```

[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]

ASSESSING HIPAA: HOW FEDERAL MEDICAL RECORD PRIVACY REGULATIONS CAN BE 
                                IMPROVED

=======================================================================

                                HEARING

                               before the

                         SUBCOMMITTEE ON HEALTH

                                 of the

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 22, 2001

                               __________

                           Serial No. 107-15

                               __________

       Printed for the use of the Committee on Energy and Commerce

 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 house

                               __________

                   U.S. GOVERNMENT PRINTING OFFICE
71-494                     WASHINGTON : 2001

_______________________________________________________________________
 For sale by the Superintendent of Documents, U.S. Government Printing 
                                 Office
Internet: bookstore.gpo.gov  Phone: (202) 512-1800  Fax: (202) 512-2250
               Mail: Stop SSOP, Washington, DC 20402-0001

                    COMMITTEE ON ENERGY AND COMMERCE

               W.J. ``BILLY'' TAUZIN, Louisiana, Chairman

MICHAEL BILIRAKIS, Florida           JOHN D. DINGELL, Michigan
JOE BARTON, Texas                    HENRY A. WAXMAN, California
FRED UPTON, Michigan                 EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida               RALPH M. HALL, Texas
PAUL E. GILLMOR, Ohio                RICK BOUCHER, Virginia
JAMES C. GREENWOOD, Pennsylvania     EDOLPHUS TOWNS, New York
CHRISTOPHER COX, California          FRANK PALLONE, Jr., New Jersey
NATHAN DEAL, Georgia                 SHERROD BROWN, Ohio
STEVE LARGENT, Oklahoma              BART GORDON, Tennessee
RICHARD BURR, North Carolina         PETER DEUTSCH, Florida
ED WHITFIELD, Kentucky               BOBBY L. RUSH, Illinois
GREG GANSKE, Iowa                    ANNA G. ESHOO, California
CHARLIE NORWOOD, Georgia             BART STUPAK, Michigan
BARBARA CUBIN, Wyoming               ELIOT L. ENGEL, New York
JOHN SHIMKUS, Illinois               TOM SAWYER, Ohio
HEATHER WILSON, New Mexico           ALBERT R. WYNN, Maryland
JOHN B. SHADEGG, Arizona             GENE GREEN, Texas
CHARLES ``CHIP'' PICKERING,          KAREN McCARTHY, Missouri
Mississippi                          TED STRICKLAND, Ohio
VITO FOSSELLA, New York              DIANA DeGETTE, Colorado
ROY BLUNT, Missouri                  THOMAS M. BARRETT, Wisconsin
TOM DAVIS, Virginia                  BILL LUTHER, Minnesota
ED BRYANT, Tennessee                 LOIS CAPPS, California
ROBERT L. EHRLICH, Jr., Maryland     MICHAEL F. DOYLE, Pennsylvania
STEVE BUYER, Indiana                 CHRISTOPHER JOHN, Louisiana
GEORGE RADANOVICH, California        JANE HARMAN, California
CHARLES F. BASS, New Hampshire
JOSEPH R. PITTS, Pennsylvania
MARY BONO, California
GREG WALDEN, Oregon
LEE TERRY, Nebraska

                  David V. Marventano, Staff Director

                   James D. Barnette, General Counsel

      Reid P.F. Stuntz, Minority Staff Director and Chief Counsel

                                 ______

                         Subcommittee on Health

                  MICHAEL BILIRAKIS, Florida, Chairman

JOE BARTON, Texas                    SHERROD BROWN, Ohio
FRED UPTON, Michigan                 HENRY A. WAXMAN, California
JAMES C. GREENWOOD, Pennsylvania     TED STRICKLAND, Ohio
NATHAN DEAL, Georgia                 THOMAS M. BARRETT, Wisconsin
RICHARD BURR, North Carolina         LOIS CAPPS, California
ED WHITFIELD, Kentucky               RALPH M. HALL, Texas
GREG GANSKE, Iowa                    EDOLPHUS TOWNS, New York
CHARLIE NORWOOD, Georgia             FRANK PALLONE, Jr., New Jersey
  Vice Chairman                      PETER DEUTSCH, Florida
BARBARA CUBIN, Wyoming               ANNA G. ESHOO, California
HEATHER WILSON, New Mexico           BART STUPAK, Michigan
JOHN B. SHADEGG, Arizona             ELIOT L. ENGEL, New York
CHARLES ``CHIP'' PICKERING,          ALBERT R. WYNN, Maryland
Mississippi                          GENE GREEN, Texas
ED BRYANT, Tennessee                 JOHN D. DINGELL, Michigan,
ROBERT L. EHRLICH, Jr., Maryland       (Ex Officio)
STEVE BUYER, Indiana
JOSEPH R. PITTS, Pennsylvania
W.J. ``BILLY'' TAUZIN, Louisiana
  (Ex Officio)

                                  (ii)

                            C O N T E N T S

                               __________
                                                                   Page

Testimony of:
    Appelbaum, Paul, Chairman, Department of Psychiatry, 
      University of Massachusetts Medical School.................    47
    Clough, John D., Director of Health Affairs, Cleveland Clinic 
      Foundation.................................................    34
    Foley, Mary E., President, American Nurses Association.......    37
    Goldman, Janlori, Director, Health Privacy Project, Institute 
      for Health Care Research and Policy, Georgetown University.    57
    Heird, Robert, Senior Vice President, Anthem Bluecross 
      Blueshield.................................................    69
    Melski, John, Medical Director of Informatics, Marshfield 
      Clinic.....................................................    40
    Ortiz, Carlos R., Director of Government Affairs, CVS 
      Pharmacy...................................................    53
Material submitted for the record by:
    American Association of Health Plans, prepared statement of..   111
    American Association of Occupational Health Nurses, Inc., 
      letter dated March 26, 2001, providing comments for the 
      record.....................................................   113
    Lower, Robert C., Alston & Bird LLP, prepared statement of...   109

                                 (iii)

  

 
ASSESSING HIPAA: HOW FEDERAL MEDICAL RECORD PRIVACY REGULATIONS CAN BE 
                                IMPROVED

                              ----------                              

                        THURSDAY, MARCH 22, 2001

                  House of Representatives,
                  Committee on Energy and Commerce,
                                    Subcommittee on Health,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10:05 a.m. In 
Room 2123, Rayburn House Office Building, Hon. Michael 
Bilirakis (chairman) presiding.
    Members present: Representatives Bilirakis, Upton, 
Greenwood, Whitfield, Ganske, Norwood, Shadegg, Bryant, Buyer, 
Pitts, Tauzin (ex officio), Brown, Waxman, Barrett, Capps, 
Stupak, Engel, Wynn, Green, and Dingell (ex officio).
    Also present: Representative Markey.
    Staff present: Marc Wheat, majority counsel; Brent 
Delmonte, majority counsel; Kristi Gillis, legislative clerk; 
and John Ford, minority counsel.
    Mr. Bilirakis. Can we have order please? Good morning. 
Today the subcommittee tackles a very complex issue, the 
medical records privacy rule issued last year by the outgoing 
administration.
    This is an issue of great importance to both health care 
consumers and the regulated community, and we will hear the 
views of expert witnesses about whether the rule adequately 
balances the interests involved.
    Americans should feel secure in knowing that their medical 
records are kept confidential in virtually every instance, 
unless disclosure of their record is authorized by the patients 
themselves. The best way to ensure open and honest 
communication between providers and patients is to guarantee 
that the information shared during such exchanges is kept out 
of the public domain.
    That being said, I have concerns that the regulation issued 
late last year which is presently undergoing a comment period 
may not strike the balance appropriately. For example, some 
local pharmacists from our districts have said that the rule 
may prevent from them filling prescriptions unless they have 
received a signed authorization from the patient. While that 
requirement may sound reasonable, we must think of the elderly 
shut-in who needs her son or daughter to pick up her 
prescriptions. Under the rule, she could not get her 
prescriptions filled without going to the pharmacy to fill out 
the form and pick up the prescription in person. This may not 
be difficult for most people, but it could be a major problem 
for a frail elderly individual.
    Likewise, concerns have been raised about the burdens this 
may place on small rural hospitals. I am told that the rule 
requires them to keep written consent for 6 years. This raises 
several questions: Is it necessary to keep these records? Does 
this recordkeeping requirement help or hurt patients and 
providers? We should be concerned if money that would otherwise 
be spent on patient care would be diverted to other efforts to 
comply with this regulation. Whether that result is likely or 
possible is a question we must explore today.
    I would also like to explore why statutory authorization 
language was dropped from the proposed rule. When the Clinton 
administration first proposed its regulations, there was no 
requirement to obtain the specific consent of the patient 
before disclosing information for treatment and payment. In 
fact, the proposed rule indicated that such a requirement could 
impair care. Subsequently, however, this provision was replaced 
by a requirement to obtain specific consent. Certainly there 
are instances when specific consent should be required before 
medical information is shared with others. However, it may not 
be necessary in other situations, such as when calling 
patients, when scheduling appointments, or answering questions 
about medication interactions when patients call providers.
    Finally, I want to address one concern up front. We will 
not hear today from an administration witness. When an initial 
inquiry was made by us, the Department of Health and Human 
Services indicated that it could not provide a witness to 
testify on the regulation until the comment period ended. We 
have since learned that the Department does not face any legal 
obstacle but, rather, that the regulation issued by the 
previous administration is currently under review and policy 
analysis by the new administration.
    In light of the change in leadership at HHS and the 
complexity of these issues, I understand the Department's 
position. However, I also appreciate very much the concerns 
raised by a number of our colleagues. I know we will hear those 
concerns in opening statements this morning from members who 
would like to hear from the current administration on these 
important issues; and we all want to hear from the current 
administration regarding these issues.
    We have asked them to provide their views on this issue at 
a future hearing, and we are making every effort to have that 
done before the April break.
    In closing, I want to thank all of the witnesses who have 
appeared today to help educate us on this very important 
subject. Your input is vital to this committee's ability to 
ensure the Federal policies and medical records privacy truly 
serve the best interest of the American people.
    The Chair yields to Mr. Brown for an opening statement.
    Mr. Brown. I thank you Mr. Chairman. Not to disappoint, I 
would like to point out that a lot of us are concerned that 
there is not a witness from the Department of Health and Human 
Services. We do welcome your willingness, in fact, to include a 
witness from HHS to tell their side of the story and to get the 
input we need from the key government agency that is working on 
this issue. I am confident that this lapse in cooperation with 
the minority is an aberration. Our relationship has been very 
good and will continue to be, and we will continue to work well 
together.
    I look forward to hearing from the impressive list of 
witnesses, especially John Clough of Cleveland Clinic, who are 
in attendance this morning. Medical records privacy, to be 
sure, is not a partisan issue. I am confident that every member 
of this subcommittee favors strong privacy rules even if we 
disagree on some of the specifics. And discussing the current 
regulation need not, and I think will not, be a partisan 
exercise.
    Ironically, one of the major concerns I have heard about 
the privacy regulations is that they are too open to multiple 
interpretation and the world there too vague. That is another 
way of saying that the regulations are not prescriptive enough, 
that they are too flexible. You rarely hear that concern raised 
about government regulation generally. Still, I think it is a 
valid concern based on my conversations with providers and with 
insurers.
    There are provisions that need further clarification. That 
can be accomplished without delaying implementation of the 
regulation. There may be other provisions that need to be 
rewritten. That, too, can be accomplished without undue delay 
in implementation of these privacy regulations. If at all 
possible, we should try to resolve any of these concerns with 
this legislation without undue delay in implementation.
    We have need of medical privacy protections. We are almost 
there. And on behalf of every person who uses the health care 
system in this country, we should do everything in our power in 
this committee to complete the job.
    That said, we need to listen with an open mind to the 
concerns raised today by providers, by insurers, and other 
stakeholders. In addition to concerns, I hope our witnesses 
will provide specific suggestions on how to address these 
concerns, and the more explicit the better. Again, our 
fundamental objective should be to publish a set of objectives 
that are meaningful and realistic and to do so as soon as 
possible. If that means modifying the current regulations, 
there are mechanisms to do that. We should explore those 
mechanisms before exposing consumers to serious breaches of 
their personal privacy.
    I thank you, Mr. Chairman.
    Mr. Bilirakis. I thank the gentleman. The Chair recognizes 
the gentleman from Indiana, Mr. Buyer, for an opening 
statement.
    Mr. Buyer. I yield back my time.
    Mr. Bilirakis. The Chair appreciates that. Mr. Waxman.
    Mr. Waxman. Last year, the Clinton administration issued a 
medical privacy rule that provides essential protection for 
American families. The rule is long overdue and it is a welcome 
step toward establishing privacy rules that ensure the 
effective operation of our health care system. We should be 
moving forward to put this rule into effect and build on the 
solid foundation of privacy protections it establishes.
    Unfortunately, we are now going in the wrong direction. 
This situation is accurately described in the title of 
Tuesday's USA Today editorial: Bogus Scare Tactics Delay 
Medical Privacy Reforms. I would like to ask unanimous consent 
that this be inserted in the record.
    Mr. Bilirakis. Without objection.
    [The editorial follows:]

                  [Tuesday, March 20, 2001--USA Today]

           BOGUS SCARE TACTICS DELAY MEDICAL-PRIVACY REFORMS

    A couple of years ago, North Carolina resident Terri Seargent got a 
genetic test showing that she is susceptible to a respiratory disease. 
When her employer learned of the results, she got a pink slip.
    Last year, a Maryland school board member's medical records were 
sent to school officials as part of an attack campaign. And more 
recently, a hacker downloaded medical records from patients at the 
University of Washington Medical Center.
    All of this and much more came in the wake of Congress' decision 
back in 1996 to make protecting medical privacy a priority. Medical 
records once safely housed in doctors' offices were, lawmakers 
recognized, too easily collected, sold and disclosed in the Internet 
age. Since then, however, intense lobbying by groups that benefit from 
the status quo has delayed reforms, leaving sensitive medical records 
exposed to marketers, employers and others who want a peek.
    Now those delays are being compounded by the Bush administration's 
decision to take a fresh look at new federal privacy rules--just weeks 
before they were to take effect.
    The history: The 1996 law gave Congress three years to develop 
privacy protections. When Congress missed the deadline, the law ordered 
federal regulators to write rules.
    Slated to take effect April 14, these regulations combat some of 
the worst privacy abuses. For instance, HMOs and doctors would have to 
tell patients who is looking at their records. They'd have to get 
written consent before sharing records with anyone not involved in the 
treatment or payment for care. And patients could see their records and 
fix mistakes.
    Critics--mainly health insurers, pharmacists and marketers--argue 
that the regulations are needlessly heavy-handed and costly. They are 
circulating several horror stories to make their case. But most of 
these claims wither under scrutiny. Among them:

 that hospitals might have to build soundproof walls between 
        patients in recovery rooms to avoid ``inadvertent disclosure'' 
        of health information. Yet the rule requires only that 
        reasonable privacy safeguards be used, such as keeping voices 
        down.
 that husbands wouldn't be able to pick up a prescription for 
        their sick wives because of the restrictions on access to 
        records. But the rules specifically allow family members to 
        pick up prescriptions.
 that quality care would suffer because of restrictions on what 
        doctors can tell each other. However, the restrictions are 
        lifted when data are needed for patient treatment.
    More importantly, ensuring a modicum of privacy will go a long way 
toward improving the quality of health care. Roughly one in six 
patients try to protect privacy by, among other things, dodging doctors 
or lying to them, according to a 1999 Princeton Survey Research 
Associates poll. Forty percent won't give doctors online access to 
their medical records, a California HealthCare Foundation survey found.
    Critics say the rules just need a fresh scrubbing. Indeed, the 
regulations could be improved. That's often the case with a new, 
complex set of rules. And that's why Congress specifically authorized 
regulators to fine-tune the privacy regulations as needed ``to permit 
compliance.''
    Given their long opposition to any meaningful privacy protection, 
critics are more likely looking for ways to weaken the regulations. 
