, 2001
    In our discussions with the Gartner Group, they indicated that they 
saw little evidence of increased security awareness in health care 
organizations as a result of the events of September 11, 2001. However, 
a survey conducted by Phoenix Health Systems in the winter of 2002 
showed that 65 percent of the respondents to the survey (hospitals, 
payers, vendors, and clearinghouses) have moderately to greatly 
increased their attention on overall security. If these organizations 
have already made investments in security that meet some of the 
requirements of this rule, it will reduce their added costs of 
compliance. However, HHS can make no clear statement of the impact of 
this attention.

D. Guiding Principles for Standard Selection

    The implementation teams charged with designating standards under 
the statute have defined, with significant input from the health care 
industry, a set of common criteria for evaluating potential standards. 
These criteria are based on direct specifications in the HIPAA, the 
purpose of the law, and principles that support the regulatory 
philosophy set forth in the E.O. 12866 of September 30, 1993, and the 
Paperwork Reduction Act of 1995. In order to be designated as such, a 
standard should do the following:
    [sbull] Improve the efficiency and effectiveness of the health care 
system by leading to cost reductions for or improvements in benefits 
from electronic health care transactions. This principle supports the 
regulatory goals of cost-effectiveness and avoidance of burden.
    [sbull] Meet the needs of the health data standards user community, 
particularly health care providers, health plans, and health care 
clearinghouses. This principle supports the regulatory goal of cost-
effectiveness.
    [sbull] Be consistent and uniform with the other HIPAA standards 
(that is, their data element definitions and codes, and their privacy 
and security requirements) and, secondarily, with other private and 
public sector health data standards. This principle supports the 
regulatory goals of consistency and avoidance of incompatibility, and 
it establishes a performance objective for the standard.
    [sbull] Have low additional development and implementation costs 
relative to the benefits of using the standard. This principle supports 
the regulatory goals of cost-effectiveness and avoidance of burden.
    [sbull] Be supported by an ANSI-accredited standards developing 
organization or other private or public organization that would ensure 
continuity and efficient updating of the standard over time. This 
principle supports the regulatory goal of predictability.
    [sbull] Have timely development, testing, implementation, and 
updating procedures to achieve administrative simplification benefits 
faster. This

[[Page 8372]]

principle establishes a performance objective for the standard.
    [sbull] Be technologically independent of the computer platforms 
and transmission protocols used in health transactions, except when 
they are explicitly part of the standard. This principle establishes a 
performance objective for the standard and supports the regulatory goal 
of flexibility.
    [sbull] Be precise and unambiguous but as simple as possible. This 
principle supports the regulatory goals of predictability and 
simplicity.
    [sbull] Keep data collection and paperwork burdens on users as low 
as is feasible. This principle supports the regulatory goals of cost-
effectiveness and avoidance of duplication and burden.
    [sbull] Incorporate flexibility to adapt more easily to changes in 
the health care infrastructure (for example, new services, 
organizations, and provider types) and information technology. This 
principle supports the regulatory goals of flexibility and 
encouragement of innovation.
    We assessed a wide variety of security standards and guidelines 
against the principles listed above, with the overall goal of achieving 
the maximum benefit for the least cost. As we stated in the proposed 
rule, we found that no single standard for security exists that 
encompasses all the requirements that were listed in the law. However, 
we believe that the standards we are adopting in this final rule 
collectively accomplish these goals.

E. Affected Entities

1. Health Care Providers
    Covered health care providers may incur implementation costs for 
establishing or updating their security systems. The majority of costs 
to implement the security standard (purchase and installation of 
appropriate computer hardware and software, and physical safeguards) 
would generally be incurred in the initial implementation period for 
the specific requirements of the security standard. Health care 
providers that do not conduct electronic transactions for which 
standards have been adopted are not affected by these regulations.
2. Health Plans
    All health plans, as the term is defined in regulation at 45 CFR 
160.103, must comply with these security standards. In addition, health 
plans that engage in electronic health care transactions may have to 
modify their systems to meet the security standards. Health plans that 
maintain electronic health information may also have to modify their 
systems to meet the security standards. This conversion would have a 
one-time cost impact on Federal, State, and private plans alike.
    We recognize that this conversion process has the potential to 
cause business disruption of some health plans. However, health plans 
would be able to schedule their implementation of the security 
standards and other standards in a way that best fits their needs, as 
long as they meet the deadlines specified in the HIPAA law and 
regulations. Moreover, small plans (many of which are employer-
sponsored) will have an additional year in which to achieve compliance. 
Small health plans are defined at 45 CFR 160.103 as health plans with 
annual receipts of $5 million or less.
3. Clearinghouses
    All health care clearinghouses must meet the requirements of this 
regulation. Health care clearinghouses would face effects similar to 
those experienced by health care providers and health plans. However, 
because clearinghouses represent one way in which providers and plans 
can achieve compliance, the clearinghouses' costs of complying with 
these standards would probably be passed along to those entities, to be 
shared over the entire customer base.
4. System Vendors
    Systems vendors that provide computer software applications to 
health care providers and other billers of health care services would 
likely be affected. These vendors would have to develop software 
solutions that would allow health plans, providers, and other users of 
electronic transactions to protect these transactions and the 
information in their databases from unauthorized access to their 
systems. Their costs would also probably be passed along to their 
customer bases.

F. Factors in Establishing the Security Standard

1. General Effect
    In assessing the impact of these standards, it is first necessary 
to focus on the general nature of the standards, their scalability, and 
the fact that they are not dependent upon specific technologies. These 
factors will make it possible for covered entities to implement them 
with the least possible impact on resources. Because there is no 
national security standard in widespread use throughout the industry, 
adopting any of the candidate standards would require most health care 
providers, health plans, and health care clearinghouses to at least 
conduct an assessment of how their current security measures conform to 
the new standards. However, we assume that most, if not all, covered 
entities already have at least some rudimentary security measures in 
place. Covered entities that identify gaps in their current measures 
would need to establish or revise their security precautions.
    It is also important to note that the standards specify what goals 
are to be achieved, but give the covered entity some flexibility to 
determine how to meet those goals. This is different from the 
transaction standards, where all covered entities must use the exact 
same implementation guide. With respect to security, covered entities 
will be able to blend security processes now in place with new 
processes. This should significantly reduce compliance costs.
    Based on our analysis and comments received, the security standards 
adopted in this rule do not impose a greater burden on the industry 
than the options we did not select, and they present significant 
advantages in terms of universality and flexibility.
    We understand that some large health plans, health care providers, 
and health care clearinghouses that currently exchange health 
information among trading partners may already have security systems 
and procedures in place to protect the information from unauthorized 
access. These entities may not incur significant costs to meet the 
security standards. Large entities that have sophisticated security 
systems in place may only need minor revisions or updates to their 
systems to meet the security standards, or indeed, may not need to make 
any changes in their systems.
    While small providers are not likely to have implemented 
sophisticated security measures, they are also not as likely to need 
them as larger covered entities. The scalability principle allows 
providers to adopt measures that are appropriate to their own 
circumstances.
2. Complexity of Conversion
    The complexity of the conversion to the security standards could be 
significantly affected by the volume of transactions that covered 
entities transmit and process electronically and the desire to transmit 
directly or to use the services of a Value Added Network (VAN) or a 
clearinghouse. If a VAN or clearinghouse is used, some of the 
conversion activities would be carried out by that organization, rather 
than by the covered entity. This would simplify conversion for the 
covered entity, but makes the covered entity dependent on the success 
of its business associate. The architecture, and specific technology

