I. Background

A. Statutory Background

Congress recognized the importance of protecting the privacy of health information given the rapid evolution of health information systems in the Health Insurance Portability and Accountability Act of 1996 (HIPAA), Public Law 104-191, which became law on August 21, 1996. HIPAA's Administrative Simplification provisions, sections 261 through 264 of the statute, were designed to improve the efficiency and effectiveness of the health care system by facilitating the electronic exchange of information with respect to certain financial and administrative transactions carried out by health plans, health care
clearinghouses, and health care providers who transmit information electronically in connection with such transactions. To implement these provisions, the statute directed HHS to adopt a suite of uniform, national standards for transactions, unique health identifiers, code sets for the data elements of the transactions, security of health information, and electronic signature.

At the same time, Congress recognized the challenges to the confidentiality of health information presented by the increasing complexity of the health care industry, and by advances in the health information systems technology and communications. Thus, the Administrative Simplification provisions of HIPAA authorized the Secretary to promulgate standards for the privacy of individually identifiable health information if Congress did not enact health care
privacy legislation by August 21, 1999. HIPAA also required the Secretary of HHS to provide Congress with recommendations for legislating to protect the confidentiality of health care information. The Secretary submitted such recommendations to Congress on September 11, 1997, but Congress did not pass such legislation within its self-imposed deadline.

With respect to these regulations, HIPAA provided that the standards, implementation specifications, and requirements established by the Secretary not supersede any contrary State law that imposes more stringent privacy protections. Additionally, Congress required that HHS consult with the National Committee on Vital and Health Statistics, a Federal advisory committee established pursuant to section 306(k) of the Public Health Service Act (42 U.S.C. 242k(k)), and the Attorney General in the development of HIPAA privacy standards.

After a set of HIPAA Administrative Simplification standards is adopted by the Department, HIPAA provides HHS with authority to modify the standards as deemed appropriate, but not more frequently than once every 12 months. However, modifications are permitted during the first year after adoption of the standards if the changes are necessary to permit compliance with the standards. HIPAA also provides that compliance with modifications to standards or implementation specifications must be accomplished by a date designated by the Secretary, which may not be earlier than 180 days after the adoption of the modification.

B. Regulatory and Other Actions to Date

HHS published a proposed Rule setting forth privacy standards for individually identifiable health information on November 3, 1999 (64 FR 59918). The Department received more than 52,000 public comments in response to the proposal. After reviewing and considering the public comments, HHS issued a final Rule (65 FR 82462) on December 28, 2000, establishing "Standards for Privacy of Individually Identifiable Health Information" ("Privacy Rule").
In an era where consumers are increasingly concerned about the privacy of their personal information, the Privacy Rule creates, for the first time, a floor of national protections for the privacy of their most sensitive information--health information. Congress has passed other laws to protect consumers' personal information contained in bank, credit card, other financial records, and even video rentals. These health privacy protections are intended to provide consumers with similar assurances that their health information, including genetic information, will be properly protected. Under the Privacy Rule, health plans, health care clearinghouses, and certain health care providers must guard against misuse of individuals' identifiable health information and limit the sharing of such information, and consumers are afforded significant new rights to enable them to understand and control how their health information is used and disclosed.

After publication of the Privacy Rule, HHS received many inquiries and unsolicited comments through telephone calls, e-mails, letters, and other contacts about the impact and operation of the Privacy Rule on numerous sectors of the health care industry. Many of these commenters exhibited substantial confusion and misunderstanding about how the Privacy Rule will operate; others expressed great concern over the complexity of the Privacy Rule. In
response to these communications and to ensure that the provisions of the Privacy Rule would protect patients' privacy without creating unanticipated consequences that might harm patients' access to health care or quality of health care, the Secretary of HHS opened the Privacy Rule for additional public comment in March 2001 (66 FR 12738).

After an expedited review of the comments by the Department, the Secretary decided that it was appropriate for the Privacy Rule to become effective on April 14, 2001, as scheduled (65 FR 12433). At the same time, the Secretary directed the Department immediately to begin the process of developing guidelines on how the Privacy Rule should be implemented and to clarify the impact of the Privacy Rule on health care activities. In addition, the Secretary charged the Department with proposing appropriate changes to the Privacy Rule during the next year to clarify the requirements and correct potential problems that could threaten access to, or quality of, health care. The comments received during the comment period, as well as other communications from the public and all sectors of the health care industry, including letters, testimony at public hearings, and meetings requested by these parties, have helped to inform the Department's efforts to develop proposed modifications and guidance on the Privacy Rule.

On July 6, 2001, the Department issued its first guidance to answer common questions and clarify certain of the Privacy Rule's provisions. In the guidance, the Department also committed to proposing modifications to the Privacy Rule to address problems arising from unintended effects of the Privacy Rule on health care delivery and access. The guidance will soon be updated to reflect the modifications adopted in this final Rule. The revised guidance will be available on the HHS Office for Civil Rights (OCR) Privacy Web site at http://www.hhs.gov/ocr/hipaa/.

In addition, the National Committee for Vital and Health Statistics (NCVHS), Subcommittee on Privacy and Confidentiality, held public hearings on the implementation of the Privacy Rule on August 21-23, 2001, and January 24-25, 2002, and provided recommendations to the Department based on these hearings. The NCVHS serves as the statutory advisory body to the Secretary of HHS with respect to the development and implementation of the Rules required by the Administrative Simplification provisions of HIPAA, including the privacy standards. Through the hearings, the NCVHS specifically solicited public input on issues related to certain key standards in the Privacy Rule: consent, minimum necessary, marketing, fundraising, and research. The resultant public testimony and subsequent recommendations submitted to the Department by the NCVHS also served to inform the development of these
proposed modifications.