They want, for instance, a federal rule that overturns stronger state 
privacy mandates. The Bush administration has given them until the end 
of this month to voice complaints, and has indicated it might delay the 
regulations to accommodate them.
    Five years after Congress promised better privacy protections for 
medical records, it's patients who need to be accommodated--not those 
lobbying for further delays. Today's debate: Medical records Critics 
work overtime to undermine pending regulations.

    Mr. Waxman. Well-funded interest groups are engaged in 
concerted efforts to unravel or put off altogether the privacy 
protections in the rule. The administration should be focused 
on working with affected parties to answer questions and issue 
any guidance necessary to ensure effective implementation of 
the rule. Instead, Secretary Thompson reopened the rule for 
comment, raising the possibility that implementation of the 
rule would be delayed beyond the April 14 effective date.
    Congress should be looking at filling in the gaps in 
privacy protection, because even if this rule were put into 
effect, it does not cover all entities that handle an 
individual's health information and it does not have effective 
enforcement mechanisms. So we should be moving forward with 
steps, instead of looking for ways to delay or weaken this 
regulation.
    Let's be clear about this. While almost every Member of 
Congress pays lip service to the importance of privacy of 
medical records, over a period of 20 years we have shown that 
we were uniquely unable to enact detailed legislation. That is 
precisely why the Congress gave authority to the Department of 
Health and Human Services to issue a rule if we have failed 
once again to act.
    HHS has now done that. This medical privacy rule is the 
product not only of many prior years of deliberation by 
Congress but extensive public involvement as well. In fact, HHS 
received and considered over 52,000 comments. There is no 
excuse to delay any further.
    Mr. Bilirakis. Would the gentleman please summarize?
    Mr. Waxman. I will, Mr. Chairman. I just want to say that 
if we do not have privacy protections in place, we are going to 
continue to see 1 out of every 6 American adults take 
counterproductive steps, such as giving inaccurate information 
to their physicians or avoiding health care altogether, because 
of privacy fears.
    And Americans are avoiding genetic testing because of 
concerns about privacy and discrimination. I think some of the 
arguments that have been used by the industry groups that are 
fighting this have been almost laughable. They talk about 
things they would like to do, like build news walls and so 
forth, even though the rule says take reasonable efforts.
    Mr. Bilirakis. With all due----
    Mr. Waxman. Mr. Chairman, I want to close my comments by 
saying when these rules were pending, the Department of Health 
and Human Services went to the Ways and Means Committee and 
sent a representative to talk about this issue. They did not 
have to stay away from commenting before the Congress because a 
rule was pending. I don't think Secretary Thompson should stay 
away from Congress and use that as an excuse because a rule is 
pending. We should be working with them.
    [The prepared statement of Hon. Henry A. Waxman follows:]
    Prepared Statement of Hon. Henry A. Waxman, a Representative in 
                 Congress from the State of California
    Last December, the Clinton Administration issued a medical privacy 
rule that provides essential protections for American families. The 
rule is a long-overdue and welcome step toward establishing privacy 
rules that ensure the effective operation of our health care system.
    We should be moving forward to put this rule into effect and build 
on the solid foundation of privacy protections it establishes. 
Unfortunately, we are now going in the wrong direction. This situation 
is accurately described in the title of Tuesday's USA Today editorial: 
``Bogus Scare Tactics Delay Medical Privacy Reforms.'' Well-funded 
interest groups are engaged in concerted efforts to unravel or put off 
altogether the privacy protections in the rule.
    The Administration should be focused on working with affected 
parties to answer questions and issue any guidance necessary to ensure 
effective implementation of the rule. Instead, Secretary Thompson re-
opened the rule for comment, raising the possibility that 
implementation of the rule will be delayed beyond the April 14 
effective date.
    Congress should be focused on filling the remaining gaps in privacy 
protection. For example, we should be strengthening the regulation by 
covering all entities that handle an individual's health information, 
and augmenting the law's enforcement mechanisms. We should move forward 
with such steps instead of looking for ways to delay or weaken the 
regulation.
    Let's be clear about this. While almost every Member of Congress 
pays lip service to the importance of privacy of medical records, over 
a period of over 20 years, we have shown that we are uniquely unable to 
enact detailed legislation. That is precisely why we gave the authority 
to HHS to issue a rule if we failed once again to act. HHS has now done 
that.
    This medical privacy rule is the product not only of many prior 
years of deliberation by the Congress but extensive public involvement 
as well. In fact, HHS received and considered over 52,000 comments. 
There is no excuse to delay further.
    The current absence of privacy protection is not without 
consequences. A recent survey showed that one out of every six American 
adults takes counterproductive steps, such as giving inaccurate 
information to their physicians or avoiding health care altogether, 
because of privacy fears. Other studies show that Americans are 
avoiding genetic testing because of concerns about privacy and 
discrimination.
    Increased confidence in health privacy protections will mean that 
more American consumers will be willing to seek out health care that 
could prevent or result in early screening of conditions that are 
significantly more costly to treat at later stages.
    I believe that policymakers should carefully examine the various 
questions that have been raised regarding the rule. But I have heard no 
good argument for delaying the rule during this process.
    And as we go through this process, I urge that we avoid indulging 
silly hypothetical scenarios that spread misinformation about the rule. 
We've heard a lot of these in recent weeks.
    For example, as pointed out by the USA Today editorial, the rule 
requires ``reasonable'' safeguards to prevent inappropriate 
disclosures. Yet some are claiming this means ``hospitals might have to 
build soundproof walls between patients in recovery rooms.'' The rule 
also requires ``reasonable efforts'' to limit the disclosure of a 
patient's health record to the minimum amount necessary. Yet at a 
recent industry briefing for congressional staff, one speaker claimed 
this means covered entities might have to ``clip a microphone on every 
employee to record what he or she says so we could audit that 
information.'' These kinds of comments are difficult to take seriously.
    I hope that this hearing provides for a productive discussion of 
medical privacy issues. Given that there are pressing questions 
regarding why Secretary Thompson opened up the rule for additional 
comment and what his intentions are regarding implementation, it would 
have made sense for the majority to ask the Secretary to testify at 
this hearing. I want to note that I'm disappointed that this invitation 
was not extended.
    That said, I look forward to hearing from the witnesses who are 
before us today.

    Mr. Bilirakis. The gentleman's time has expired. Secretary 
Thompson will appear before this committee or the full 
committee, whatever the case may be, and respond regarding 
their position on these regulations.
    Dr. Norwood.
    Mr. Norwood. Thank you very much, Mr. Chairman. I do 
appreciate you holding this hearing. A few weeks ago the House 
took up consideration of the regulations on ergonomics. Many of 
us felt that the regulation on ergonomics was ill conceived and 
would have led to a tremendous disruption in a range of 
industries. It did not mean we do not believe that there is 
such a thing as repetitive motion syndrome. We did not believe 
that rule, that regulation was correct. We feel strongly that 
those regulations were the wrong thing to do, and Congress 
voted to rescind the regulations.
    So here we are this morning, considering another rule with 
the potential to have a tremendous impact on a wide range of 
industries in the health care system. While I do not have 
feelings about medical records privacy as strongly as I do 
about ergonomics, I feel that we do not fully understand yet 
the potential negative impact that privacy regulations can 
actually have on health care; and, thus, an important hearing 
this morning, hearing from people who are involved in it.
    I hear the concerns many of our witnesses have expressed in 
their testimony and I share some of those concerns. We may not 
know just how extensive the difficulty in complying with and 
implementing the privacy regulations are until the health care 
system tries to meet them. Then we may find ourselves back here 
considering a revision or even rescinding those rules. I hope 
that is not the case.
    Let's be clear about this. We all know how important 
medical privacy is, but it is equally important to do the rules 
and regulations in a correct way so that we avoid as many of 
the pitfalls as we possibly can.
    I thank you again for having this hearing and look forward 
to hearing our witnesses and thank them for being here.
    Mr. Bilirakis. I thank the gentleman.
    Mr. Dingell, for an opening statement.
    Mr. Dingell. Mr. Chairman, thank you. First of all, I 
commend you for holding this hearing. Second of all, I applaud 
your announcement that we will hear from the Secretary prior to 
the Easter recess. I think that is very much in the public 
interest.
    Mr. Bilirakis. Every effort is being made toward that end, 
sir. We have not had a 100 percent assurance. That is certainly 
our goal, and they know that.
    Mr. Dingell. I certainly commend you for that. I hope it 
will be the strong position of this subcommittee and this 
committee that until the Secretary has had an opportunity to 
explain these matters to the committee in great detail, that we 
will expect that the rule or the regulation will not be set 
aside.
    I would observe to you, Mr. Chairman, that the story of 
Pandora's box provides to us a useful analogy to the situation 
in which we find ourselves. When a person's medical privacy is 
taken from them and their personal information is made 
available for use against them, then that person is 
irretrievably injured. I would point out that there is no hope 
whatsoever that once a person's medical information is released 
and put into the marketplace, that there is no hope that that 
person has that it will not be used against him in connection 
with employment, in connection with purchase of large capital 
items, homes, refrigerators, things of that kind, or in 
connection with retirement or insurance or any other economic 
question which might affect that individual, including, I would 
note again, his job.
    So I think it is extremely important that if there is to be 
error on this matter, that that error occur on the side of 
protecting the privacy of an individual. Americans constantly 
come to me and talk to me about protection of their privacy, 
their family's privacy, their concerns about their medical 
privacy, and there are a large number of people who constantly 
feel that there are people out there spying on them. It isn't 
necessary to spy on people. All you do is go to the records, 
and the records are abundant, and it is very easy to get the 
information without tapping telephones or things of that kind.
    I can no longer tell American people that their personal 
records or their personal information, medical, financial, or 
other, are adequately protected and that they are safe in their 
personal privacy. And I have regrets about that, because that 
is been a very important component of being an American.
    I have a long statement which I would put in the record. I 
will conclude Mr. Chairman, by pointing out Americans distrust 
the system, Americans are going and paying out of their own 
pocket for medical care rather than utilize something which may 
finance their medical care, but which might generate 
information which can be used against them. This is a serious 
matter and Americans should be able to have greater confidence 
in the system than they have now.
    I know, Mr. Bilirakis, Mr. Chairman, you will keep your 
word and we will hear from HHS before the April break. I would 
observe that if the Secretary puts these matters that he has 
discussed with regard to this regulation into play and into 
motion prior to the time he has been heard before this 
committee, I will regard it as a breach of faith on his part 
and as an unfriendly act, not just to me and to this committee, 
but also to each and every American who is concerned about his 
or her medical privacy. And I will view it as another example 
of this administration rushing to undo a large number of 
regulations and steps which were taken that would protect the 
interests of the American people with regard to health, with 
regard to personal privacy, with regard to protection of the 
environment and other matters. And I simply observe this, Mr. 
Secretary: We will keep an eye on you and you will be judged by 
what you are doing on this particular matter.
    Thank you Mr. Chairman.
    [The prepared statement of Hon. John D. Dingell follows:]

    PREPARED STATEMENT OF HON. JOHN D. DINGELL, A REPRESENTATIVE IN 
                  CONGRESS FROM THE STATE OF MICHIGAN

    Mr. Chairman, the subject of this hearing is one of importance to 
every American. According to a 1999 study by Princeton Research 
Associates, one in six Americans has done something out of the ordinary 
to keep personal medical information confidential. Improper disclosure 
of medical information can result in embarrassment, discrimination, and 
denial of proper health care. According to another survey by Louis 
Harris & Associates, twenty-seven percent of those polled believed 
their medical information had been improperly disclosed. Eleven percent 
of consumers polled said they or a family member paid out-of-pocket for 
health care in order to protect their privacy.
    There's more. One survey estimated that seven percent of consumers 
chose not to seek care because they did not want to jeopardize their 
job prospects or other life opportunities. Sixty-three percent of 
respondents in another survey said they would not take genetic tests 
for diseases if insurers or employers could obtain the test result.
    We will hear some complaints about the regulation today, but I want 
to remind everyone that this rule provides important safeguards for 
people's health. I am not aware of any organization representing 
persons whose medical information would be protected by this rule that 
has urged a delay in the implementation of this regulation. Indeed, 
many providers support the regulation and support its implementation.
    I am pleased that we will hear from the American Nurses 
Association. Nurses are the front line of our health care system. They 
are overworked. The nursing profession faces crucial recruitment and 
retention problems. If this regulation presented some undue burden, or 
was vague, I think the nurses would tell us. What they will tell us is 
that health care suffers without strong privacy protections.
    We will also hear from the American Psychiatric Association. Each 
year, an estimated 56 million Americans--one in five people--experience 
diagnosable mental disorders. Too much of this goes untreated. Why? 
Effective psychotherapy depends upon an atmosphere of confidence and 
trust in which the patient is willing to make a frank and complete 
disclosure of facts, emotions, memories, and fears. Because of the 
sensitive nature of the problems for which individuals may consult a 
psychotherapist, disclosure of confidential communications made during 
counseling sessions may cause embarrassment or disgrace. For this 
reason, the mere possibility of disclosure may impede development of 
the confidential relationship necessary for successful treatment.
    Each profession that provides mental health treatment embraces 
confidentiality as a core ethical principle. Confidentiality generally 
is considered to be a cornerstone of a doctor-patient relationship. 
Therefore, the basic requirements of the regulation are not new.
    Changes in the health care industry and advances in technology 
present a complex environment in which to implement the regulation. The 
regulation is characterized by a rule of reason and flexibility. Many 
of the concerns raised today are based on worst-case, but unrealistic, 
scenarios. Simple common-sense implementation should resolve these 
matters.
    Where we go from here depends upon the Secretary. He has, unwisely 
in my judgment, reopened this matter for comment. Moreover, I note that 
no witness from the Department of Health and Human Services is before 
us today. I take Chairman Bilirakis at his word that we will hear from 
HHS before the April break.

    Mr. Bilirakis. I appreciate the gentleman's remarks. I 
would reiterate what I said earlier, and that is we have said 
to the Secretary we want him here. We are going to do 
everything we can to get him here before the April break. But I 
don't want to mislead the gentleman that we have 100 percent 
assurance that he will be here. But you do have 100 percent 
assurance that that is what we intend and that intention has 
gotten to and will continue to get to the Secretary.
    Mr. Dingell. Mr. Chairman, if you would yield to me, I 
would observe that I respect you, I view you as an honorable 
man and as a capable chairman. The minority stands ready to 
assist you in assuring the cooperation of the Secretary, and we 
will show you a number of things that we have found in times 
past to be useful in assuring the presence of Secretaries who 
might have otherwise some more recalcitrant approach to the 
business before us. I also will assure you that we will seek to 
raise the pain level for the Secretary if he does not wish to 
cooperate in this matter.
    Mr. Bilirakis. That having been said, we will continue to 
do what we intend to do here today, and that is to learn as 
much as we can about this subject.
    Mr. Bilirakis. The Chair recognizes Mr. Upton.
    Mr. Upton. Thank you, Mr. Chairman. I will submit my full 
statement for the record.
    Mr. Bilirakis. I might add that the opening statement of 
all members will be made part of the record, without objection.
    Mr. Upton. Thank you. I would just note that I am behind 
your efforts to get Secretary Thompson to testify on this very 
important issue before the April break. It might also be 
somewhat revealing to have now Florida resident and former 
Secretary Shalala come as well. That might be appropriate. I 
would just like to note that as I have talked to a number of 
providers and folks back in my district, this is a very 
important issue. I look forward to the testimony and would like 
to submit comments from one of my administrators back home as 
part of my statement as well, and I yield back the balance of 
my time.
    Mr. Bilirakis. Without objection, that is the case.
    [The prepared statement of Hon. Fred Upton and the 
information referred to follow:]

  PREPARED STATEMENT OF HON. FRED UPTON, A REPRESENTATIVE IN CONGRESS 
                       FROM THE STATE OF MICHIGAN

    Thank you, Mr. Chairman, for holding today's hearing on the medical 
records privacy regulation mandated under the Health Insurance 
Portability and Accountability Act (HIPAA). I am sure that all of us 
here today would agree that our first priority is the best interests of 
patients. But since the final regulation was issued last December, I 
have heard from a number of health care providers in my district who, 
while not questioning and in fact sharing the good intent behind the 
regulation, have raised serious concerns about the practical effects of 
the regulation on their ability to provide timely, coordinated acute 
and preventive care to their patients.