[[Page 8373]]

limitations of existing systems could also affect the complexity of the 
conversion (for example, certain practice management software that does 
not contain password protection will require a greater conversion 
effort than software that has a password protection option already 
built into it).
3. Cost of Conversion
    Virtually all providers, health plans, and clearinghouses that 
transmit or store data electronically have already implemented some 
security measures and will need to assess existing security, identify 
areas of risk, and implement additional measures in order to come into 
compliance with the standards adopted in this rule. We cannot estimate 
the per-entity cost of implementation because there is no information 
available regarding the extent to which providers', plans', and 
clearinghouses' current security practices are deficient. Moreover, 
some security solutions are almost cost-free to implement (for example, 
reminding employees not to post passwords on their monitors), while 
others are not.
    Affected entities will have many choices regarding how they will 
implement security. Some may choose to assess security using in-house 
staff, while others will use consultants. Practice management software 
vendors may also provide security consultation services to their 
customers. Entities may also choose to implement security measures that 
require hardware and/or software purchases at the time they do routine 
equipment upgrades.
    The security standards we adopt in this rule were developed with 
considerable input from the health care industry, including providers, 
health plans, clearinghouses, vendors, and standards organizations. 
Industry members strongly advocated the flexible approach we adopt in 
this rule, which permits each affected entity to develop cost-effective 
security measures appropriate to their particular needs. We believe 
that this approach will yield the lowest implementation cost to 
industry while ensuring that electronic protected health information is 
safeguarded.
    All of the nation's health plans (over 2 million) and providers 
(over 600,000) will need to conduct some level of gap analysis to 
assess current procedures against the standards. However, we cannot 
estimate the number of covered entities that would have to implement 
additional security systems and procedures to meet the adopted 
standards. Also, we are not able to estimate the number of providers 
that do not conduct electronic transactions today but may choose to do 
so at some future time (these would be entities that send and receive 
paper transactions and maintain paper records and thus would not be 
affected). We believe that the security standards represent the minimum 
necessary for adequate protection of health information in an 
electronic format and as such should be implemented by all covered 
entities. As discussed earlier in this preamble, the security 
requirements are both scalable and technically flexible; and while the 
law requires each health plan that is not a small plan to comply with 
the security and electronic signature requirements no later than 24 
months after the effective date of the final rule, small plans will be 
allowed an additional 12 months to comply.
    Since we are unable to estimate the number of entities that may 
need to make changes to meet the security standards, we are also unable 
to estimate the cost for those entities. However, we believe that the 
cost of establishing security systems and procedures is a portion of 
the costs associated with converting to the administrative 
simplification standards that are required under HIPAA, which are 
estimated in the previously referenced impact analysis.
    This discussion on conversion costs relates only to health plans, 
health care providers, and health care clearinghouses that are required 
to implement the security standards. The cost of implementing security 
systems and procedures for entities that do not transmit, receive, or 
maintain health information electronically is not a cost imposed by the 
rule, and thus, is not included in our estimates.

G. Alternatives Considered

    In developing this final rule, the Department considered some 
alternatives. One alternative was to not issue a final rule. However, 
this would not meet the Department's obligations under the HIPAA 
statute. It would also leave the health industry without a set of 
standards for protecting the security of health information. The vast 
majority of commenters supported our efforts in developing a set of 
standards. Thus, we concluded that not publishing a final rule was not 
in the best interests of the industry and not in the best interests of 
persons whose medical information will be protected by these measures.
    A second alternative was to publish the final rule basically 
unchanged from the proposed rule. Although most commenters supported 
the approach of the proposed rule, there were significant objections to 
the number of required specifications, concerns about the scope of 
certain requirements, duplication and ambiguity of some requirements, 
and the overall complexity of the approach. Based on those comments, it 
was clear that revisions had to be made. In addition, the proposed rule 
was developed before the Privacy Rule requirements were developed. 
Thus, it did not allow for any alignment of requirements between the 
Privacy and Security standards.
    As a result, the Department determined that an approach that 
modified the proposed rule and aligned the requirements with the 
Privacy standards was the preferred alternative.

V. Federalism

    Executive Order 13132 of August 4, 1999, Federalism, published in 
the Federal Register on August 10, 1999 (64 FR 43255), requires us to 
ensure meaningful and timely input by State and local officials in the 
development of rules that have Federalism implications. Although the 
proposed rule for security standards was published before the enactment 
of this Executive Order, the Department consulted with State and local 
officials as part of an outreach program in the process of developing 
the proposed regulation. The Department received comments on the 
proposed rule from State agencies and from entities that conduct 
transactions with State agencies. Many of these comments were concerned 
with the burden that the proposed security standards would place on 
their organizations. In response to those comments, we have modified 
the security standards to make them more flexible and less burdensome.
    In complying with the requirements of part C of Title XI, the 
Secretary established an interdepartmental team who consulted with 
appropriate State and Federal agencies and private organizations. These 
external groups included the NCVHS Workgroup on Standards and Security, 
the Workgroup for Electronic Data Interchange, the National Uniform 
Claim Committee, and the National Uniform Billing Committee. Most of 
these groups have State officials as members. We also received comments 
on the proposed regulation from these organizations.
    In accordance with the provisions of Executive Order 12866, this 
rule has been reviewed by the Office of Management and Budget.

List of Subjects

45 CFR Part 160

    Electronic transactions, Employer benefit plan, Health, Health 
care, Health facilities, Health insurance, Health

[[Page 8374]]

records, Medicaid, Medical research, Medicare, Privacy, Reporting and 
record keeping requirements.

45 CFR Part 162

    Administrative practice and procedure, Health facilities, Health 
insurance, Hospitals, Medicaid, Medicare, report and recordkeeping 
requirement.

45 CFR Part 164

    Administrative practice and procedure, Health facilities, Health 
insurance, Hospitals, Medicaid, Medicare, Electronic Information 
System, Security, Report and recordkeeping requirement.