    Last month, in fact, the two largest hospitals in my district gave 
me a fascinating demonstration of their telehealth/telemedicine systems 
work to improve the quality, coordination, and continuity of patient 
care. It's clear that the electronic medical record and beside hospital 
chart are the future of health care in this country as our basic 
telecommunications infrastructure expands to bring 21st century 
medicine into even isolated rural communities. The need for patient 
protections in this brave new world are clear and pressing, but we must 
ensure that we ``first do no harm'' as we structure and implement these 
protections.

                                 ______
                                 

 PREPARED STATEMENT OF JAMES B. FALAHEE, JR., VICE PRESIDENT, LEGAL & 
         LEGISLATIVE RELATIONS, BRONSON HEALTHCARE GROUP, INC.

    Bronson Healthcare Group (``Bronson'') is a medium sized health 
care system located in Southwestern Michigan, in the Congressional 
District so ably served by Congressman Fred Upton. Unlike some other 
health care systems, Bronson consists not only of hospitals, but also 
employed providers and two health plans. As such, Bronson is impacted 
by almost every element of the HIPAA regulations.
    Bronson, like other health care providers, fully supports privacy 
rights and recognizes their importance. There already exists an 
extensive body of case law and statutory authority which currently 
protects personal privacy rights and has developed over time. The new 
HIPAA regulations, in Bronson's opinion, are an unnecessary layering of 
very complicated and confusing regulations on top of the already 
existing, and working, statutes and case law.
    Section 164.530(c)(1) of the new HIPAA regulations provides that a 
covered entity must ``have in place appropriate administrative, 
technical, and physical safeguards to protect the privacy of protected 
health information.'' The Department of Health & Human Services could 
have confined its entire HIPAA regulations to this one statement and 
left it at that. Bronson submits that it, and other covered entities, 
already have in place appropriate administrative, technical, and 
physical safeguards to protect privacy of protected health information. 
HHS need not have so intrusively interfered with the current 
safeguards. The complex and prescriptive regulatory system created by 
HIPAA is unworkable and not needed.
    Bronson has a number of specific issues concerning HIPAA:

1. HIPAA does not supersede state law. Any health care provider or 
        health plan which operates in multiple states must determine 
        whether the laws in the individual states in which it operates 
        are more restrictive than HIPAA. If so, providers need to 
        customize their consents, authorizations, and documents to 
        match the more restrictive provisions of a state's law. This 
        will necessarily lead to a patchwork of different privacy laws, 
        depending on in which state you live. Instead of such a 
        patchwork, if HIPAA is retained, the HIPAA regulations should 
        be revised to include a federal preemption standard.

2. Bronson owns an indemnity insurance company and an HMO. We are 
        concerned as to whether all health plans will be ready for 
        HIPAA implementation and the transactions and code sets which 
        go along with it. If all health plans do not comply with the 
        HIPAA requirements, the desired streamlining of the payment 
        processes will not be accomplished. We are also concerned that 
        some plans may go beyond HIPAA and require even more 
        information than the standardized transactions/code sets would 
        require. This would defeat the uniformity goal of HIPAA.

3. The HIPAA regulations require that only the minimum necessary 
        personal health information be disclosed. This is an unworkable 
        requirement. Each time information is requested or discussed, a 
        health provider or covered entity must now determine if the 
        ``minimum necessary'' standard is met. This could present a 
        risk to patients if vital treatment information is delayed or 
        denied.

4. The HIPAA regulations will place an onerous burden on individual 
        physician providers and, even more so, on patients. The primary 
        goal of the health care community should be to deliver high 
        quality patient care. Bronson is concerned that the HIPAA 
        regulations will interfere with the delivery of such care. For 
        example, upon admission to its facilities or its physicians' 
        offices, Bronson will now be required to give each patient (or 
        patient representative) forms, notices, and requests for 
        authorization which will be, at a minimum, 10 pages long. We 
        question whether these forms, notices, and authorizations will 
        be read and, if read, will be understood by patients, their 
        families, or authorized representatives.

5. The exhaustive HIPAA regulations are yet another unfunded mandate on 
        the health care community. Bronson has not yet been able to 
        calculate its cost of implementation, but knows it will require 
        hundreds of hours of training and education, and the review and 
        revision of over 800 contracts with vendors and suppliers.

    Bronson recommends that the Department of Health & Human Services 
develop new, more streamlined regulations which address these and other 
comments raised by those in the field. Bronson strongly recommends that 
HHS meet with health care providers prior to formally responding to the 
comments it receives during March, 2001. A series of meetings between 
HHS, providers, and privacy advocates will go a long way to mitigating 
the backlash which has occurred as a result of the December, 2000 HIPAA 
regulations. Bronson would be more than willing to participate in such 
meetings.
    Thank you for the opportunity to submit these comments. Bronson 
would be glad to work with HHS and this committee to assure that 
personal health information is protected, but that high quality patient 
care is not adversely impacted by such privacy protections.

    Mr. Bilirakis. Ms. Capps.
    Ms. Capps. Thank you, Mr. Chairman, for holding this 
hearing. It is so important that this committee hear the 
testimony, because the debates revolving around medical privacy 
and the role of the Federal Government are central, I believe, 
to the very issue of access to care. The single most important 
factor in providing quality care and encouraging people to use 
it is trust. Patients must be able to trust their health care 
providers, to trust them to make the right decisions, to pay 
attention to their interests, to keep the particulars of their 
cases and lives in confidence. If this trust breaks down, then 
people will avoid seeking medical attention until they have no 
choice, and by then the options will be limited and the costs 
excessive.
    This committee has an obligation to the American people to 
protect that trust and to protect the rights of our 
constituents. And this is why a Patient's Bill of Rights is so 
important and this is why adequate privacy regulations need to 
be put in place.
    As we examine the proposed privacy regulations, I hope that 
each member of this committee will remember that what is at 
stake here is not the work of one administration or another, 
what is at stake is the very confidence that Americans have in 
their doctors, nurses, hospitals, health centers and other 
health care providers; that they be focused on treating their 
needs and not exploiting their weaknesses.
    By and large, most health care providers have a very good 
track record of protecting patients' privacy. Doctors and 
nurses are rigorously trained to be cautious with a patient's 
personal information. But we need to make sure that the 
pressures of the financial bottom line do not tread on this 
critical right. On the other hand, we also need to avoid 
discouraging medical research and overcomplicating our health 
care system. New, creative innovations can be essential to 
providing the best care possible and they are dependent on 
information about current medical conditions.
    I don't believe these goals have to be in conflict. I think 
it is possible to protect the rights of patients while enabling 
proper medical research, and this should certainly be our 
objective. I believe that the current proposed regulation is a 
good step in the right direction. Many of the concerns about 
the regulation can hopefully be resolved from guidance of the 
Department of Health and Human Services. I certainly hope that 
neither this committee nor the administration will do anything 
that will weaken the protections for patient privacy.
    I look forward to hearing what my colleagues and the 
panelists have to say about these regulations.
    I want to particularly recognize Ms. Mary Foley, the 
President of the American Nurses Associations. I am pleased she 
is here with us to share the views of the nursing community. As 
a nurse myself, I understand how important it is to include 
perspectives of nurses on these issues. Nurses are the first 
line of defense on health care matters and we need to make sure 
that our voices are heard in the hearings and meetings with 
policymakers. I have tried to do this in my stay in Congress 
and I am glad to see that the ANA is here to do that now. I 
commend your efforts and I am interested in your views on what 
we should do.
    Mr. Chairman, I thank you for holding this hearing, I look 
forward to working with you on this issue. And I know we will 
strive together to do this in a bipartisan way.
    Mr. Bilirakis. I thank the gentlelady for her statement.
    Dr. Ganske for an opening statement.
    Mr. Ganske. Thank you, Mr. Chairman. We are here today 
because Congress couldn't reach an agreement on the medical 
record privacy regulations. So at Congress' direction, the 
previous administration gave the Department of Health and Human 
Services the job of creating new rules. The complexity of the 
result reflects the complexity of the problems we face.
    In crafting rules for the health care industry, courts, 
banks and insurers, HHS attempted to balance the conflicting 
demands for privacy and productivity. Initially the rules 
covered only information maintained or transmitted 
electronically. Not good enough, critics shouted. So HHS 
extended the rules to paper files and information transmitted 
orally. Too far, shouted different critics.
    HHS received over 52,000 comments on its privacy rules. 
What they found was that outlawing hacking and malevolent use 
of personal information is simple. Enforcing those bans is 
hard. In each instance, they found they had produced an 
exceedingly complex compromise that is assaulted as too loose 
by privacy advocates and too onerous by industry. Writing rules 
prohibiting the infringement of privacy without denying doctors 
and researchers the benefits of the information technology is 
difficult. So is drawing lines telling the health care industry 
what they can share, what they can't, and with whom they can do 
so. How much should patients know before medical researchers 
tap into their records? Does it make sense that business can 
share your personal data with their affiliates?
    Conflict between society's need to know and individuals' 
right to privacy isn't new. As HHS said in December when it 
tested the rules, quote: ``we expect insurers and the 
government to reduce fraud, we expect to be protected from 
epidemics, and we expect medical research to produce miracles. 
We expect the police to apprehend suspects and we expect to pay 
for our care by credit card.
    ``all these activities involve the disclosure of health 
information to someone other than our physician. We have 
expectations as a society that conflict with individuals' views 
about the privacy of health information,'' unquote.
    Well, while recognizing that conflict, the implementations 
of the final rule was delayed by the Bush administration. Mr. 
Chairman, I note that we don't have today a representative from 
the hospital community, so with your permission, Mr. Chairman, 
I would like to introduce a letter into the record from the 
Iowa Hospital Association regarding the final medical record 
privacy rule.
    Mr. Bilirakis. Without objection, that is the case.
    [The information referred to follows:]

                                  Iowa Hospital Association
                                                     March 16, 2001
The Honorable Tommy G. Thompson
Secretary, U.S. Department of Health and Human Services
Hubert H. Humphrey Building
200 Independence Avenue, S.W.
Washington, D.C. 20201
    Dear Secretary Thompson: The Iowa Hospital Association (IHA) is 
pleased with your recent announcement that you will open a public 
comment period on the Health Insurance Portability and Accountability 
Act of 1996 (HIPAA) privacy rules. IHA is a statewide membership 
services organization that advocates for 116 community hospitals and 
health systems as well as the patients and communities they serve.
    Iowa hospitals and health systems have been proponents of 
standardization of electronic transactions related to health care and 
support the administrative simplification provisions of HIPAA. Iowa 
hospitals and health systems also take very seriously the privacy of 
the patients and communities they serve and have a long-standing 
commitment to safeguarding this privacy while delivering high-quality 
health care to their patients.
    The Department of Health and Human Services (HHS) final rule on 
privacy will have significant impact on the day-to-day operations of 
Iowa hospitals and health systems. Hospitals and health systems will 
have to invest substantial resources to comply with this overly complex 
and pervasive regulation. Iowa hospitals and health systems today face 
an emerging crisis in workforce shortages and the significant 
regulatory burden of the HIPAA privacy rules will heighten this crisis. 
In addition, the lingering financial burdens imposed by the Medicare 
payment cuts of the Balanced Budget Act (BBA) of 1997 have severely 
strained the financial resources of our hospitals and health systems.
    IHA respectfully requests that HHS suspend the April 14, 2001 
effective date and significantly rewrite the HIPAA privacy rules. IHA 
believes that it is appropriate for your department to reexamine these 
regulations to ensure that implementation of privacy standards does not 
hinder the ability of hospitals and health systems to deliver high 
quality health care and does not put hospitals and health systems in 
further financial jeopardy. There is a balance that must be achieved 
between delivering cost-effective, quality health care and protecting 
patient privacy.
    We suggest the rule be substituted by a simpler version. In keeping 
with the original intent of the legislation--to streamline health care 
administration--the rule should focus on the potential misuse of 
information by employers and health insurers. Consent should be 
required only for such non-medical use.
    The following are comments and recommendations of IHA on the final 
privacy rules.

                            GENERAL COMMENTS

    The final privacy rule threatens the balance between the cost-
effective delivery of high quality care and patient privacy in a number 
of ways:

Scope
    The Department of Health and Human Services' authorization to adopt 
privacy rules under HIPAA is limited. Under the act, confidentiality 
regulations are to apply only to electronic transactions and the data 
elements for such transactions, and to assure the privacy of health 
information exchanged electronically. The final privacy rule applies 
privacy standards to all uses and disclosures of protected health 
infonnation--electronic, written, and oral--far exceeding the 
Department of Health and Human Services' statutory authority. The 
result is a regulation that:

 Is so complex that it is extremely difficult, if not 
        impossible to determine how to achieve efficient compliance.
 Creates significant barriers to current treatment and quality 
        improvement activities.
 Conflicts with the clear cost-savings intent of the 
        administrative simplification section of HIPAA.
Costs
    The Department of Health and Human Services needs to analyze and 
assess how compliance with the privacy rule will impact the cost of 
caring for patients. The estimated cost impact of the final privacy 
rule on hospitals and health systems needs to be calculated and weighed 
against the benefits of the rule. The American Hospital Association has 
estimated that the total cost to hospitals and health systems complying 
with the final privacy regulations will be up to $22.5 billion over 
five years.
    The Department of Health and Human Services must recognize the 
tremendous burden placed on health care providers who are now facing 
simultaneous implementation of multiple, complex federal and state 
regulations. Hospitals and health systems over the last few years have 
had to address Y2K system problems, make significant changes to their 
patient data collection, coding and billing systems to implement 
prospective payment systems for Medicare skilled nursing care, home 
health care, and outpatient care, in addition to facing changes to a 
variety of other regulations significantly impacting their day-to-day 
operations.
    In addition, Iowa hospitals and health systems face critical 
shortages in nursing and in personnel in other clinical areas. The 
staffing issues associated with implementing the privacy regulations 
need to be considered. Implementation of the privacy rule as published 
will further add to providers' already overwhelmed administrative and 
information systems and represents yet another unfunded mandate.
Implementation Schedule
    The final privacy rule requires all health care providers to 
implement the privacy standards two years after their effective date. 
Since the regulations are extremely complex and extensive, this 
schedule is not practical.
    Further, serious consideration should be given to coordination of 
the privacy rule implementation deadlines with the implementation 
deadlines of the other HIPAA regulations. HIPAA included numerous 
components affecting privacy, security, and administrative 
simplification. Not all of the regulations to implement these 
provisions have been developed. Final implementation of all of these 
provisions should be synchronized to assure that providers in 
responding to multiple interrelated regulatory provisions do not incur 
additional costs. IHA would suggest that implementation of the HIPAA 
provisions regarding privacy, security, and administrative 
simplification not occur until at least two years following the 
promulgation of the final set of relevant regulations.
Preemption
    The final regulations fail to preempt conflicting state laws. The 
American Hospital Association's cost estimates for this provision alone 
over a five-year period are $372 million. IHA is concerned that state 
laws that are contrary or more stringent will cause considerable 
confusion. It is not uncommon for health systems to operate hospitals 
and other health care facilities in multiple states, to serve patients 
from other states, and to provide care under arrangements with health 
plans that serve populations from several states. Addressing the many 
different state rules will be extraordinarily difficult for individual 
providers and will lead to confusion as to what rules apply. The lack 
of clear preemption complicates the ability for providers to develop 
clear and consistent privacy policies. Providers must not only comply 
with multiple state requirements, but now also understand how the 
federal rules relate to state requirements.

Peer Review Protection
    Provisions in the final regulations may threaten peer review 
protections. Peer review protections are intended to foster a 
comprehensive, quality system for the effective reduction of medical/
health care errors and other factors that contribute to unintended 
adverse patient outcomes in a health care organization. This 
environment encourages recognition and acknowledgment of risks to 
patient safety and medical/health care errors; the initiation of 
actions to reduce these risks; the internal reporting of what has been 
found and the actions taken; a focus on processes and systems; and 
minimization of individual blame or retribution for involvement in a 
medical/health care error. It encourages organizational learning about 
medical/health care errors and supports the sharing of that knowledge 
to effect behavioral changes in itself and other health care 
organizations to improve patient safety. The final regulations should 
be reviewed to make sure that notice and authorization provisions do 
not hinder the development of internal safety reporting and quality 
improvement initiatives.

Notice, Consent, and Authorization
    Notice and consent requirements added to the final rule will 
significantly complicate compliance efforts and activities. These 
components represent a significant departure from the proposed 
regulations in that the final privacy rules require a consent for uses 
and disclosures of protected health information for purposes of 
treatment, payment, and health care operations. A separate 
authorization to use and disclose protected health information for 
``other purposes'' must be obtained separately from the consent. The 
terms ``consent'' and ``authorization'' do not overlap and differ 
substantially in their content. Notices regarding privacy must be added 
to such things as appointment reminders. All of these requirements add 
administrative costs with little or no benefit to patients. Hospitals 
and health systems are already required by both federal and state 
governments to post numerous notices and to provide written notice of 
various rights and responsibilities. Instead of requiring yet more 
notices and more paperwork, the regulations should allow hospitals and 
health systems to incorporate appropriate notification regarding 
privacy into existing notices and patient rights' materials.

Minimum Necessary Disclosure
    While the final privacy rule tempered the ``minimum necessary 
disclosure'' limitation among health care providers, it continues to 
pose a significant and costly barrier to compliance with the privacy 
rule. This standard is ill-defined in the privacy rule and will likely 
result in numerous and varied interpretations. Hospitals and health 
systems are required to develop criteria to limit the amount of 
information disclosed and to evaluate each and every disclosure against 
these criteria. Hospitals and health systems are required to train all 
employees regarding these criteria and to establish a ``privacy 
officer'' to ensure responsible implementation. Again, these specific 
requirements impose significant personnel requirements and 
administrative costs, and redirects a caregivers time away from patient 
care.

Business Associates
    In the final privacy rule, the Department of Health and Human 
Services is holding covered entities responsible for the protection of 
personal health information by their business associates. The legal 
work and costs associated with implementing this provision will be 
overwhelming. Hospitals and health systems will have to renegotiate 
contract provisions that ensure that these business associates protect 
the information that is released to them in the normal course of health 
care operations. It would be more appropriate if the regulations held 
all parties accountable for their own improper disclosure of personal 
health information. Hospitals and health systems should not be 
responsible for the improper disclosure of personal health information 
by other organizations.

Quality Improvement & Statewide Data Collection Efforts
    Centralized data collection activities both by state hospital 
associations or state government intended to produce comparative 
incidence rates, patient outcome measures, and utilization and cost 
data heavily utilized by management in hospitals and health systems, 
are threatened by the privacy rules as written. Further, the inclusion 
of patient county and zip code as protected health information may 
limit the ability to use discharge data for quality improvement and 
community health surveillance activities. These activities are 
important to hospitals and health. systems that seek to develop 
integrated services in response to patient and community health needs.

                            RECOMMENDATIONS

    As published, the final privacy rules are unworkable and will cost 
the health care community billions of dollars to attempt compliance at 
a time when hospitals and health systems are experiencing severely 
restricted resources, both capital and workforce. The costs of 
implementing the final privacy rules far outweigh any potential long-
term savings through administrative simplification. The rule also 
requires an unrealistic timeframe for implementation and has not been 
coordinated with the related HIPAA rules affecting security and 
administrative simplification. Therefore, IHA recommends the following 
steps be taken to reform the new privacy rule in a manner that 
safeguards both patient privacy and patient care.

    1. Suspend the final privacy rule prior to its April 14, 2001, 
effective date.

    2. The Department of Health and Human Services should consult with 
hospitals and health systems on site at their facilities to discuss the 
practical implementation issues and problems that have been identified 
in order to reasonably resolve as many of these issues as possible 
prior to implementation of the privacy standards. IHA could facilitate 
Department of Health and Human Services' staff visits to hospitals and 
health systems within Iowa.

    3. The Department of Health and Human Services should appropriately 
narrow the scope of the regulation to apply privacy standards 
addressing the subjects outlined in the statute to the individually 
identifiable health information used in connection with electronic 
transactions as outlined in the statute.

    4. The Department of Health and Human Services should revise the 
HIPAA regulation implementation schedule according to the following 
principles:

 No health care provider should be required to begin 
        implementation of HIPAA until all HIPAA privacy, security, and 
        administrative simplification regulations have been finalized.
 A single, uniform date of compliance should be established at 
        least two years after promulgation of all HIPAA final 
        regulations to allow a sufficient and reasonable time period in 
        which to implement.

    5. Statewide data collection and use efforts, that have been in 
operation for years with safeguards taken to protect health 
information, should be provided safe harbor in the final privacy 
regulations.
    Again, we are pleased that you are allowing for public comment on 
the final privacy rules and are hopeful that this first step will lead 
to fundamental reform of the privacy rules. IHA is committed to working 
with HHS to develop privacy rules that not only safeguard patient 
privacy, but also ensure delivery of cost-effective, quality patient 
care. Please contact Perry Meyer, Tracy Warner or Maureen Hockmuth at 
IHA at 515/288-1955 if you have any questions.
            Sincerely,
                                         Stephen F. Brenton
                                                          President
cc: Iowa Congressional Delegation

    Mr. Bilirakis. And at the same time I would ask unanimous 
consent that I might introduce a letter from the Florida 
Hospital Association, as well as statements and written 
testimony from the American Council of Life Insurance, and from 
the Health Insurance Portability Biotechnology Industry 
Organization. Without objection, that would be the case.
    [The information referred to follows:]

                               Florida Hospital Association
                                                      March 16,2001
The Honorable Michael Bilirakis
Room 2269 Rayburn House Office Building
U.S. House of Representatives
Washington, DC 20515
    Dear Representative Bilirakis: The Florida Hospital Association, 
which represents 230 not-for-profit, investor-owned and government 
hospitals and health Systems, seeks your help in an urgent and time-
sensitive matter. We ask that you contact Health and Human Services 
Secretary Tommy Thompson to request that he delay the April 14, 2001, 
effective date of the privacy rules promulgated under the Health Care 
Portability and Accountability Act (HIPAA). FHA members are deeply 
concerned about the regulation and request that you join with us and 
ask the Secretary to fix the rule.
    Florida's hospitals are committed to safeguarding the Privacy of 
patients' medical information. However, we are extremely concerned 
about the effect the final HIPAA medical privacy rules will have on 
hospitals. The rules are so complex and prescriptive in many areas that 
they will be both unworkable and unreasonably costly. The rules were 
reopened for public comment on March 1, 2001. HHS must receive your 
request no later than March 30, 2001. Time is short.
    We believe that patients have the right to every consideration of 
privacy, including the right to review and understand their medical 
records. However, in their current form the HIPAA privacy rules are so 
complex and prescriptive that they are both unworkable and excessively 
costly. They will hinder the ability of providers and families of 
patients to coordinate the care for patients.
    Florida's hospitals need your help: Please ask HHS to delay the 
rules and fix them.
            Sincerely,
                                     Charles F. Pierce, Jr.
                                             President, FHA Orlando
                                 ______
                                 

      PREPARED STATEMENT OF THE AMERICAN COUNCIL OF LIFE INSURERS

    This testimony on Assessing HIPAA: How Federal Medical Privacy 
Regulations Can Be Improved is submitted to the House Commerce 
Subcommittee on Health on behalf of the American Council of Life 
Insurers (the ACLI). The ACLI is a national trade association whose 435 
member companies represent 73 percent of the life insurance and 86.9 
percent of the long term care insurance in force in the United States. 
The ACLI also represents 73 percent of the companies that provide 
disability income insurance. The ACLI appreciates the opportunity to 
submit this statement.
    The ACLI strongly supports the underlying goal of the Standards for 
Privacy of Individually Identifiable Health Information (the 
Regulation) issued by the Department of Health and Human Services (the 
Department)--protecting individually identifiable health information. 
Life, disability income, and long term care insurers understand their 
responsibility to protect their customers' health information. ACLI 
member companies are strongly committed to the principle that 
individuals have a legitimate interest in the proper collection and 
handling of their medical information and that insurers have an 
obligation to assure individuals of the confidentiality of this 
information. Several years ago, the ACLI Board of Directors adopted the 
``Confidentiality of Medical Information Principles of Support.'' These 
Principles were recently strengthened providing ACLI support for 
prohibitions on the sharing of medical information for marketing and 
for determining eligibility for credit. (A copy of the Principles is 
attached.)
    The ACLI believes that the Regulation's goal of protecting 
individually identifiable health information may be achieved in a 
manner consistent with the significant public interest in maintaining 
the life, disability income, and long term care insurance markets which 
meet the private insurance needs of millions of American consumers. By 
their very nature, the businesses of life, disability income, and long 
term care insurance involve personal and confidential relationships. 
However, insurers selling these lines of coverage must be able to 
obtain and use their customers' health information in order to perform 
legitimate insurance business functions, such as underwriting and 
claims evaluation. The performance of these functions is essential to 
insurers' ability to serve and fulfill their contractual obligations to 
their existing and prospective customers.
    The Regulation will have a significant and direct impact on the 
manner in which life, disability income, and long term care insurers do 
business. Although life and disability income insurers are not 
``covered entities'' under the Regulation, their ability to obtain 
individually identifiable health information will be subject to the 
Regulation's disclosure requirements and limitations. This is true 
because life and disability income insurers often must obtain 
individually identifiable health information from health care providers 
which are ``covered entities'' under the Regulation. Covered entities 
may only disclose protected health information as permitted under the 
Regulation.
    Long term care insurers are covered entities under the Regulation. 
As such, they are subject to the full ambit of the Regulation's 
requirements regarding access, use and disclosure of individually 
identifiable health information. In addition, like life and disability 
income insurers, long term care insurers' ability to obtain 
individually identifiable health information from other covered 
entities (health care providers) is subject to the Regulation's 
disclosure limitations and requirements.
    A number of changes were made in the final Regulation in response 
to concerns raised by the ACLI in connection with the proposed 
regulation's disclosure requirements. However, there continue to be 
ambiguities in some provisions of the final Regulation which could be 
construed to limit covered entities' disclosure of individually 
identifiable health information to life, disability income, and long 
term care insurers. This would limit these insurers' access to and use 
of health information critical to their ability to perform fundamental 
insurance business functions, such as underwriting and claims 
evaluations.
    Below are more detailed explanations of the manner in which life, 
disability income, and long term care insurers use protected health 
information and ambiguities in the Regulation which could be construed 
to jeopardize legitimate and essential uses of that information by 
life, disability income, and long term care insurers.
ways in which life, disability income, and long term care insurers use 

              INDIVIDUALLY IDENTIFIABLE HEALTH INFORMATION

    The process of risk classification is a system of classifying 
proposed insureds by level of risk. It enables insurers to group 
together people with similar characteristics and to calculate a premium 
based on that group's level of risk. Those with similar risks pay the 
same premiums. Risk classification provides the fundamental framework 
for the current private insurance system in the United States. It is 
essential to insurers' ability to determine premiums which are: (1) 
adequate to pay their customers' future claims; and (2) fair relative 
to the risk posed by proposed insureds.
    The price of life, disability income and long term care insurance 
is generally based on the proposed insured's gender, age, present and 
past state of health, possibly his or her job or hobby, and the type 
and amount of coverage sought. Much of this information is provided 
directly by the proposed insured. Depending on the proposed insured's 
age, medical history, and the amount of insurance applied for, the 
insurer may also need information from the individual's medical 
records. In this event, when the insurer's sales representative takes 
the consumer's application for insurance, he will request that the 
applicant sign an authorization, provided by the insurer, authorizing 
the insurance company to: (1) obtain his health information from his 
doctor or from a hospital where he has been treated; and (2) use that 
information to, among other things, underwrite that individual's 
application for coverage. Based on this information, the insurer groups 
insureds into pools so that they can share the financial risk presented 
by dying prematurely, becoming disabled, or needing long term care.
    If a company is unable to gather accurate information or have 
access to information already known to the proposed insured, an 
individual with a serious health condition, with a greater than average 
risk, could knowingly purchase a policy for standard premium rates. 
This is known as adverse selection. While a few cases of adverse 
selection might not have a significant negative impact on the life, 
disability income, or long term care insurance markets, multiple cases 
industry-wide would likely have such an effect. This would be 
particularly true if individuals were to be legally permitted to 
withhold or restrict access to medical information significant to their 
likelihood of dying prematurely, becoming disabled or requiring long 
term care. The major negative consequence of adverse selection would be 
to drive up costs for future customers which could price many American 
families out of the life, disability income, and long term care 
insurance markets.
    Most life and long term care insurance and much disability income 
insurance is individually underwritten. As part of the underwriting 
process, insurers selling life, disability income, and long term care 
insurance rely on an applicant's individually identifiable health 
information to determine the risk that he or she represents. Therefore, 
medical information is a key and essential component in the process of 
risk classification.
    Once a life, disability income, or long term care insurer has an 
individual's health information, the insurer controls and limits who 
sees it. At the same time, insurers must use and disclose individually 
identifiable health information to perform legitimate, core insurance 
business functions. Insurers that sell life, disability income, and 
long term care insurance must use individually identifiable health 
information to perform essential functions associated with an insurance 
contract. These basic functions include, in addition to underwriting, 
key activities such as claims evaluation and policy administration. In 
addition, insurers must also use individually identifiable health 
information to perform important business functions not necessarily 
directly related to a particular insurance contract, but essential to 
the administration of servicing of insurance policies generally, such 
as, for example, development and maintenance of computer systems.
    Also life disability income, and long term care insurers must 
disclose individually identifiable health information in order to 
comply with various regulatory/legal mandates and in furtherance of 
certain public policy goals such as the detection and deterrence of 
fraud. Activities in connection with ordinary proposed and consummated 
business transactions, such as reinsurance treaties and mergers and 
acquisitions, also necessitate insurers' use and disclosure of such 
information. Life, disability income, and long term care insurers must 
disclose individually identifiable health to: (1) state insurance 
departments in connection with general regulatory oversight of insurers 
(including regular market conduct and financial examinations of 
insurers); (2) self-regulatory organizations, such as the Insurance 
Marketplace Standards Association (IMSA), concerned with insurers' 
market conduct; and (3) state insurance guaranty funds, which seek to 
satisfy policyholder claims in the event of impairment or insolvency of 
an insurer or to facilitate rehabilitations or liquidations. 
Limitations on these disclosures would operate counter to the consumer 
protection purpose of these disclosure requirements.
    Life, disability income, and long term care insurers need to (and 
in fact, in some states are required to) disclose individually 
identifiable health information in order to protect against or to 
prevent actual or potential fraud. Such disclosures are made to law 
enforcement agencies, state insurance departments, the Medial 
Information Bureau (MIB), or outside attorneys or investigators who 
work for the insurer. Again, any limitation on an insurer's ability to 
make these disclosures would undermine the public policy goal of 
reducing fraud, the cost of which is ultimately borne by consumers.

               AMBIGUITIES RAISED BY THE FINAL REGULATION

    The following summarizes ACLI member companies' major concerns with 
the Regulation listed in order of their importance. As indicated above, 
ACLI member companies' most fundamental and critical concerns relate to 
the Regulation's likely significant and adverse impact on their ability 
to obtain protected health information, critical to the business of 
insurance, from health care providers.
    ACLI member companies are very concerned by a number of ambiguities 
in relation to the minimum necessary standard set forth in Sections 
164.502(b) and 164.514(d). Medical underwriting on the basis of 
individually identifiable health information lies at the core of the 
present systems of life, disability income, and long term care 
insurance. In order for insurers to be able to fairly and prudently 
underwrite, they must be able to access and use protected health 
information relevant to the proposed insured's likelihood of dying 
prematurely, becoming disabled, or requiring long term care. Insurers 
must also be able to access protected health information to pay claims 
for benefits submitted under existing life, disability income, and long 
term care insurance policies.