    For the reasons set forth in the preamble, the Department of Health 
and Human Services amends title 45, subtitle A, subchapter C, parts 
160, 162, and 164 as set forth below:

PART 160--GENERAL ADMINISTRATIVE REQUIREMENTS

    1. The authority citation for part 160 continues to read as 
follows:

    Authority: Sec. 1171 through 1179 of the Social Security Act, 
(42 U.S.C. 1320d-1329d-8) as added by sec. 262 of Pub. L. 104-191, 
110 Stat. 2021-2031 and sec. 264 of Pub. L. 104-191 (42 U.S.C. 
1320d-2(note)).

    2. In Sec.  160.103, the definitions of ``disclosure'', 
``electronic media'', ``electronic protected health information,'' 
``individual,'' ``organized health care arrangement'', ``protected 
health information,'' and ``use'' are added in alphabetical order to 
read as follows:


Sec.  160.103  Definitions.

* * * * *
    Disclosure means the release, transfer, provision of, access to, or
    divulging in any other manner of information outside the entity 
holding the information.
* * * * *
    Electronic media means:
    (1) Electronic storage media including memory devices in computers 
(hard drives) and any removable/transportable digital memory medium, 
such as magnetic tape or disk, optical disk, or digital memory card; or
    (2) Transmission media used to exchange information already in 
electronic storage media. Transmission media include, for example, the 
internet (wide-open), extranet (using internet technology to link a 
business with information accessible only to collaborating parties), 
leased lines, dial-up lines, private networks, and the physical 
movement of removable/transportable electronic storage media. Certain 
transmissions, including of paper, via facsimile, and of voice, via 
telephone, are not considered to be transmissions via electronic media, 
because the information being exchanged did not exist in electronic 
form before the transmission.
    Electronic protected health information means information that 
comes within paragraphs (1)(i) or (1)(ii) of the definition of 
protected health information as specified in this section.
* * * * *
    Individual means the person who is the subject of protected health 
information.
* * * * *
    Organized health care arrangement means:
    (1) A clinically integrated care setting in which individuals 
typically receive health care from more than one health care provider;
    (2) An organized system of health care in which more than one 
covered entity participates and in which the participating covered 
entities:
    (i) Hold themselves out to the public as participating in a joint 
arrangement; and
    (ii) Participate in joint activities that include at least one of 
the following:
    (A) Utilization review, in which health care decisions by 
participating covered entities are reviewed by other participating 
covered entities or by a third party on their behalf;
    (B) Quality assessment and improvement activities, in which 
treatment provided by participating covered entities is assessed by 
other participating covered entities or by a third party on their 
behalf; or
    (C) Payment activities, if the financial risk for delivering health 
care is shared, in part or in whole, by participating covered entities 
through the joint arrangement and if protected health information 
created or received by a covered entity is reviewed by other 
participating covered entities or by a third party on their behalf for 
the purpose of administering the sharing of financial risk.
    (3) A group health plan and a health insurance issuer or HMO with 
respect to such group health plan, but only with respect to protected 
health information created or received by such health insurance issuer 
or HMO that relates to individuals who are or who have been 
participants or beneficiaries in such group health plan;
    (4) A group health plan and one or more other group health plans 
each of which are maintained by the same plan sponsor; or
    (5) The group health plans described in paragraph (4) of this 
definition and health insurance issuers or HMOs with respect to such 
group health plans, but only with respect to protected health 
information created or received by such health insurance issuers or 
HMOs that relates to individuals who are or have been participants or 
beneficiaries in any of such group health plans.
    Protected health information means individually identifiable health 
information:
    (1) Except as provided in paragraph (2) of this definition, that 
is:
    (i) Transmitted by electronic media;
    (ii) Maintained in electronic media; or
    (iii) Transmitted or maintained in any other form or medium.
    (2) Protected health information excludes individually identifiable 
health information in:
    (i) Education records covered by the Family Educational Rights and 
Privacy Act, as amended, 20 U.S.C. 1232g;
    (ii) Records described at 20 U.S.C. 1232g(a)(4)(B)(iv); and
    (iii) Employment records held by a covered entity in its role as 
employer.
* * * * *
    Use means, with respect to individually identifiable health 
information, the sharing, employment, application, utilization, 
examination, or analysis of such information within an entity that 
maintains such information.
* * * * *

PART 162--ADMINISTRATIVE REQUIREMENTS

    1. The authority citation for part 162 is revised to read as 
follows:

    Authority: Secs. 1171 through 1179 of the Social Security Act 
(42 U.S.C. 1320d-1320d-8), as added by sec. 262 of Pub. L. 104-191, 
110 Stat. 2021-2031, and sec. 264 of Pub. L. 104-191, 110 Stat. 
2033-2034 (42 U.S.C. 1320d-2 (note)).


Sec.  162.103  [Amended]

    2. In Sec.  162.103, the definition of ``electronic media'' is 
removed.

PART 164--SECURITY AND PRIVACY

    1. The authority citation for part 164 is revised to read as 
follows:

    Authority: Secs. 1171 through 1179 of the Social Security Act 
(42 U.S.C. 1320d-1320d-8), as added by sec. 262 of Pub. L. 104-191, 
110 Stat. 2021-2031, and 42 U.S.C. 1320d-2 and 1320d-4, sec. 264 of 
Pub. L. 104-191, 110 Stat. 2033-2034 (42 U.S.C. 1320d-2 (note)).

    2. A new Sec.  164.103 is added to read as follows:


Sec.  164.103  Definitions.

    As used in this part, the following terms have the following 
meanings:
    Common control exists if an entity has the power, directly or 
indirectly,

[[Page 8375]]

significantly to influence or direct the actions or policies of another 
entity.
    Common ownership exists if an entity or entities possess an 
ownership or equity interest of 5 percent or more in another entity.
    Covered functions means those functions of a covered entity the 
performance of which makes the entity a health plan, health care 
provider, or health care clearinghouse.
    Health care component means a component or combination of 
components of a hybrid entity designated by the hybrid entity in 
accordance with Sec.  164.105(a)(2)(iii)(C).
    Hybrid entity means a single legal entity:
    (1) That is a covered entity;
    (2) Whose business activities include both covered and non-covered 
functions; and
    (3) That designates health care components in accordance with 
paragraph Sec.  164.105(a)(2)(iii)(C).
    Plan sponsor is defined as defined at section 3(16)(B) of ERISA, 29 
U.S.C. 1002(16)(B).
    Required by law means a mandate contained in law that compels an 
entity to make a use or disclosure of protected health information and 
that is enforceable in a court of law. Required by law includes, but is 
not limited to, court orders and court-ordered warrants; subpoenas or 
summons issued by a court, grand jury, a governmental or tribal 
inspector general, or an administrative body authorized to require the 
production of information; a civil or an authorized investigative 
demand; Medicare conditions of participation with respect to health 
care providers participating in the program; and statutes or 
regulations that require the production of information, including 
statutes or regulations that require such information if payment is 
sought under a government program providing public benefits.