    Life and disability income insurers are concerned by Sections 
164.502(b)(1) and 164.514(d)(3) which would require a covered entity to 
only disclose the minimum amount of information which it believes to be 
necessary to accomplish the purpose for which the information is 
requested. It does not appear to be the intent of the drafters of the 
Regulation, nor would it make practical sense, to subject to this 
standard disclosures of protected health information made pursuant to 
the authorization of the individual, the type of authorization used by 
life and disability income insurers. However, because this is not 
entirely clear, life and disability income insurers are concerned that 
covered entity health care providers will construe the minimum 
necessary rule to require them to disclose as little information as 
possible to life and disability income insurers. As a result, life and 
disability income insurers are likely to be denied access to 
information essential to their ability to make fair and prudent 
underwriting decisions and appropriate claims evaluations, among other 
things.
    Long term care insurers are also concerned by the minimum necessary 
requirements of Sections 164.502(b) and 164.514(d). They are 
particularly concerned that the language of Section 164.502(b)(2)(ii) 
may be construed by covered entity health care providers to subject 
disclosures of protected health information to covered entity long term 
care insurers to the minimum necessary standard. Like life and 
disability income insurers, long term care insurers strongly believe 
that health care providers are not in a position to know what 
information is needed to underwrite an application for insurance 
coverage or to evaluate a claim; nor does the health care provider bear 
the financial risk of issuance of an insurance policy.
    Long term care insurers are also concerned that under Section 
164.504(d), they may only request the minimum amount of information 
necessary to accomplish the purpose for which the information is 
requested. At the inception of the underwriting process for a long term 
care insurance policy, it is generally impossible for a long term care 
insurer to know what information may be in a proposed insured's medical 
record that may be relevant to the individual's likelihood of requiring 
long term care in the future. Until the long term care insurer sees the 
individual's entire medical file, it often does not know what is the 
minimum amount of information necessary to underwrite an application 
for coverage. Unfortunately, the Regulation is very unclear as to how 
its requirements in relation to the minimum necessary standard will 
interface with the requirements governing covered entities' right to 
use and disclose an individual's entire medical record.
    Concerns of life and disability income insurers, as well as long 
term care insurers, in relation to the minimum necessary requirements, 
are exacerbated by the lack of clarity in Section 164.514(d)(5) 
permitting a covered entity to disclose, use, and request an 
individual's entire medical record. They are concerned by the ambiguity 
as to the intended interplay between this provision and those 
provisions articulating the minimum necessary standard.
    The nature and level of justification required for a disclosure or 
use of an entire medical file to be ``specifically justified'' is 
unclear. Moreover, at the inception of the underwriting process, it is 
impossible for the insurer to know what information is in the 
individual's medical file that is likely to be material to the 
individual dying prematurely, becoming disabled, or requiring long term 
care. Finally, there is no practical reason why an individual should 
not be able to authorize the use or disclosure of his or her entire 
medical record and why that authorization should not appropriately 
govern the actions of the covered entity.
    Section 164.514(d) should be clarified to provide that an 
authorization for use or disclosure of an entire medical file is 
``specifically justified'' if it is submitted in connection with the 
underwriting of an application for insurance coverage or evaluation of 
a claim for insurance benefits. It should also be made clear that under 
these circumstances, the authorization for use or disclosure of the 
entire medical file takes precedence over any requirements in relation 
to the minimum necessary standard.
    Life, disability income, and long term care insurers are very 
concerned that ambiguity in the language of Section 164.522, relating 
to agreements to restrict use and disclosure of information, will also 
have a ``chilling effect'' on doctors' and hospitals' disclosure of 
protected health information to life, disability income, and long term 
care insurers. They believe that if this section is not clarified, it 
may be construed to permit and uphold agreements to withhold protected 
health information which is material to underwriting and claims 
evaluations by life, disability income, and long term care insurers. 
Since there is no requirement that the covered entity provide notice to 
the effect that information is being withheld pursuant to such an 
agreement, the insurer receiving other protected health information 
from the health care provider is likely not to know that the restricted 
information existed in the first place or that any information is being 
withheld. If this practice were to become widespread, it could cause 
adverse selection. It could significantly undermine the underwriting 
and claims processes, jeopardizing the current private systems of life, 
disability income, and long term care insurance. It would legalize 
actions which constitute fraud and material misrepresentation under 
current law.
    Although the actual words of the Regulation only require covered 
entities to permit an individual to request restriction of the use or 
disclosure of protected health information to carry out treatment, 
payment, and health care operations, insurers are concerned that health 
care providers that enter into such agreements will treat disclosures 
to life, disability income, and long term care insurers no differently 
from uses or disclosures for purposes of treatment, payment, or health 
care operations. This concern is exacerbated by the fact that 
disclosures to life, disability income, and long term care insurers are 
not included in the list of situations under which agreements to 
restrict are not effective set forth in Section 164.522(a)(1)(v). 
Furthermore, ACLI member companies are very concerned by this section 
of the Regulation's clear sanctioning of segregation of certain parts 
of individuals' medical records.
    ACLI member companies have a number of concerns in relation to the 
authorization requirements set forth in Section 164.508. They are 
concerned by the level of specificity required in authorization forms 
by Section 164.508(c)(i) which prescribes that the information to be 
used or disclosed be identified in a ``. . . specific and meaningful 
fashion.'' As discussed above, is it generally impossible for life, 
disability income, and long term care insurers to know ``up front'' 
what information in an individual's medical record they may need to 
underwrite appropriately. Moreover, this degree of specificity gives 
rise to concern that insurers will have to ``tailor'' authorization 
forms for each individual in order to obtain necessary underwriting and 
claims information. This would be very expensive.
    Life, disability income, and long term care insurers have grave 
concern with the Regulation's provisions relating to an individual's 
right to revoke an authorization set forth in Section 164.508(b)(5). 
Contrary to its apparent intent, Section 165.508(b)(5) fails to 
adequately protect insurers against fraud and material 
misrepresentation in origination of insurance policies or in the 
payment of claims. This is true because this section fails to provide 
life and disability income insurers, which are not covered entities, 
any protection for having taken action in reliance on an authorization; 
and it fails to clearly limit individuals' right to revoke 
authorizations obtained as a condition of obtaining insurance coverage 
or payment of claims.
    ACLI member companies are concerned by the definition of 
``psychotherapy notes'' set forth in Section 164.501 and the 
limitations on conditioning enrollment and claims payments based on 
provision of an authorization, articulated in Section 164.508(b)(4). 
Member companies are very concerned that the definition of 
``psychotherapy notes,'' for example, does not exclude a ``diagnosis'', 
but only excludes a summary of diagnosis. The Best Principles for 
Health Privacy, recently published by the Health Privacy Project at 
Georgetown University states: ``The phrase `psychotherapy notes' 
includes only the personal notes taken by a mental health professional. 
The notes do not include diagnostic and treatment information, signs 
and symptoms, or progress notes, which may be shared in the same manner 
as other clinical information.'' Accordingly, the ACLI urges 
clarification of the definition of psychotherapy notes.
    Long term care insurers also are gravely concerned that the 
definition of ``psychotherapy notes,'' coupled with Section 
164.508(b)'s prohibition on conditioning enrollment or claims payments 
on provision of authorization in relation to psychotherapy notes, will 
result in long term care insurers having to issue coverage and pay 
claims even if they only receive incomplete information, in relation to 
the individual's condition. For example, the long term care insurer may 
only receive a ``summary of'' the diagnosis, but not the diagnosis.
    Long term care insurers are also very concerned by the ambiguity of 
Section 164.508(e) which provides implementation specifications for 
authorizations requested by a covered entity for disclosures of 
protected health information by other covered entities. This provision 
was not in the Regulation as proposed. There is significant concern 
that it may be construed by covered entities health care providers to 
inappropriately require a ``super'' authorization as a prerequisite to 
disclosure of protected health information to covered entity long term 
care insurers. It also gives rise to concern because of the reference 
to it in Section 164.502(b)(2)(ii) which could be construed to subject 
disclosures of protected health information to long term care insurers 
to the minimum necessary requirement.
    The ACLI urges deletion of Section 164.508(e). Not only is it 
beyond the scope of the Regulation as proposed, but it may be 
inappropriately construed to require special authorizations for 
disclosure of protected health information to long term care insurers 
and to inappropriately subject such disclosure of protected health 
information to long term care insurers to the minimum necessary 
standard.
    Other ACLI member company concerns with the Regulation, include the 
following:
    There is concern that the requirements imposed on ``hybrid 
entities'' by Section 164.504(b) will require member companies to 
create firewalls, between different divisions of a single company and 
within single divisions of a company, that will be very difficult to 
enforce and jeopardize member companies' activities in relation to the 
detection and prevention of material misrepresentation and fraud in the 
inception of life, disability income, and long term care insurance 
contracts.
    The rules in relation to de-identification of protected health 
information, set forth in Section 164.514, are particularly troublesome 
to long term care insurers. They are concerned that these rules will 
jeopardize their ability to perform studies critical to future policy 
design and experience rating, among other things. There is particular 
concern with the requirements in Section 164.514 (b)(2)(i)(B) and (C) 
which require removal of specified information concerning geographic 
subdivisions and elements of dates.
    The definitions of ``health care operations'' and ``payment'' set 
forth in Section 164.501, are also of significant concern to long term 
care insurers. These definitions fail to include within their scope 
fundamental insurance business functions of long term care insurers. 
Not only will long term care insurers be required to obtain 
authorizations to use protected health information to perform these 
basic insurance business activities, but they will be vulnerable to 
revocation of those authorizations.
    Long term care insurers are concerned by the apparent requirement 
of a written contract in every instance where they disclose protected 
health information to a business associate working on its behalf. While 
there is no question that the long term care insurer must always 
receive assurance that the business associate is safeguarding protected 
health information disclosed to it by a covered entity, long term care 
insurers are hopeful that an exception to the written contract rule may 
be provided for instances where the risk of improper disclosure is low.
    There is concern with Section 160.203 which provides that ``(a) 
standard, requirement, or implementation specification adopted under 
this subchapter that is contrary to a provisions of State law preempts 
the provision of State law. This general rule applies, except if one or 
more of the following conditions is met: . . . (b) The provision of 
State law relates to the privacy of health information and is more 
stringent than a standard, requirement, or implementation specification 
adopted under subpart E or part 164 of this subchapter.'' ACLI member 
companies are concerned about having to make a determination as to 
which law (state law or the HHS regulation) is ``more stringent,'' and 
their resulting vulnerability to challenge for their decisions. This is 
particularly troubling, given that, unlike the proposed regulation, the 
final Regulation withdrew a provision that would have required HHS to 
responds to requests for advisory opinions regarding state preemption 
issues. According to testimony presented to the Senate Health, 
Education, Labor and Pensions Committee by the United States General 
Accounting Office, ``HHS officials concluded that the volume of 
requests for such opinions was likely to be so great as to overwhelm 
the Department's capacity to provide technical assistance in other 
areas. However, they did not consider it unduly burdensome or 
unreasonable for entities covered by the regulation to perform this 
analysis . . .'' We are concerned that the Department has determined 
that it does not have the resources to make determinations on 
preemption, yet the industry is expected to do so.

                               CONCLUSION

    The ACLI recommends that the Regulation's ambiguities that could be 
construed to restrict life, disability income and long term care 
insurers access to and use of protected health information be 
clarified. ACLI staff will be pleased to respond to any concerns or 
questions raised by members of the subcommittee.

                 CONFIDENTIALITY OF MEDICAL INFORMATION
                         PRINCIPLES OF SUPPORT

    Life, disability income, and long-term care insurers have a long 
history of dealing with highly sensitive personal information, 
including medical information, in a professional and appropriate 
manner. The life insurance industry is proud of its record of 
protecting the confidentiality of this information. The industry 
believes that individuals have a legitimate interest in the proper 
collection and use of individually identifiable medical information 
about them and that insurers must continue to handle such medical 
information in a confidential manner. The industry supports the 
following principles:

1. Medical information to be collected from third parties for 
        underwriting life, disability income and long-term care 
        insurance coverages should be collected only with the 
        authorization of the individual.

2. In general, any redisclosure of medical information to third parties 
        should only be made with the authorization of the individual.

3. Any redisclosure of medical information made without the 
        individual's authorization should only be made in limited 
        circumstances, such as when required by law.

4. Medical information will not be shared for marketing purposes.

5. Under no circumstances will an insurance company share an 
        individual=s medical information with a financial company, such 
        as a bank, in determining eligibility for a loan or other 
        credit--even if the insurance company and the financial company 
        are commonly owned.

6. Upon request, individuals should be entitled to learn of any 
        redisclosures of medical information pertaining to them which 
        may have been made to third parties.

7. All permissible redisclosures should contain only such medical 
        information as was authorized by the individual to be disclosed 
        or which was otherwise permitted or required by law to be 
        disclosed. Similarly, the recipient of the medical information 
        should generally be prohibited from making further 
        redisclosures without the authorization of the individual.

8. Upon request, individuals should be entitled to have access and 
        correction rights regarding medical information collected about 
        them from third parties in connection with any application they 
        make for life, disability income or long-term care insurance 
        coverage.

9. Individuals should be entitled to receive, upon request, a notice 
        which describes the insurer's medical information 
        confidentiality practices.

10. Insurance companies providing life, disability income and long-term 
        care coverages should document their medical information 
        confidentiality policies and adopt internal operating 
        procedures to restrict access to medical information to only 
        those who are aware of these internal policies and who have a 
        legitimate business reason to have access to such information.

11. If an insurer improperly discloses medical information about an 
        individual, it could be subject to a civil action for actual 
        damages in a court of law.

12. State legislation seeking to implement these principles should be 
        uniform. Any federal legislation to implement the foregoing 
        principles should preempt all other state requirements.
                                 ______
                                 
     PREPARED STATEMENT OF THE BIOTECHNOLOGY INDUSTRY ORGANIZATION

    The Biotechnology Industry Organization (``BIO'') is pleased to 
have the opportunity to submit testimony expressing our concerns about 
the federal medical privacy regulation issued under the Health 
Insurance Portability and Accountability Act of 1996 1 
(HIPAA) published on December 28, 2000.2 BIO represents more 
than 950 biotechnology companies, academic institutions, state 
biotechnology centers, and related organizations in all 50 US states 
and 33 other nations. BIO's members are in the business of conducting 
and sponsoring research designed to discover medicines, diagnostics, 
and innovative new forms of therapy. These companies provide a home 
base for researchers who are committed to finding ways to use science 
to meet unmet medical needs. For most BIO members, research is their 
business; only a handful have products approved for marketing. These 
companies are sustained by their prospective patients' hope and faith 
in their research enterprise, and by Americans' willingness to invest 
in that hope.
---------------------------------------------------------------------------
    \1\ Pub. L. No. 104-191 (Aug. 21, 1996) (amending the Social 
Security Act (``SSA'') by adding Part C of Title XI, codified at 42 
U.S.C. Sec. Sec. 1320d et seq.).
    \2\ 65 Fed. Reg. 82462 (Dec. 28, 2000).
---------------------------------------------------------------------------
    BIO's long-standing role as a proponent of federal legislation and 
regulations to safeguard the confidentiality of medical information 
stems from the recognition that (1) the availability of sensitive and 
detailed medical information about individuals is indispensable for 
biomedical research, and (2) this availability depends on patients' 
trust and confidence that researchers will use medical information 
responsibly and protect it from misuse. BIO's members have long 
endorsed the principles of respect for the medical privacy of 
individual patients and strong laws with incentives for all concerned 
to protect medical information from abuse and unauthorized disclosure. 
Researchers work hard to maintain the trust and confidence of the 
patients who make themselves available for research.
    BIO's members also believe, however, that patients are counting on 
them to vigorously pursue their research objectives. BIO believes that 
the public interest in the discoveries and findings of research is as 
strong as the public interest in medical privacy. We note that since 
the enactment of HIPAA, the public debate and hearing record amply 
document that no one--from patient groups to privacy advocates, 
providers, payers, and government officials--advocates that research 
should be made more difficult or costly by the legal framework that we 
establish to protect medical privacy.
    BIO is pleased that the final regulation published on December 28, 
2000 makes some significant improvements over the proposed rule 
regarding issues critical to the conduct of research. Our purpose in 
submitting this testimony is to express our great concern that the 
regulation still imposes significant new administrative burdens on 
those covered entities that choose to collaborate in our research 
activities, and we do not believe that these burdens are warranted in 
the context of the HIPAA administrative simplification regulations. 
Traditionally, a majority of clinical research sponsored by 
biotechnology companies involves collection of data by investigators 
associated with academic medical centers or other institutions that are 
``covered entities'' that are required to comply with the new 
regulation. BIO is deeply concerned that the additional costs of the 
significant new administrative requirements, together with the new 
civil and criminal liability to which they are exposed, may have the 
unintended consequence of making these institutions reluctant to host 
sponsored research, or incur greater cost and risk to do so.
    In particular, we are concerned that as they scramble to meet the 
aggressive timetable for bringing their patient care and reimbursement 
activities into compliance over the next two years, these entities may 
not have the time and resources to meet the new requirements for 
research--imposed by the regulation including developing the new forms, 
implementing the new review criteria and modifying the duties of 
Institutional Review Boards (IRBs). Research will suffer if 
biotechnology companies are unable to count on the collaboration of 
academic scientists and hospitals. In addition to these general 
concerns, BIO would like to offer comments on specific research issues 
directly affected by the medical privacy regulation.
    Regulation of Clinical Research. Research activities of 
biotechnology companies already are subject to the regulations of the 
Food and Drug Administration (FDA), the state laws that apply to every 
research site where we collect information about research participants, 
as well as the federal regulations that govern the IRBs responsible for 
reviewing each of the projects where data are collected from patients 
that are receiving care or participating in research at an academic 
institution.3 Research protocols typically involve data 
collected from individuals recruited by investigators affiliated with 
multiple separate institutions. As a result of the Common Rule, 
therefore, even without the new HIPAA requirements, the research 
protocols that companies sponsor, including the arrangements for 
safeguarding the privacy of participants and protecting the 
confidentiality of the data that is collected, are independently 
reviewed by IRBs at each institution where data are collected.
---------------------------------------------------------------------------
    \3\ These federal research regulations are known as the ``Common 
Rule'' because they have been adopted and codified by 16 federal 
agencies that are involved in conducting or supporting research with 
human research participants.
---------------------------------------------------------------------------
    Nevertheless, to the already duplicative regime in existence under 
the Common Rule, the regulation adds new requirements. Specifically, it 
mandates a new privacy authorization form that addresses separate legal 
issues from the informed consent form under which each research 
participant agrees to participate in research and acknowledges the 
potential risks. For example, the form addresses whether the research 
participant agrees that information from the treatment that is part of 
the research protocol can be made available to the researcher. No 
deviations are allowed from any of the elements that are required to be 
in this new form unless the IRB specifically ``waives'' the form of 
authorization using a complex and subjective set of criteria. Nothing 
about this process is related to the privacy of individuals' 
information transmitted in connection with the transactions specified 
in the HIPAA statute. This new research review requirement is simply a 
modification of the Common Rule to add privacy as a separate risk 
factor with its own IRB review, separate from the IRB's consideration 
of other risks to research participants. The desirability of such a 
proposal must be addressed in the context of a broader consideration of 
the current federal research regulations, not added to the duties of 
academic medical centers and other covered entities involved in 
research as part of HIPAA.
    De-Identified Information. Much useful research can be structured 
to protect privacy by creating incentives to use databases of de-
identified information--information that does not identify an 
individual. Notwithstanding the Secretary's acknowledgement of this 
fact, the ``safe harbor'' criteria in the regulation for creating a de-
identified database seem to be calculated to create data that are 
useless for research purposes. As a result, the regulation seems likely 
to have the incongruous result of encouraging researchers to seek 
review by an IRB, or to set up what the regulation calls a ``privacy 
board'' so that they can obtain data that are appropriate for research. 
BIO believes that de-identification appropriate to the researcher's 
proposed and permitted use of the data can be an effective means of 
protecting the confidentiality of data subjects. The regulation's use 
of a one-size-fits-all set of standards will deter people from taking 
these measures seriously in the research context.
    Post-Marketing Surveillance. BIO also is concerned that the 
regulation misunderstands the FDA regulatory scheme under which doctors 
and hospitals voluntarily report information about product outcomes to 
companies that are responsible for collecting information and reporting 
to FDA any ``adverse events.'' Companies collect information about 
unexpected events--often from health care providers--to detect which 
actually may be ``adverse'' events associated with use of a particular 
drug. By defining the permissible disclosure so strictly, and imposing 
serious penalties for infractions, the regulation may cause providers 
to be very conservative in selecting the few incidents to report.
    The regulation permits reporting only of ``adverse events'' and 
such reports must be made to the entity ``required to report'' them. As 
such, the provider must make subjective determinations about whether 
events are ``adverse''. The provider also must look beyond the name of 
the manufacturer on the label to ensure that the manufacturer is the 
entity ``required or directed'' by FDA to collect and report adverse 
events. It would be a terrible unintended consequence if, in the name 
of complying with federal privacy laws, providers were hesitant to 
report unusual outcomes to the manufacturer whose ``800'' number is on 
the product label, because of an uncertainty about whether or not the 
event is truly ``adverse'' or the labeled manufacturer is the entity 
required to collect and report events.
    The same problem arises in connection with exposure registries that 
are used to more systematically collect information on use of products 
by special sub-populations in order to identify any issues that may not 
have been detectable in the clinical trials that supported product 
approval. In some cases, FDA has authority to require or direct the 
manufacturer to operate these registries (e.g., fast-track approvals). 
In other cases, the manufacturer may be willing to conduct a registry 
and FDA may support the idea, but FDA does not have authority to 
``require or direct'' the manufacturer to do so. The privacy regulation 
says that covered entities may participate in the registries that FDA 
has ``required or directed'' but not in those that manufacturers 
voluntarily operate--even if they operate them consistent with the 
FDA's guidance documents regarding registries. We see no indication in 
Congress' enactment of the HIPAA administrative simplification 
requirements--including its provision for the Secretary to issue 
regulations protecting the privacy of medical information--that 
Congress wished the Secretary to use HIPAA's civil and criminal 
penalties in a manner that would cause providers to be leery of 
participating in our nation's system for monitoring the safety and 
efficacy of prescription pharmaceuticals.
    BIO urges a delay in the effective date of the regulations. A two 
year deadline for each of the separately issued elements of HIPAA has 
the potential to be harmful to research conducted with covered 
entities. Because requirements such as privacy and security are so 
closely related, most of the final arrangements for compliance with 
privacy cannot be addressed until the other is finalized.
    BIO also supports changes that would help facilitate critical 
medical research. We are living in an era of enormous promise and 
potential clinical breakthroughs as scientists use genetic knowledge to 
improve our medical interventions. Decades of responsible science under 
the Common Rule has shown that protecting the confidentiality of data 
and promoting medical research are mutually attainable goals. Perhaps 
the time has come to reexamine the Common Rule to ensure that it still 
provides the kind of comprehensive protection for research participants 
that is integral to the conduct of high quality research. There have 
been many changes in our research infrastructure and our science since 
the Common Rule was adopted. BIO looks forward to working with the 
Committee as it pursues that goal.
    Thank you.

    Mr. Bilirakis. Has the gentleman completed his opening 
statement?
    Mr. Ganske. I yield back.
    Mr. Bilirakis. Thank you. Mr. Stupak.
    Mr. Stupak. Thank you, Mr. Chairman. Let me mention part of 
my statement. I am disappointed that we did not hear from HHS 
or HCFA here today, because I believe there has been a great 
deal of misinformation spread about the final regulation put 
forth by the Clinton Administration. But I don't think anyone 
can argue with the fact that we do need uniform effective 
Federal guidelines in protecting an individual's right to 
privacy. People should not yield the right to privacy simply 
because they go to a doctor, contract an illness, take a 
diagnostic test, or suffer from a chronic disease.
    Consensus does exist on the need for fair information 
practices from the health record. The bottom line is that 
medical records belong to the patient and should not be 
disclosed without their consent.
    I look forward to this meeting and I hope we do get people 
from HCFA and HHS here to explain their implementations of the 
rule. I note that the subject matter of the hearing today is 
how to improve the medical record privacy regulations. If they 
are really not implemented yet, maybe we have the cart before 
the horse here, so I wish we had HCFA and HHS here.
    So with that, I yield back my time, Mr. Chairman.
    Mr. Bilirakis. I thank the gentleman.
    Mr. Pitts for an opening statement.
    Mr. Pitts. Thank you, Mr. Chairman. Thank you for holding 
this important hearing today on Federal medical record privacy. 
The recent growth in medical and computer technology and the 
continuing changes in technology have made health information 
an essential tool in our country's health care system. When I 
was young, our family went to our family doctor for nearly all 
of our medical care. Today, patients see a variety of health 
care practitioners, including specialists and alternative care 
providers. In this new environment, practitioners must be able 
to share and communicate about a patient's medical information. 
Accurate available health information is extremely vital to 
determining the best treatment for a patient.
    Health information also is critical for basic insurance 
payments. Public and private payers need personal identifiable 
patient information primarily to pay billions of health care 
claims each year.
    I recognize concerns with the confidentiality of their 
health information and agree that these concerns must be 
addressed, and that is why I do believe that we have need to 
have some standards protecting patients' medical records. 
However, as we work to protect individuals' identifiable health 
information, we must also make sure it is available for basic 
insurance and health plan functions.
    Mr. Chairman, while I believe Congress has the 
responsibility to address consumer concerns, I also believe we 
must be careful not to adopt legislation that could undermine 
the health care industry's ability to provide these consumers 
with high-quality and affordable health care.
    Again, I look forward to hearing from our distinguished 
panel of witnesses their thoughts today on the current medical 
privacy regulation and how we can improve it.
    Thank you, Mr. Chairman.
    Mr. Bilirakis. The gentleman from Wisconsin, Mr. Barrett.
    Mr. Barrett. Thank you very much, Mr. Chairman, and thank 
you for holding this hearing on this exceedingly difficult 
issue. I believe that the Clinton administration made a good-
faith effort to address this issue after Congress failed to 
perform the duty it assigned itself. And I think that we have 
to be cognizant of that, that we were given the first kick at 
the cat and decided we would rather stand back and let somebody 
else do it.
    So I have to give them credit for moving forward on the 
issue. At the same time, I think some opponents and critics of 
the rule have raised some serious questions which we must 
consider in the context of these rules. But the overriding 
concern that I have is that the privacy issue is real and the 
privacy issue is not going away. So we can run but we cannot 
hide when it comes to this issue. At some point we have to 
failings up to it. And I am glad that we have so many people 
here today to tell us their perspective on it and it is frankly 
much easier for me to learn when I am listening than when I am 
talking so I would yield back the balance of the time.
    Mr. Bilirakis. The Chair thanks the gentleman for that. Mr. 
Greenwood for an opening statements.
    Mr. Greenwood. Thank you, Mr. Chairman, for holding this 
hearing, and I thank the witnesses for appearing today. I 
appreciate this committee's resolve in addressing this 
important consumer protection issue. Today I will introduce 
legislation to secure the confidentiality of patients' medical 
information. I do so because the final regulations promulgated 
by the Clinton administration currently under review by the 
Bush administration are in my opinion woefully inadequate. In 
fact, I consider them an abject failure. The final rule does 
not preempt State law. It imposes a silly construct for patient 
authorization for the use and disclosure of information that 
has little to do with privacy. It increases dramatically 
paperwork requirements on already burdened providers. The rule 
may increase medical errors and, therefore, unnecessary injury 
and death. It will likely inhibit medical research that 
benefits all Americans and it runs counter to Congress's 
efforts to double the budget of the NIH to improve clinical 
research, to expand patient access to clinical trials, to speed 
delivery of safe drugs, devices and biologics to consumers, and 
to bring Medicare into the 21st centry by covering prescription 
drugs.
    Each witness here today will testify that the regulations 
are either unacceptable because they are onerous, or need to be 
expanded because they are inadequate. Quite frankly, that is 
not good enough. The final rule Secretary Shalala issued on 
December 28 fails health consumers and it fails America. It 
should be rejected, and comprehensive legislation should be 
enacted in its stead.
    Janlori Goldman from Georgetown University will testify 
today that the final rule is a good starting point. She will 
say that all we need to do as a deliberative body is to build 
on the regulation's primal construct and we will seal the job 
of protecting medical health. I respect Ms. Goldman. I have 
worked closely with her, but I respectfully disagree with her 
on this point. The fact is, the final regulation embraces a 
dying concept in our society, one that embraces with bleary 
eyes a vision of the past that says we need only to lock 
medical files in crypts and file cabinets to ensure that our 
most intimate secrets remain undisclosed.
    It is a dismal vision that fails to capitalize on new 
information technology that, while frightening to some, has the 
potential to protect our personal data better than any lockbox 
and skeleton key ever could. The regulation embraces a concept 
that artificial geographic boundaries are relevant in the 
Internet world and a global economy. It states that accidents 
of geography should determine relative data security. This 
vision ignores advances in research protections and encryption 
technology as no more relevant today than buggy whips and 
butter churns. It embraces an uneven patchwork quilt of 
differing standards that will leave consumers and providers 
confused, pondering the question of why we can't capitalize on 
newfound wonders of computer security, enhanced accountability, 
and secured trust. It will harm, not help consumers.
    Finally, the regulation ignores the concept of the commerce 
clause embodied in our Constitution. For these reasons, we 
should lift our eyes from what we sought to secure in the past 
to what we might achieve in the future. We ought to reject this 
privacy rule and seek to bridge differences between Republicans 
and Democrats, liberals and conservatives, in order to find 
common ground that truly secures our most intimate secrets 
while advancing medical science. This rule seeks to lock in 
place where we have been, not where we need to go. Other than 
that I think they are fine, Mr. Chairman.
    Mr. Bilirakis. The gentleman's time has expired.
    Mr. Green for an opening statement.
    Mr. Green. Thank you, Mr. Chairman. I appreciate Mr. 
Greenwood's support for those regulations. Mr. Chairman, I will 
not give my total opening statement because I would like to 
hear from our panel, but obviously I disagree with my 
colleague. I think medical privacy is a very import issue and 
one that requires input from many different parties. I am 
pleased to see such a diverse group of witnesses today. I do 
wish a member from HHS was here, and hopefully before the 
Easter district work period we will be able to have someone.
    Keeping personal information medical private has been the 
cornerstone of the medical profession since the dawn of time. 
When taking the Hippocratic oath, the doctor promises, 
``Whatever in connection with my professional service I see or 
hear . . . I will not divulge as reckoning that all such shall 
be kept secret.''
    Unfortunately, medical information is no longer stored in 
filing cabinets in an office. Advances in technology mean that 
these records are on computers and they can be transferred very 
easily and accessed with a few keystrokes. We have heard the 
horror stories. What worries me is that 1 in 6 patients 
withhold information from their doctors because they fear it 
will not be protected. Without adequate information, doctors 
are hobbled in their ability to diagnose and treat patients, 
and the result is the patients risk an undetected and untreated 
condition which could escalate to even more painful and costly 
illnesses.
    There is a need for medical privacy regulations. I share my 
colleague from Pennsylvania's concern, and hopefully we can 
work together. I know there are groups on both sides of the 
aisle who want to see some changes, but I would hope this 
administration would not take civil steps to kill this medical 
privacy regulation. We saw what happened with the ergonomics 
rule that we took 10 years to create. We see what is happening 
with a number of regulations on environment. This is not 
setting a pattern for the bipartisan efforts that President 
Bush talked about. But I would hope that if we do need to make 
some changes in the regulations, that we can work together.
    And I yield back my time.
    Mr. Bilirakis. The Chair thanks the gentleman.
    Mr. Bryant.
    Mr. Bryant. Thank you, Mr. Chairman. I apologize for 
shuffling back and forth, but I am trying in the same day--I am 
trying to learn about medical privacy as much as possible, and 
electricity in California upstairs. And I also thank you for 
having this hearing and my consideration of wanting to hear 
from this panel.