    3. Section 164.104 is revised to read as follows:


Sec.  164.104  Applicability.

    (a) Except as otherwise provided, the standards, requirements, and 
implementation specifications adopted under this part apply to the 
following entities:
    (1) A health plan.
    (2) A health care clearinghouse.
    (3) A health care provider who transmits any health information in 
electronic form in connection with a transaction covered by this 
subchapter.
    (b) When a health care clearinghouse creates or receives protected 
health information as a business associate of another covered entity, 
or other than as a business associate of a covered entity, the 
clearinghouse must comply with Sec.  164.105 relating to organizational 
requirements for covered entities, including the designation of health 
care components of a covered entity.
    4. A new Sec.  164.105 is added to read as follows:


Sec.  164.105  Organizational requirements.

    (a)(1) Standard: Health care component. If a covered entity is a 
hybrid entity, the requirements of subparts C and E of this part, other 
than the requirements of this section, Sec.  164.314, and Sec.  
164.504, apply only to the health care component(s) of the entity, as 
specified in this section.
    (2) Implementation specifications:
    (i) Application of other provisions. In applying a provision of 
subparts C and E of this part, other than the requirements of this 
section, Sec.  164.314, and Sec.  164.504, to a hybrid entity:
    (A) A reference in such provision to a ``covered entity'' refers to 
a health care component of the covered entity;
    (B) A reference in such provision to a ``health plan,'' ``covered 
health care provider,'' or ``health care clearinghouse,'' refers to a 
health care component of the covered entity if such health care 
component performs the functions of a health plan, health care 
provider, or health care clearinghouse, as applicable;
    (C) A reference in such provision to ``protected health 
information'' refers to protected health information that is created or 
received by or on behalf of the health care component of the covered 
entity; and
    (D) A reference in such provision to ``electronic protected health 
information'' refers to electronic protected health information that is 
created, received, maintained, or transmitted by or on behalf of the 
health care component of the covered entity.
    (ii) Safeguard requirements. The covered entity that is a hybrid 
entity must ensure that a health care component of the entity complies 
with the applicable requirements of this section and subparts C and E 
of this part. In particular, and without limiting this requirement, 
such covered entity must ensure that:
    (A) Its health care component does not disclose protected health 
information to another component of the covered entity in circumstances 
in which subpart E of this part would prohibit such disclosure if the 
health care component and the other component were separate and 
distinct legal entities;
    (B) Its health care component protects electronic protected health 
information with respect to another component of the covered entity to 
the same extent that it would be required under subpart C of this part 
to protect such information if the health care component and the other 
component were separate and distinct legal entities;
    (C) A component that is described by paragraph (a)(2)(iii)(C)(2) of 
this section does not use or disclose protected health information that 
it creates or receives from or on behalf of the health care component 
in a way prohibited by subpart E of this part;
    (D) A component that is described by paragraph (a)(2)(iii)(C)(2) of 
this section that creates, receives, maintains, or transmits electronic 
protected health information on behalf of the health care component is 
in compliance with subpart C of this part; and
    (E) If a person performs duties for both the health care component 
in the capacity of a member of the workforce of such component and for 
another component of the entity in the same capacity with respect to 
that component, such workforce member must not use or disclose 
protected health information created or received in the course of or 
incident to the member's work for the health care component in a way 
prohibited by subpart E of this part.
    (iii) Responsibilities of the covered entity. A covered entity that 
is a hybrid entity has the following responsibilities:
    (A) For purposes of subpart C of part 160 of this subchapter, 
pertaining to compliance and enforcement, the covered entity has the 
responsibility of complying with subpart E of this part.
    (B) The covered entity is responsible for complying with Sec.  
164.316(a) and Sec.  164.530(i), pertaining to the implementation of 
policies and procedures to ensure compliance with applicable 
requirements of this section and subparts C and E of this part, 
including the safeguard requirements in paragraph (a)(2)(ii) of this 
section.
    (C) The covered entity is responsible for designating the 
components that are part of one or more health care components of the 
covered entity and documenting the designation in accordance with 
paragraph (c) of this section, provided that, if the covered entity 
designates a health care component or components, it must include any 
component that would meet the definition of covered entity if it were a 
separate legal entity. Health care component(s) also may include a 
component only to the extent that it performs:
    (1) Covered functions; or
    (2) Activities that would make such component a business associate 
of a

[[Page 8376]]

component that performs covered functions if the two components were 
separate legal entities.
    (b)(1) Standard: Affiliated covered entities. Legally separate 
covered entities that are affiliated may designate themselves as a 
single covered entity for purposes of subparts C and E of this part.
    (1) Implementation specifications:
    (i) Requirements for designation of an affiliated covered entity.
    (A) Legally separate covered entities may designate themselves 
(including any health care component of such covered entity) as a 
single affiliated covered entity, for purposes of subparts C and E of 
this part, if all of the covered entities designated are under common 
ownership or control.
    (B) The designation of an affiliated covered entity must be 
documented and the documentation maintained as required by paragraph 
(c) of this section.
    (ii) Safeguard requirements. An affiliated covered entity must 
ensure that:
    (A) The affiliated covered entity's creation, receipt, maintenance, 
or transmission of electronic protected health information complies 
with the applicable requirements of subpart C of this part;
    (B) The affiliated covered entity's use and disclosure of protected 
health information comply with the applicable requirements of subpart E 
of this part; and
    (C) If the affiliated covered entity combines the functions of a 
health plan, health care provider, or health care clearinghouse, the 
affiliated covered entity complies with Sec.  164.308(a)(4)(ii)(A) and 
Sec.  164.504(g), as applicable.
    (c)(1) Standard: Documentation. A covered entity must maintain a 
written or electronic record of a designation as required by paragraphs 
(a) or (b) of this section.
    (2) Implementation specification: Retention period. A covered 
entity must retain the documentation as required by paragraph (c)(1) of 
this section for 6 years from the date of its creation or the date when 
it last was in effect, whichever is later.

    5. A new subpart C is added to part 164 to read as follows:

Subpart C--Security Standards for the Protection of Electronic 
Protected Health Information

Sec.
164.302 Applicability.
164.304 Definitions.
164.306 Security standards: General rules.
164.308 Administrative safeguards.
164.310 Physical safeguards.
164.312 Technical safeguards.
164.314 Organizational requirements.
164.316 Policies and procedures and documentation requirements.
164.318 Compliance dates for the initial implementation of the 
security standards.