    I will yield back my time, but probably the main reason I 
came back was to hear Mr. Markey's statement.
    Mr. Bilirakis. Yes. Mr. Markey has been patiently waiting. 
Mr. Markey is not a member of the subcommittee, but has 
requested to make a very short opening statement. Without 
objection, he will now be recognized.
    Mr. Markey. Thank you, Mr. Chairman. Thank you for your 
courtesy. Obviously the reason why so many members and so many 
Americans are now concerned is that over the last couple of 
weeks there have been a startling number of decisions that have 
been made by the Bush administration which have given us cause 
to be concerned about what could now happen to these privacy 
regulations. The gentleman from Texas, Mr. Green, alluded to 
the worker safety rules. Obviously there was a decision made on 
CO2, whether or not it is a pollutant, which helps to 
dramatically increase the problem of greenhouse gases causing 
global warming problems. And then there is the arsenic decision 
that was just made, you know. And obviously if they can make a 
decision on arsenic, then they can definitely make a decision 
on privacy that hurts public health and safety.
    Until this week EPA stood for the Environmental Protection 
Agency. Now it stands for ``Eat Plenty of Arsenic.'' There is 
absolutely no rationale for making that kind of a change. There 
is a Dickensian quality to the wires that have been installed 
over the last 10 years in this country: It is the best of wires 
and it is the worst of wires, simultaneously. It can enable and 
ennoble or it can degrade or debase simultaneously. We just 
cannot pretend that it is all good. It is not.
    All that information in your financial records, in your 
health records, in everything else you do, can now be compiled 
into a digital dossier that allows some company to know more 
about you than you know about yourself. But, moreover, when it 
comes to your health care records, it makes it possible for 
them to basically spread information that only you want to 
know. You might not have told anyone else in your family, much 
less everyone else in town, every company that is out there. So 
you should have a right to be able to protect yourself. I think 
that basically is the core right that we should all have. If 
there is a bottom-line core privacy right that we have should 
have, it is to our own medical information, our own DNA, who we 
are. We should be able to control that.
    And whether or not you are on ESPN.Com or bought a book at 
Amazon.com, we can debate over that; but over who we are, who 
our family members are, husbands, wives, children, mothers, 
fathers, you know, we should have a right to know that it is 
going to be protected.
    So you have these information reapers now who are out there 
trying to gather this profile that they will be able to make 
money off of, replacing the information-keepers that we grew up 
with, that nurse, that doctor in the hometown, who we knew was 
never going to tell anyone about it. But the privacy peepers 
now do not just kind of learn a little secret about you, they 
also make money off of it. That is the fear: The more they 
learn about you is the more money they make. And that is why 
America is afraid, because they might ultimately decide in 
large numbers not to get the health care treatment which they 
need.
    And that is why privacy is going to be the civil rights 
issue of the next generations. Because this wire, this new 
digital built stream, makes it possible for all of this 
information to be gathered about people.
    Now, on April 15, we have tax day. On April 14, HHS has to 
make a decision as to whether or not they are going to protect 
America's privacy. Now, I say ``No Taxation Without 
Implementation'' of the health care privacy regulations. I 
think it would be a tragedy if people in the same week lost 
their privacy and had to pay their taxes. And in the long run, 
the loss of privacy would be a much greater harm for these 
families to suffer when it came to all of the medical secrets 
that they have.
    So, Mr. Chairman, I don't think we are going to have a more 
important hearing this year, and I hope that HHS does the right 
thing for the American people on this subject.
    I yield back the balance of my time.
    Mr. Bilirakis. I thank the gentleman. I note that we are 
happy that he did not insist as to privacy on his opening 
statement. But he has been a strong supporter of privacy 
throughout the years. I know we have heard an awful lot from 
Mr. Markey on this subject as well.
    Mr. Markey. Mr. Chairman, I have a letter from 50 Members 
to the Secretary of HHS on the subject. Could I insert it in 
the record?
    Mr. Bilirakis. I suppose there is no problem with your 
inserting that into the record. That will be the case.
    [The letter referred to follows:]

                      Congress of the United States
                                       Washington, DC 20515
                                                     March 20, 2001
The Honorable Tommy Thompson
Secretary of Health and Human Services
U.S. Department of Health and Human Services
200 Independence Avenue, SW
Washington, DC 20201
    Dear Secretary Thompson: We are writing to express our concern with 
the recent decision to open a new 30-day comment period on the final 
medical information privacy standards mandated by the Health Insurance 
Portability and Accountability Act (HIPAA). The health privacy of 
Americans has been on hold for far too long, and we respectfully urge 
you to put these important privacy protections into effect night away.
    This long-overdue regulation establishes for the first time a 
fundamental right to medical privacy. This new standard includes access 
to one's own medical records, a requirement of notice of how health 
information is going to be used and shared, a requirement of consent 
for use and disclosure, and limitations on employer access to personal 
health information.
    At this point, further delay of these crucial protections would be 
a major setback in years of effort to grant Americans the privacy they 
have demanded for so long. Americans have waited long enough for 
privacy protections, and every day that this rule is not in effect, the 
confidentiality of their patient records are at risk. Therefore, we 
urge you not to delay these protections any further.
    The process of developing the current regulation has been open and 
extensive. HIPAA, which passed with strong bipartisan support in both 
Houses in 1996, included a three-year deadline for Congress to pass a 
comprehensive medical privacy law. Understanding the importance of this 
issue, Congress built in a back-up plan giving the Secretary of Health 
and Human Services (HHS) the authority to promulgate a health privacy 
regulation in the absence of legislation by August 1999.
    Over the years that this regulation was developed, the views of 
Congress and interested parties were given ample consideration. In 
September 1997, the Secretary of HHS presented recommendations to 
Congress for legislation on medical privacy. Subsequently, several 
bills were introduced but no law was passed. HHS then issued a proposed 
rule in November 1999, and even extended the comment period by 45 days 
at the request of industry and consumer groups. The Department then 
considered more than 52,000 comment letters over ten months before 
issuing a final rule.
    We recognize that special circumstances may arise from time to time 
that are not fully anticipated in the regulation. For this reason, HHS 
is authorized in section 262 of HIPAA to work with the healthcare 
industry, providers, and consumers to resolve potential problems with 
compliance on a case-by-case basis. However, this process cannot begin 
until the covered entities move forward with implementing the rule.
    We strongly urge you to hold the line on medical privacy by 
allowing the regulation to take effect on April 14th as originally 
provided. Americans have waited too long for these critical privacy 
protections--they shouldn't have to wait any longer.
            Sincerely,
Edward J. Markey, Member of Congress; Edward M. Kennedy, United States 
    Senate; Henry Waxman, Member of Congress; Patrick Leahy, United 
    States Senate; John D. Dingell, Member of Congress; Christopher J. 
    Dodd, United States Senate; Richard A. Gephardt, Member of 
    Congress; Thomas A. Daschel, United States Senate; Gary A. Condit, 
    Member of Congress; Tom Harkin, United States Senate; Edolphus 
    Towns, Member of Congress; Jeff Bingaman, United States Senate; 
    Bill Luther, Member of Congress; Jack Reed, United States Senate; 
    Rosa L. DeLauro, Member of Congress; Hillary Rodham Clinton, United 
    States Senate; Pete Fortney Stark, Member of Congress; John F. 
    Kerry, United States Senate; Jim McDermott, Member of Congress; 
    John D. Rockefeller, United States Senate; James P. Moran, Member 
    of Congress; Robert G. Torricelli, United States Senate; Janice D. 
    Schakowsky, Member of Congress; Daniel K. Inouye, United States 
    Senate; George Miller, Member of Congress; Daniel A. Akaka, United 
    States Senate; John P. Murtha, Member of Congress; Jon Corzine, 
    United States Senate; Dennis Kucinich, Member of Congress; Patsy 
    Mink, Member of Congress; Maurice Hinchey, Member of Congress; Dale 
    E. Kildee, Member of Congress; John F. Tierney, Member of Congress; 
    James P. McGovern, Member of Congress; Anna Eshoo, Member of 
    Congress; Lucille Roybal-Allard, Member of Congress; Shelley 
    Berkley, Member of Congress; Jerrold Nadler, Member of Congress; 
    Jose Serrano, Member of Congress; Carolyn B. Maloney, Member of 
    Congress; Eleanor Holmes Norton, Member of Congress; Jim Turner, 
    Member of Congress; Wm. Lacy Clay, Member of Congress; Bob Filner, 
    Member of Congress; Robert A. Borski, Member of Congress; Sherrod 
    Brown, Member of Congress; Paul Wellstone, United States Senate; 
    Julia Carson, Member of Congress; and John Edwards, United States 
    Senate.

    Mr. Bilirakis. All right. We are going to break now. I will 
ask all of the witnesses to please take their seat so that as 
soon as we cast this vote and return, we can continue on.
    [Additional statements submitted for the record follow:]

 PREPARED STATEMENT OF HON. W.J. ``BILLY'' TAUZIN, CHAIRMAN, COMMITTEE 
                         ON ENERGY AND COMMERCE

    Let me begin by thanking Subcommittee Chairman Bilirakis for 
holding this timely hearing on the Federal medical record privacy 
regulation, which is now the subject of a comment period that expires 
at the end of the month.
    The Energy and Commerce Committee has already held two hearings 
this year on privacy. This hearing, of course, will focus on medical 
privacy, an area of the law that raises a host of important issues for 
consumers and health care providers.
    The specific purpose of this hearing today will be to examine a 
regulation that was issued in the closing days of the Clinton 
Administration. Once the new Administration has time to review the 
comments they are receiving on this regulation, we will bring Secretary 
Thompson's team forward and hear their thoughts about how the 
regulation can be improved. As I told my good friend Mr. Dingell this 
week, we are working to arrange a time to host Secretary Thompson or 
his designee at a hearing before this Committee so that we can inquire 
further into their positions on this privacy regulation.
    We all want to be sure that our medical records are kept private, 
and this is not a new concern. In fact, the Hippocratic Oath states 
that ``Whatever, in connection with my professional service, or not in 
connection with it, I see or hear, in the life of men, which ought not 
to be spoken of abroad, I will not divulge, as reckoning that all such 
should be kept secret.'' Physicians have subscribed to these tenets 
since at least the 4th Century B.C., and these principles still apply 
today.
    Unfortunately, in the interconnected 21st Century, relying on the 
Hippocratic Oath isn't good enough. Records are reduced to electronic 
form and shipped from one part of the country to another for diagnosis, 
payment, fulfilling prescriptions, or epidemiological research. Every 
American wants to know that their medical records remain confidential, 
and that sensitive medical information identifiable to them, is not 
bought, sold and displayed on the Internet. No one deserves to have 
that happen to them. We want to be assured that personally-identifiable 
health information is protected from public disclosure, and that 
privacy safeguards are developed that would complement rather than 
burden biomedical research. Moreover, we need to make sure that 
workable security systems are in place safeguarding the privacy of the 
medical records of American citizens. All of the protections on the 
books won't help consumers unless we can prevent criminals from 
breaking into computers and improperly accessing patients' medical 
records.
    And that's why we are here today--to discuss these issues. During 
this hearing, we want to examine the implications of moving forward 
with the Clinton Administration's privacy policy. While we have no 
doubt that drafting this regulation was an arduous process, and an 
unenviable task, we still need to explore how we can improve this 
regulation and make it work more effectively for consumers and health 
care providers.
    We all want today's hearing to be constructive. For example, I hope 
that we can hear about what parts of the regulation could be 
strengthened from a consumer's point of view. How can we better draft 
this regulation to bring these new protections to consumers in a more 
cost-effective way? What provisions need a little more fine-tuning in 
light of real-life practices? These are the kinds of issues we would 
like to explore today.
    Mr. Chairman, thank you again for holding this hearing. I look 
forward to hearing the testimony and learning more about these issues.
                                 ______
                                 

PREPARED STATEMENT OF HON. EDOLPHUS TOWNS, A REPRESENTATIVE IN CONGRESS 
                       FROM THE STATE OF NEW YORK

    I am hopeful that today's hearing rather than delaying medical 
privacy rules actually will move us one step closer to the 
implementation of the final rule on April 14th.
    As a former hospital administrator, I can speak from personal 
experience about how the climate has changed for the privacy of medical 
records. Doctors no longer simply maintain patient records under lock 
and key in a file cabinet. Today health information is both in paper 
and electronic form leaving patient privacy and confidentiality largely 
unprotected.
    Nowhere are these protections of more concern than in the area of 
on-line privacy of medical records. New initiatives like informatics--
the science of optimizing the storage, retrieval, and management of 
information found in patient records and medical databases--will 
revolutionize the traditional doctor-patient relationship. Experts 
argue that on-line medical records can improve the quality of 
healthcare through better efficiency, lower costs and the elimination 
of thousands of medical errors. I don't doubt that these improvements 
would occur. Confidentiality, however, can be a significant weakness in 
these systems.
    For example, there is nothing to prohibit a hospital employee from 
``snooping'' through a patient's record. In fact, yesterday's Supreme 
Court case, decided in favor of patient protection, arose from the 
overzealous decision by a hospital staff member to share positive drug 
test results from pregnant women with local law enforcement in 
Charleston, South Carolina. In fact, in many instances, an on-line 
review by an employee would be assumed to be authorized as part of that 
patient's care.
    Consequently, given the patchwork nature or in some cases the total 
absence of a privacy standard, April 14th becomes absolutely critical 
in terms of establishing a national standard for the protection of 
medical records. As the Ranking Member on the Subcommittee on Commerce, 
Trade and Consumer Protection, I anticipate that we will continue to 
examine e-commerce and privacy issues. It is my expectation that the 
national standard established by this medical privacy rule will guide 
our future considerations in the on-line privacy debate. This linkage 
makes it even more important for the rule to be finalized.
    Americans have waited long enough for medical privacy protections. 
I would urge Secretary Thompson to allow this rule to go into effect to 
create a privacy system that covers all health information held by 
hospitals, providers, health plans and health insurers. I am hopeful 
that our witness testimony today will support the finalization of this 
rule.
                                 ______
                                 

  PREPARED STATEMENT OF HON. ANNA ESHOO, A REPRESENTATIVE IN CONGRESS 
                      FROM THE STATE OF CALIFORNIA

    The American people expect, and are entitled to, confidential, fair 
and respectful treatment of their private health information. 
Currently, we do not have a federal standard, and the existing 
patchwork of state laws provides erratic protection at best.
    With the advent of managed care, patients can no longer depend on 
their family doctor to protect their confidentiality. Instead they are 
forced to place their trust in entire networks of insurers and health 
care providers with direct access to their sensitive medical 
information.
    The need for meaningful privacy protections is clear. Yet President 
Bush has arbitrarily decided to delay implementation of HHS regulations 
that would have provided them. The stated reason for the delay was to 
enlist further public comment, yet HHS has already received 53,000 
comments prior to issuing the final rule. I'm dismayed by the 
President's seeming callous disregard of our constituents' call for 
privacy protection and I hope that the purpose of this hearing is to 
help move the issue along rather than an effort to help stall 
implementation.
    As this Committee moves toward a solution to the privacy dilemma, I 
urge my colleagues to keep in mind the need to balance meaningful 
privacy protection with our interest in medical research. When we held 
hearings on this issue last year, I cautioned my colleagues that any 
legislation or regulation enacted should not erect unnecessary barriers 
to the ability to conduct medical research.
    I'm encouraged that my concerns appear to have been heard and the 
regulations include flexibility in the IRB structure applied to 
privately funded research. For example, the regulation allows expedited 
review for research on archived medical records. This is significant 
since information is the lifeblood of research. Without access to 
health data, patients would be the real losers.
    Mr. Chairman, our constituents have demanded that their federal 
representatives provide them with a meaningful federal standard to 
protect against unauthorized uses of their most private health 
information.
    At the same time, we must also ensure that these protections 
incorporate the appropriate flexibility to continue needed medical 
research. I believe the regulations put forth by the Clinton 
Administration go a long way toward achieving these two goals.