Appendix A to Subpart C of Part 164--Security Standards: Matrix

    Authority: 42 U.S.C. 1320d-2 and 1320d-4.


Sec.  164.302  Applicability.

    A covered entity must comply with the applicable standards, 
implementation specifications, and requirements of this subpart with 
respect to electronic protected health information.


Sec.  164.304  Definitions.

    As used in this subpart, the following terms have the following 
meanings:
    Access means the ability or the means necessary to read, write, 
modify, or communicate data/information or otherwise use any system 
resource. (This definition applies to ``access'' as used in this 
subpart, not as used in subpart E of this part.)
    Administrative safeguards are administrative actions, and policies 
and procedures, to manage the selection, development, implementation, 
and maintenance of security measures to protect electronic protected 
health information and to manage the conduct of the covered entity's 
workforce in relation to the protection of that information.
    Authentication means the corroboration that a person is the one 
claimed.
    Availability means the property that data or information is 
accessible and useable upon demand by an authorized person.
    Confidentiality means the property that data or information is not 
made available or disclosed to unauthorized persons or processes.
    Encryption means the use of an algorithmic process to transform 
data into a form in which there is a low probability of assigning 
meaning without use of a confidential process or key.
    Facility means the physical premises and the interior and exterior 
of a building(s).
    Information system means an interconnected set of information 
resources under the same direct management control that shares common 
functionality. A system normally includes hardware, software, 
information, data, applications, communications, and people.
    Integrity means the property that data or information have not been 
altered or destroyed in an unauthorized manner.
    Malicious software means software, for example, a virus, designed 
to damage or disrupt a system.
    Password means confidential authentication information composed of 
a string of characters.
    Physical safeguards are physical measures, policies, and procedures 
to protect a covered entity's electronic information systems and 
related buildings and equipment, from natural and environmental 
hazards, and unauthorized intrusion.
    Security or Security measures encompass all of the administrative, 
physical, and technical safeguards in an information system.
    Security incident means the attempted or successful unauthorized 
access, use, disclosure, modification, or destruction of information or 
interference with system operations in an information system.
    Technical safeguards means the technology and the policy and 
procedures for its use that protect electronic protected health 
information and control access to it.
    User means a person or entity with authorized access.
    Workstation means an electronic computing device, for example, a 
laptop or desktop computer, or any other device that performs similar 
functions, and electronic media stored in its immediate environment.


Sec.  164.306  Security standards: General rules.

    (a) General requirements. Covered entities must do the following:
    (1) Ensure the confidentiality, integrity, and availability of all 
electronic protected health information the covered entity creates, 
receives, maintains, or transmits.
    (2) Protect against any reasonably anticipated threats or hazards 
to the security or integrity of such information.
    (3) Protect against any reasonably anticipated uses or disclosures 
of such information that are not permitted or required under subpart E 
of this part.
    (4) Ensure compliance with this subpart by its workforce.
    (b) Flexibility of approach.
    (1) Covered entities may use any security measures that allow the 
covered entity to reasonably and appropriately implement the standards 
and implementation specifications as specified in this subpart.
    (2) In deciding which security measures to use, a covered entity 
must take into account the following factors:
    (i) The size, complexity, and capabilities of the covered entity.

[[Page 8377]]

    (ii) The covered entity's technical infrastructure, hardware, and 
software security capabilities.
    (iii) The costs of security measures.
    (iv) The probability and criticality of potential risks to 
electronic protected health information.
    (c) Standards. A covered entity must comply with the standards as 
provided in this section and in Sec.  164.308, Sec.  164.310, Sec.  
164.312, Sec.  164.314, and Sec.  164.316 with respect to all 
electronic protected health information.
    (d) Implementation specifications.
    In this subpart:
    (1) Implementation specifications are required or addressable. If 
an implementation specification is required, the word ``Required'' 
appears in parentheses after the title of the implementation 
specification. If an implementation specification is addressable, the 
word ``Addressable'' appears in parentheses after the title of the 
implementation specification.
    (2) When a standard adopted in Sec.  164.308, Sec.  164.310, Sec.  
164.312, Sec.  164.314, or Sec.  164.316 includes required 
implementation specifications, a covered entity must implement the 
implementation specifications.
    (1) When a standard adopted in Sec.  164.308, Sec.  164.310, Sec.  
164.312, Sec.  164.314, or Sec.  164.316 includes addressable 
implementation specifications, a covered entity must--
    (i) Assess whether each implementation specification is a 
reasonable and appropriate safeguard in its environment, when analyzed 
with reference to the likely contribution to protecting the entity's 
electronic protected health information; and
    (ii) As applicable to the entity--
    (A) Implement the implementation specification if reasonable and 
appropriate; or
    (B) If implementing the implementation specification is not 
reasonable and appropriate--
    (1) Document why it would not be reasonable and appropriate to 
implement the implementation specification; and
    (2) Implement an equivalent alternative measure if reasonable and 
appropriate.
    (e) Maintenance. Security measures implemented to comply with 
standards and implementation specifications adopted under Sec.  164.105 
and this subpart must be reviewed and modified as needed to continue 
provision of reasonable and appropriate protection of electronic 
protected health information as described at Sec.  164.316.


Sec.  164.308  Administrative safeguards.

    (a) A covered entity must, in accordance with Sec.  164.306:
    (1)(i) Standard: Security management process. Implement policies 
and procedures to prevent, detect, contain, and correct security 
violations.
    (ii) Implementation specifications:
    (A) Risk analysis (Required). Conduct an accurate and thorough 
assessment of the potential risks and vulnerabilities to the 
confidentiality, integrity, and availability of electronic protected 
health information held by the covered entity.
    (B) Risk management (Required). Implement security measures 
sufficient to reduce risks and vulnerabilities to a reasonable and 
appropriate level to comply with Sec.  164.306(a).
    (C) Sanction policy (Required). Apply appropriate sanctions against 
workforce members who fail to comply with the security policies and 
procedures of the covered entity.
    (D) Information system activity review (Required). Implement 
procedures to regularly review records of information system activity, 
such as audit logs, access reports, and security incident tracking 
reports.
    (2) Standard: Assigned security responsibility. Identify the 
security official who is responsible for the development and 
implementation of the policies and procedures required by this subpart 
for the entity.
    (3)(i) Standard: Workforce security. Implement policies and 
procedures to ensure that all members of its workforce have appropriate 
access to electronic protected health information, as provided under 
paragraph (a)(4) of this section, and to prevent those workforce 
members who do not have access under paragraph (a)(4) of this section 
from obtaining access to electronic protected health information.
    (ii) Implementation specifications:
    (A) Authorization and/or supervision (Addressable). Implement 
procedures for the authorization and/or supervision of workforce 
members who work with electronic protected health information or in 
locations where it might be accessed.
    (B) Workforce clearance procedure (Addressable). Implement 
procedures to determine that the access of a workforce member to 
electronic protected health information is appropriate.
    (C) Termination procedures (Addressable). Implement procedures for 
terminating access to electronic protected health information when the 
employment of a workforce member ends or as required by determinations 
made as specified in paragraph (a)(3)(ii)(B) of this section.
    (4)(i) Standard: Information access management. Implement policies 
and procedures for authorizing access to electronic protected health 
information that are consistent with the applicable requirements of 
subpart E of this part.
    (ii) Implementation specifications:
    (A) Isolating health care clearinghouse functions (Required). If a 
health care clearinghouse is part of a larger organization, the 
clearinghouse must implement policies and procedures that protect the 
electronic protected health information of the clearinghouse from 
unauthorized access by the larger organization.
    (B) Access authorization (Addressable). Implement policies and 
procedures for granting access to electronic protected health 
information, for example, through access to a workstation, transaction, 
program, process, or other mechanism.
    (C) Access establishment and modification (Addressable). Implement 
policies and procedures that, based upon the entity's access 
authorization policies, establish, document, review, and modify a 
user's right of access to a workstation, transaction, program, or 
process.
    (5)(i) Standard: Security awareness and training. Implement a 
security awareness and training program for all members of its 
workforce (including management).
    (ii) Implementation specifications. Implement:
    (A) Security reminders (Addressable). Periodic security updates.
    (B) Protection from malicious software (Addressable). Procedures 
for guarding against, detecting, and reporting malicious software.
    (C) Log-in monitoring (Addressable). Procedures for monitoring log-
in attempts and reporting discrepancies.
    (D) Password management (Addressable). Procedures for creating, 
changing, and safeguarding passwords.
    (6)(i) Standard: Security incident procedures. Implement policies 
and procedures to address security incidents.
    (ii) Implementation specification: Response and Reporting 
(Required). Identify and respond to suspected or known security 
incidents; mitigate, to the extent practicable, harmful effects of 
security incidents that are known to the covered entity; and document 
security incidents and their outcomes.
    (7)(i) Standard: Contingency plan. Establish (and implement as 
needed) policies and procedures for responding to an emergency or other 
occurrence (for example, fire, vandalism, system failure, and natural 
disaster) that damages systems that contain electronic protected health 
information.
    (ii) Implementation specifications:

[[Page 8378]]

    (A) Data backup plan (Required). Establish and implement procedures 
to create and maintain retrievable exact copies of electronic protected 
health information.
    (B) Disaster recovery plan (Required). Establish (and implement as 
needed) procedures to restore any loss of data.
    (C) Emergency mode operation plan (Required). Establish (and 
implement as needed) procedures to enable continuation of critical 
business processes for protection of the security of electronic 
protected health information while operating in emergency mode.
    (D) Testing and revision procedures (Addressable). Implement 
procedures for periodic testing and revision of contingency plans.
    (E) Applications and data criticality analysis (Addressable). 
Assess the relative criticality of specific applications and data in 
support of other contingency plan components.
    (8) Standard: Evaluation. Perform a periodic technical and 
nontechnical evaluation, based initially upon the standards implemented 
under this rule and subsequently, in response to environmental or 
operational changes affecting the security of electronic protected 
health information, that establishes the extent to which an entity's 
security policies and procedures meet the requirements of this subpart.
    (b)(1) Standard: Business associate contracts and other 
arrangements. A covered entity, in accordance with Sec.  164.306, may 
permit a business associate to create, receive, maintain, or transmit 
electronic protected health information on the covered entity's behalf 
only if the covered entity obtains satisfactory assurances, in 
accordance with Sec.  164.314(a) that the business associate will 
appropriately safeguard the information.
    (2) This standard does not apply with respect to--
    (i) The transmission by a covered entity of electronic protected 
health information to a health care provider concerning the treatment 
of an individual.
    (ii) The transmission of electronic protected health information by 
a group health plan or an HMO or health insurance issuer on behalf of a 
group health plan to a plan sponsor, to the extent that the 
requirements of Sec.  164.314(b) and Sec.  164.504(f) apply and are 
met; or
    (iii) The transmission of electronic protected health information 
from or to other agencies providing the services at Sec.  
164.502(e)(1)(ii)(C), when the covered entity is a health plan that is 
a government program providing public benefits, if the requirements of 
Sec.  164.502(e)(1)(ii)(C) are met.
    (3) A covered entity that violates the satisfactory assurances it 
provided as a business associate of another covered entity will be in 
noncompliance with the standards, implementation specifications, and 
requirements of this paragraph and Sec.  164.314(a).
    (4) Implementation specifications: Written contract or other 
arrangement (Required). Document the satisfactory assurances required 
by paragraph (b)(1) of this section through a written contract or other 
arrangement with the business associate that meets the applicable 
requirements of Sec.  164.314(a).


Sec.  164.310  Physical safeguards.

    A covered entity must, in accordance with Sec.  164.306:
    (a)(1) Standard: Facility access controls. Implement policies and 
procedures to limit physical access to its electronic information 
systems and the facility or facilities in which they are housed, while 
ensuring that properly authorized access is allowed.
    (2) Implementation specifications:
    (i) Contingency operations (Addressable). Establish (and implement 
as needed) procedures that allow facility access in support of 
restoration of lost data under the disaster recovery plan and emergency 
mode operations plan in the event of an emergency.
    (ii) Facility security plan (Addressable). Implement policies and 
procedures to safeguard the facility and the equipment therein from 
unauthorized physical access, tampering, and theft.
    (iii) Access control and validation procedures (Addressable). 
Implement procedures to control and validate a person's access to 
facilities based on their role or function, including visitor control, 
and control of access to software programs for testing and revision.
    (iv) Maintenance records (Addressable). Implement policies and 
procedures to document repairs and modifications to the physical 
components of a facility which are related to security (for example, 
hardware, walls, doors, and locks).
    (b) Standard: Workstation use. Implement policies and procedures 
that specify the proper functions to be performed, the manner in which 
those functions are to be performed, and the physical attributes of the 
surroundings of a specific workstation or class of workstation that can 
access electronic protected health information.
    (c) Standard: Workstation security. Implement physical safeguards 
for all workstations that access electronic protected health 
information, to restrict access to authorized users.
    (d)(1) Standard: Device and media controls. Implement policies and 
procedures that govern the receipt and removal of hardware and 
electronic media that contain electronic protected health information 
into and out of a facility, and the movement of these items within the 
facility.
    (2) Implementation specifications:
    (i) Disposal (Required). Implement policies and procedures to 
address the final disposition of electronic protected health 
information, and/or the hardware or electronic media on which it is 
stored.
    (ii) Media re-use (Required). Implement procedures for removal of 
electronic protected health information from electronic media before 
the media are made available for re-use.
    (iii) Accountability (Addressable). Maintain a record of the 
movements of hardware and electronic media and any person responsible 
therefore.
    (iv) Data backup and storage (Addressable). Create a retrievable, 
exact copy of electronic protected health information, when needed, 
before movement of equipment.


Sec.  164.312  Technical safeguards.

    A covered entity must, in accordance with Sec.  164.306:
    (a)(1) Standard: Access control. Implement technical policies and 
procedures for electronic information systems that maintain electronic 
protected health information to allow access only to those persons or 
software programs that have been granted access rights as specified in 
Sec.  164.308(a)(4).
    (2) Implementation specifications:
    (i) Unique user identification (Required). Assign a unique name 
and/or number for identifying and tracking user identity.
    (ii) Emergency access procedure (Required). Establish (and 
implement as needed) procedures for obtaining necessary electronic 
protected health information during an emergency.
    (iii) Automatic logoff (Addressable). Implement electronic 
procedures that terminate an electronic session after a predetermined 
time of inactivity.
    (iv) Encryption and decryption (Addressable). Implement a mechanism 
to encrypt and decrypt electronic protected health information.
    (b) Standard: Audit controls. Implement hardware, software, and/or 
procedural mechanisms that record and examine activity in information 
systems that contain or use electronic protected health information.
    (c)(1) Standard: Integrity. Implement policies and procedures to 
protect

[[Page 8379]]

electronic protected health information from improper alteration or 
destruction.
    (2) Implementation specification: Mechanism to authenticate 
electronic protected health information (Addressable). Implement 
electronic mechanisms to corroborate that electronic protected health 
information has not been altered or destroyed in an unauthorized 
manner.
    (d) Standard: Person or entity authentication. Implement procedures 
to verify that a person or entity seeking access to electronic 
protected health information is the one claimed.
    (e)(1) Standard: Transmission security. Implement technical 
security measures to guard against unauthorized access to electronic 
protected health information that is being transmitted over an 
electronic communications network.
    (2) Implementation specifications:
    (i) Integrity controls (Addressable). Implement security measures 
to ensure that electronically transmitted electronic protected health 
information is not improperly modified without detection until disposed 
of.
    (ii) Encryption (Addressable). Implement a mechanism to encrypt 
electronic protected health information whenever deemed appropriate.


Sec.  164.314  Organizational requirements.

    (a)(1) Standard: Business associate contracts or other 
arrangements.
    (i) The contract or other arrangement between the covered entity 
and its business associate required by Sec.  164.308(b) must meet the 
requirements of paragraph (a)(2)(i) or (a)(2)(ii) of this section, as 
applicable.
    (ii) A covered entity is not in compliance with the standards in 
Sec.  164.502(e) and paragraph (a) of this section if the covered 
entity knew of a pattern of an activity or practice of the business 
associate that constituted a material breach or violation of the 
business associate's obligation under the contract or other 
arrangement, unless the covered entity took reasonable steps to cure 
the breach or end the violation, as applicable, and, if such steps were 
unsuccessful--
    (A) Terminated the contract or arrangement, if feasible; or
    (B) If termination is not feasible, reported the problem to the 
Secretary.
    (2) Implementation specifications (Required).
    (i) Business associate contracts. The contract between a covered 
entity and a business associate must provide that the business 
associate will--
    (A) Implement administrative, physical, and technical safeguards 
that reasonably and appropriately protect the confidentiality, 
integrity, and availability of the electronic protected health 
information that it creates, receives, maintains, or transmits on 
behalf of the covered entity as required by this subpart;
    (B) Ensure that any agent, including a subcontractor, to whom it 
provides such information agrees to implement reasonable and 
appropriate safeguards to protect it;
    (C) Report to the covered entity any security incident of which it 
becomes aware;
    (D) Authorize termination of the contract by the covered entity, if 
the covered entity determines that the business associate has violated 
a material term of the contract.
    (ii) Other arrangements.
    (A) When a covered entity and its business associate are both 
governmental entities, the covered entity is in compliance with 
paragraph (a)(1) of this section, if--
    (1) It enters into a memorandum of understanding with the business 
associate that contains terms that accomplish the objectives of 
paragraph (a)(2)(i) of this section; or
    (2) Other law (including regulations adopted by the covered entity 
or its business associate) contains requirements applicable to the 
business associate that accomplish the objectives of paragraph 
(a)(2)(i) of this section.
    (B) If a business associate is required by law to perform a 
function or activity on behalf of a covered entity or to provide a 
service described in the definition of business associate as specified 
in Sec.  160.103 of this subchapter to a covered entity, the covered 
entity may permit the business associate to create, receive, maintain, 
or transmit electronic protected health information on its behalf to 
the extent necessary to comply with the legal mandate without meeting 
the requirements of paragraph (a)(2)(i) of this section, provided that 
the covered entity attempts in good faith to obtain satisfactory 
assurances as required by paragraph (a)(2)(ii)(A) of this section, and 
documents the attempt and the reasons that these assurances cannot be 
obtained.
    (C) The covered entity may omit from its other arrangements 
authorization of the termination of the contract by the covered entity, 
as required by paragraph (a)(2)(i)(D) of this section if such 
authorization is inconsistent with the statutory obligations of the 
covered entity or its business associate.
    (b)(1) Standard: Requirements for group health plans. Except when 
the only electronic protected health information disclosed to a plan 
sponsor is disclosed pursuant to Sec.  164.504(f)(1)(ii) or (iii), or 
as authorized under Sec.  164.508, a group health plan must ensure that 
its plan documents provide that the plan sponsor will reasonably and 
appropriately safeguard electronic protected health information 
created, received, maintained, or transmitted to or by the plan sponsor 
on behalf of the group health plan.
    (2) Implementation specifications (Required). The plan documents of 
the group health plan must be amended to incorporate provisions to 
require the plan sponsor to--
    (i) Implement administrative, physical, and technical safeguards 
that reasonably and appropriately protect the confidentiality, 
integrity, and availability of the electronic protected health 
information that it creates, receives, maintains, or transmits on 
behalf of the group health plan;
    (ii) Ensure that the adequate separation required by Sec.  
164.504(f)(2)(iii) is supported by reasonable and appropriate security 
measures;
    (iii) Ensure that any agent, including a subcontractor, to whom it 
provides this information agrees to implement reasonable and 
appropriate security measures to protect the information; and
    (iv) Report to the group health plan any security incident of which 
it becomes aware.


Sec.  164.316  Policies and procedures and documentation requirements.

    A covered entity must, in accordance with Sec.  164.306:
    (a) Standard: Policies and procedures. Implement reasonable and 
appropriate policies and procedures to comply with the standards, 
implementation specifications, or other requirements of this subpart, 
taking into account those factors specified in Sec.  164.306(b)(2)(i), 
(ii), (iii), and (iv). This standard is not to be construed to permit 
or excuse an action that violates any other standard, implementation 
specification, or other requirements of this subpart. A covered entity 
may change its policies and procedures at any time, provided that the 
changes are documented and are implemented in accordance with this 
subpart.
    (b)(1) Standard: Documentation.
    (i) Maintain the policies and procedures implemented to comply with 
this subpart in written (which may be electronic) form; and
    (ii) If an action, activity or assessment is required by this 
subpart to be documented, maintain a written (which may be electronic) 
record of the action, activity, or assessment.
    (2) Implementation specifications:

[[Page 8380]]

    (i) Time limit (Required). Retain the documentation required by 
paragraph (b)(1) of this section for 6 years from the date of its 
creation or the date when it last was in effect, whichever is later.
    (ii) Availability (Required). Make documentation available to those 
persons responsible for implementing the procedures to which the 
documentation pertains.
    (iii) Updates (Required). Review documentation periodically, and 
update as needed, in response to environmental or operational changes 
affecting the security of the electronic protected health information.


Sec.  164.318  Compliance dates for the initial implementation of the 
security standards.

    (a) Health plan.
    (1) A health plan that is not a small health plan must comply with 
the applicable requirements of this subpart no later than April 20, 
2005.
    (2) A small health plan must comply with the applicable 
requirements of this subpart no later than April 20, 2006.
    (b) Health care clearinghouse. A health care clearinghouse must 
comply with the applicable requirements of this subpart no later than 
April 20, 2005.
    (c) Health care provider. A covered health care provider must 
comply with the applicable requirements of this subpart no later than 
April 20, 2005.

Appendix A to Subpart C of Part 164--Security Standards: Matrix

----------------------------------------------------------------------------------------------------------------
                                                                                             Implementation
                                                                                             Specifications
                       Standards                                    Sections                  (R)=Required,
                                                                                             (A)=Addressable
----------------------------------------------------------------------------------------------------------------
                                            Administrative Safeguards
----------------------------------------------------------------------------------------------------------------
Security Management Process............................  164.308(a)(1)                  Risk Analysis (R)
                                                         .............................  Risk Management (R)
                                                         .............................  Sanction Policy (R)
                                                         .............................  Information System
                                                                                         Activity Review (R)
Assigned Security Responsibility.......................  164.308(a)(2)                  (R)
Workforce Security.....................................  164.308(a)(3)                  Authorization and/or
                                                                                         Supervision (A)
                                                         .............................  Workforce Clearance
                                                                                         Procedure
                                                         .............................  Termination Procedures
                                                                                         (A)
Information Access Management..........................  164.308(a)(4)                  Isolating Health care
                                                                                         Clearinghouse Function
                                                                                         (R)
                                                         .............................  Access Authorization (A)
                                                         .............................  Access Establishment and
                                                                                         Modification (A)
Security Awareness and Training........................  164.308(a)(5)                  Security Reminders (A)
                                                         .............................  Protection from
                                                                                         Malicious Software (A)
                                                         .............................  Log-in Monitoring (A)
                                                         .............................  Password Management (A)
Security Incident Procedures...........................  164.308(a)(6)                  Response and Reporting
                                                                                         (R)
Contingency Plan.......................................  164.308(a)(7)                  Data Backup Plan (R)
                                                         .............................  Disaster Recovery Plan
                                                                                         (R)
                                                         .............................  Emergency Mode Operation
                                                                                         Plan (R)
                                                         .............................  Testing and Revision
                                                                                         Procedure (A)
                                                         .............................  Applications and Data
                                                                                         Criticality Analysis
                                                                                         (A)
Evaluation.............................................  164.308(a)(8)                  (R)
Business Associate Contracts and Other Arrangement.....  164.308(b)(1)                  Written Contract or
                                                                                         Other Arrangement (R)
--------------------------------------------------------
                                               Physical Safeguards
----------------------------------------------------------------------------------------------------------------
Facility Access Controls...............................  164.310(a)(1)                  Contingency Operations
                                                                                         (A)
                                                         .............................  Facility Security Plan
                                                                                         (A)
                                                         .............................  Access Control and
                                                                                         Validation Procedures
                                                                                         (A)
                                                         .............................  Maintenance Records (A)
Workstation Use........................................  164.310(b)                     (R)
Workstation Security...................................  164.310(c)                     (R)
Device and Media Controls..............................  164.310(d)(1)                  Disposal (R)
                                                         .............................  Media Re-use (R)
                                                         .............................  Accountability (A)
                                                         .............................  Data Backup and Storage
                                                                                         (A)
--------------------------------------------------------
                                    Technical Safeguards (see Sec.   164.312)
----------------------------------------------------------------------------------------------------------------
Access Control.........................................  164.312(a)(1)                  Unique User
                                                                                         Identification (R)
                                                         .............................  Emergency Access
                                                                                         Procedure (R)
                                                         .............................  Automatic Logoff (A)
                                                         .............................  Encryption and
                                                                                         Decryption (A)
Audit Controls.........................................  164.312(b)                     (R)
Integrity..............................................  164.312(c)(1)                  Mechanism to
                                                                                         Authenticate Electronic
                                                                                         Protected Health
                                                                                         Information (A)
Person or Entity Authentication........................  164.312(d)                     (R)
Transmission Security..................................  164.312(e)(1)                  Integrity Controls (A)
                                                         .............................  Encryption (A)
----------------------------------------------------------------------------------------------------------------


[[Page 8381]]

Sec. 164.500  [Amended]

    6. Sec.  In 164.500(b)(1)(iv), remove the words ``including the 
designation of health care components of a covered entity''.


Sec.  165.501  [Amended]

    7. In Sec. 164.501, the definitions of the following terms are 
removed: Covered functions, Disclosure, Individual, Organized health 
care arrangement, Plan sponsor Protected health information, Required 
by law, and Use.


Sec.  164.504  [Amended]

    8. In Sec. 164.504, the following changes are made:
    a. The definitions of the following terms are removed: Common 
control, Common ownership, Health care component, and Hybrid entity.
    b. Paragraphs (b) through (d) are removed and reserved.

    Authority: Sections 1173 and 1175 of the Social Security Act (42 
U.S.C. 1329d-2 and 1320-4).

    Dated: January 13, 2003.
Tommy G. Thompson,
Secretary.
[FR Doc. 03-3877 Filed 2-13-03; 8:45 am]
BILLING CODE 4120-01-P