    Thank you Mr. Chairman. I look forward to hearing from the 
witnesses.

    [Brief recess.]
    Mr. Bilirakis. Let's have order, please. For the benefit of 
those who ordinarily do not come up here to testify, this is a 
very rude thing to do to you, and certainly very discourteous. 
We can't help it. When votes are called, we have to run over, 
and we hope you realize that. We understand that in just a few 
minutes we have a series of votes coming up, so there will be 
another series of votes before we have to break again.
    The Chair welcomes and thanks the witnesses, consisting of 
Dr. John D. Clough, Director of Health Affairs for the 
Cleveland Clinic Foundation; Ms. Mary Foley, President of the 
American Nurses Association; Dr. John Melski, Medical Director 
of Informatics at the Marshfield Clinic in Marshfield, 
Wisconsin; Dr. Paul Appelbaum, Chairman of the Department of 
Psychiatry, University of Massachusetts Medical School; Mr. 
Carlos R. Ortiz, Director of Government Affairs, CVS Pharmacy; 
Ms. Janlori Goldman, Director of Health Privacy Project, 
Institute for Health Care Research and Policy, Georgetown 
University; and Mr. Bob Heird, Senior Vice President, Anthem 
BlueCross BlueShield. Welcome.
    Your written statement is a part of the record. We would 
hope you would complement it orally. The clock is set for 5 
minutes. Obviously, if you are not completely finished, we will 
let you go on, but at the same time keep it as close to that as 
you can.
    We will start off with Dr. Clough. Is that the correct 
pronunciation?
    Mr. Clough. Correct.
    Mr. Bilirakis. There has been a Dr. Clough in Tarpon 
Springs, Florida for many, many years.
    Mr. Clough. Probably a distant relative.

   STATEMENTS OF JOHN D. CLOUGH, DIRECTOR OF HEALTH AFFAIRS, 
CLEVELAND CLINIC FOUNDATION; MARY E. FOLEY, PRESIDENT, AMERICAN 
     NURSES ASSOCIATION; JOHN MELSKI, MEDICAL DIRECTOR OF 
   INFORMATICS, MARSHFIELD CLINIC; PAUL APPELBAUM, CHAIRMAN, 
 DEPARTMENT OF PSYCHIATRY, UNIVERSITY OF MASSACHUSETTS MEDICAL 
 SCHOOL; AND CARLOS R. ORTIZ, DIRECTOR OF GOVERNMENT AFFAIRS, 
                          CVS PHARMACY

    Mr. Clough. Good morning, Chairman Bilirakis, Vice Chairman 
Norwood, Mr. Brown, and distinguished members of the committee. 
I am Dr. John Clough, director of health affairs at the 
Cleveland Clinic. I have also been a practicing rheumatologist 
for 30 years. I thank you for allowing me----
    Mr. Bilirakis. Your mike, sir. Please pull it closer. We do 
want to hear what you have to say.
    Mr. Clough. I thank you for allowing me to offer testimony 
today on behalf of American Medical Group Association, the 
AMGA, and the Health Care Leadership Council, HLC.
    The AMGA represents approximately 300 medical care groups 
which care for 35 million patients nationwide. The HLC 
represents CEOs of the Nation's leading health care companies 
and institutions, including hospitals, and the Cleveland Clinic 
is a member of both.
    Medical group providers strongly support the 
confidentiality of patient information and appreciate the 
Department's efforts in this respect. The HLC and AMGA support 
creating workable, nationally uniform standards that protect 
confidentiality, including the rights of patients to inspect 
their records, notice of confidentiality practices, safeguards 
for information, and prohibition of unauthorized disclosure of 
patient information for purposes other than treatment, payment, 
health care operations and research.
    The final HHS regulation contains several improvements from 
the originally proposed regulation. Nevertheless, I would like 
to highlight three key provisions that appear to be unworkable, 
would disrupt patient care, would divert limited resources from 
treating patients. These are the prior consent requirement, the 
minimum necessary standard, and the rules governing disclosure 
of information to business associates.We need to delay the 
implementation of the rule until these issues are appropriately 
addressed.
    In terms of prior consent, in a major departure from the 
proposed rule, HHS created a prior consent mandate on 
providers. This unprecedented mandate would require doctors to 
obtain a signed written consent from patients before using or 
disclosing patient information for even the most routine 
purposes, including treatment. This is unworkable for several 
reasons. The task for physicians and the cost to medical groups 
to obtain such consents for more than 200 million Americans is 
daunting. No State of which I am aware currently requires prior 
consent to use or disclose information for treatment. This 
requirement will disturb a range of routine provider practices 
from sending out reminder notices about appointments, to 
conducting disease management and maintaining quality 
improvement programs. It could force patients to make an extra 
trip to the hospital to sign consent forms before a hospital 
can use any medical information about them.
    Here is one of many examples of how the rule could disrupt 
routine patient care. Today, increasing numbers of surgical 
procedures are performed in the outpatient setting. Now, if I 
refer a patient for outpatient surgery, he or she would not 
have to go to the ambulatory surgery facility until the day of 
the operation. Under the new consent requirement, however, the 
patient would have to make a special trip to sign the necessary 
consent forms before the operation could even be scheduled. To 
add to the confusion, the patient must be given the opportunity 
to restrict or revoke the consent at any time. But what if the 
patient revokes consent for use of information supporting 
payment but the information is also needed for key health care 
operations such as infection tracking, quality assurance, 
outcomes assessment and so on?
    The prior consent requirement dehumanizes the relationship 
between patient and physician, a relationship that is built 
upon patient trust that a physician will use good professional 
judgment to determine the use of the patient's information, 
particularly in care management.
    We recommend that HHS eliminate this overly burdensome and 
costly requirement and return to the statutory authorization as 
in the originally proposed rule. In the case of ``minimum 
necessary'' in today's coordinated systems of health care 
delivery, information sharing and use by teams of physicians 
and other health professionals is the key to the quality, 
efficiency, and effectiveness of medical care and prevention, 
detection, and mitigation of medical errors. The minimally 
necessary provision is not necessary itself, especially as it 
applies to internal uses of patient information. The regulation 
should allow health care providers to develop their own set of 
guidelines and rules based on what is best for the patient.
    Finally, as to business associates, rewriting contracts 
with every entity to which the Cleveland Clinic discloses 
patient information in order to achieve compliance with this 
regulation will require a substantial amount of legal and 
professional time, effort, and expense. We believe that these 
problems can be addressed and the rule can move forward, but 
rushing forward on a flawed and unworkable regulation could 
hinder the cause of protecting and improving the quality of 
health care. It makes sense to get the regulation right the 
first time, before hospitals and others have spent limited 
resources to comply with the rule that has to be changed.
    Therefore, we urge the Department to delay the April 14, 
2001 effective date to give the Department adequate time to 
consider the many comments it will receive. Once these comments 
are carefully considered, a new version of the rule fixing the 
problems we have identified can be promulgated with our 
support.
    Thank you very much.
    [The prepared statement of John D. Clough follows:]

    PREPARED STATEMENT OF JOHN D. CLOUGH, DIRECTOR, HEALTH AFFAIRS, 

  Cleveland Clinic Foundation on Behalf of the American Medical Group 
           Association and the Healthcare Leadership Council
    Good morning, Chairman Bilirakis and members of the subcommittee.
    I am Dr. John D. Clough, Director of Health Affairs, Cleveland 
Clinic Foundation. I am also a practicing rheumatologist. I offer 
testimony today on behalf of the American Medical Group Association 
(AMGA) and the Healthcare Leadership Council (HLC).
    The AMGA represents approximately 300 medical groups that care for 
35 million patients nationwide. The HLC represents the CEOs of the 
nation's leading health care companies and institutions.
    Thank you for giving me this opportunity to testify on the HHS 
regulation. Medical group providers strongly support the 
confidentiality of patient information. We appreciate the Department's 
effort to create meaningful and balanced federal standards to protect 
the security of each individual's health information.
    The HLC and AMGA support creating nationally uniform standards 
protecting confidentiality, including giving patients the right to 
inspect their records, notice of confidentiality practices, creating 
safeguards for information, and prohibiting disclosure without 
authorization of patient information for purposes other than treatment, 
payment, health care operations, and research.
    The final HHS regulation contains several improvements from the 
proposed regulation. However, I would like to highlight three key 
provisions that are unworkable, would disrupt patient care, and divert 
limited resources from treating patients: The prior consent 
requirement, ``minimum necessary'' standard, and ``business 
associates.''
Prior Consent
    In a major departure from the proposed rule, HHS created a prior 
consent mandate on providers. This unprecedented mandate would require 
doctors to obtain a signed, written consent from patients before using 
or disclosing patient information for even the most routine purposes, 
including treatment. This mandate is unworkable because:

 The task for physicians and the cost to medical groups of 
        obtaining such consents from over 200 million Americans is 
        daunting.
 In no state of which we are aware do doctors routinely obtain 
        prior consent to use patient information for treatment.
 As of the compliance date for the HHS regulation, no physician 
        will be able to use information for most activities without a 
        signed consent. Thus, routine practices by providers will be 
        disrupted, from sending out reminder notices about appointments 
        to conducting disease management and maintaining quality 
        assurance programs.
 This requirement could force patients to make an extra trip to 
        the hospital to sign a consent form before the hospital can use 
        any medical information about them.
 More and more surgeries are on an outpatient basis today. 
        Currently, if I see a patient and refer her to have an 
        outpatient surgical procedure, she would not have to go to the 
        outpatient facility until the day of the surgery. With the new 
        consent requirement, however, she would have to make a special 
        trip to sign the necessary consent forms before the outpatient 
        facility could use her information to schedule surgery and 
        initiate the intake process.
 To add to the confusion, a patient must be given the 
        opportunity to restrict or revoke the consent at any time. This 
        poses significant difficulties for group practices. What if 
        there is a restriction on, or revocation of, a consent for 
        payment or health care operations and the information is needed 
        for billing or key health care operations such as infection 
        tracking, quality assurance, outcome assessments, and so on?
    The prior consent requirement de-humanizes the relationship between 
the patient and physician--a relationship that is built upon patient 
trust that a physician will use good professional judgment to determine 
the use and disclosure of the patient's information, particularly in 
the course of treatment of the patient. We advocate that HHS should 
eliminate such an overly burdensome and costly requirement and return 
to the statutory authorization as under the proposed rule.

Minimum Necessary
    Most health care services today are delivered in some form of 
organized or coordinated system of delivery. Information sharing and 
use by teams of physicians and health professionals is the key to 
quality medical care for patients, and the key to improvements in 
patient care. The sharing of information among health care 
professionals in an integrated system is critical to their ability to 
serve patients in the most efficient and effective way.
    Under the rule, providers must make reasonable efforts to limit the 
use and disclosure of information to what is minimally necessary to 
accomplish its intended purpose. Under the final rule, disclosures and 
requests are excluded from the requirement; however, there is no such 
exclusion for ``use'' of information. This potentially limits the 
ability of providers to use a complete medical record for treatment 
purposes. The concept of limiting the use of the full medical record 
for treatment purposes would appear to be completely contrary to 
efforts to prevent medical errors and promote patient safety.
    This provision is unnecessary, particularly to the extent it 
applies to internal uses of patient information. Rather than establish 
a minimum necessary standard, the regulation should allow health care 
providers to develop their own set of guidelines and rules about what 
they believe is the necessary standard and what is best for the 
patient.

Business Associates
    Rewriting and recontracting with every entity to whom Cleveland 
Clinic discloses patient information in order to achieve compliance 
with this regulation will require a substantial amount of legal and 
professional time, effort and expense. Last week, Secretary Thompson 
testified regarding the need to ensure administrative simplification of 
complex and burdensome regulations. Also, the underlying intent of the 
section of HIPAA in which privacy falls is ``administrative 
simplification.''
    Yet, the ``business associate'' requirements would necessitate 
hundreds, and for some entities, thousands of privacy contracts. We 
recommend that the business associate provision be removed because HHS 
has exceeded its statutory authority under HIPAA. We especially object 
to a requirement of a contract between covered entities and business 
associates.
    We believe that these problems can be addressed and the rule can 
then move ahead. Rushing forward on a flawed regulation that is 
unworkable could set back the cause of protecting confidentiality and 
improving the quality of health care. It makes sense to get the 
regulation right the first time, before hospitals and others have spent 
limited resources on complying with a rule only to see it changed. 
Therefore, we urge the Department to delay the April 14, 2001, 
effective date to give the Department adequate time to consider the 
many comments it will receive. Once these comments are carefully 
considered, a new version of the rule fixing the problems we have 
identified can be promulgated with our support.

    Mr. Bilirakis. I thank you. Ms. Foley.

                   STATEMENT OF MARY E. FOLEY

    Ms. Foley. Thank you, Mr. Chairman, and members of the 
subcommittee. I am Mary Foley, registered nurse and president 
of the American Nurses Association, which is the only full 
service professional organization that represents our Nation's 
registered nurses in all 53 State and territorial nursing 
associations.
    It is a great pleasure to be here this morning and offer 
our views on patients' privacy and confidentiality regulations 
as issued by the Department of Health and Human Services in 
December of last year. Mr. Chairman, as I indicated, I am a 
health care practitioner, and until I came president of the 
American Nurses Association just over a year ago, I was a nurse 
executive in a medium-sized hospital in urban California. 
Before that I spent 17 years as a staff nurse at that hospital, 
and I have also been a clinical instructor in nursing.
    The second charge in the code for nurses, our ethical code, 
states, ``the nurse safeguards the client's right to privacy by 
judiciously protecting information of a confidential nature.'' 
That very simple statement is an obligation that our profession 
takes very seriously. Virtually all of our members are involved 
in creating, transmitting, maintaining, and safeguarding 
patient records on a daily basis as an integral part of their 
professional practice. Working on the front line of health 
care, registered nurses are well aware of the concerns their 
patients have regarding privacy and confidentiality. We remain 
professionally committed to strong, enforceable standards to 
protect the confidentiality of the health information of our 
patients. This commitment has always been a part of the 
professional practice.
    In my testimony this morning I will focus on two aspects of 
this issue that I can speak to as a nurse and as a 
representative of the nursing profession. First, it is the 
necessity to keep our focus on what is best for patients; and, 
second, it is the practical application of this standard in 
health care settings. The most important test that these 
regulations must meet is whether every individual patient's 
reasonable expectation for privacy and confidentiality is 
addressed. Can I assure my patients when they are describing 
the most intimate, troublesome, embarrassing, frightening 
aspects of their lives to people who will treat and care for 
them that there are safeguards for maintaining the 
confidentiality of this sensitive and important information? 
Mr. Chairman, if I can't do that, many of my patients and many 
around this country will go without treatment or will disclose 
only some of the information, a very dangerous proposition 
which can lead to improper diagnosis, improper treatment, 
complications in an illness or injury, negative drug 
interactions, adverse events, or even death.
    It is hard to talk about a whole range of sensitive issues 
which might include mental illness, sexual practices, and 
physical abuse. It will not happen at all if you think your 
story is going to be grist for the local gossip mill or sold to 
a corporation that will farm it out to telemarketers in case 
you might be in the market for a pregnancy test, or also that 
it could be available to your employer who would then have the 
opportunity to consider the implications perhaps for your 
prescription for antidepressants.
    This concern for our patients must be our overriding 
concern, not whether the rule will be inconvenient for 
hospitals or practitioners or for the staff people who handle 
insurance paperwork.
    This regulation requires that a covered entity must 
reasonably safeguard protected health information from any 
intentional or unintentional use or disclosure. And, of course, 
it must. Our accrediting bodies for hospitals already require 
that. Any suggestion that this is new or burdensome for health 
care institutions is really unfounded. You watch your voice, 
you don't talk about patients by names in the hallways. You 
post prominent notices in their predominant languages for 
patients, informing them that the staff will work to meet their 
request for greater privacy, and then follow through on it. We 
were already complying with the intent.
    These instructions are the stuff of daily work in a 
hospital setting and every nurse is trained to be in tune to 
its importance. And any hospital or practitioner that isn't 
already doing it, and doing it seriously, is a menace. Every 
day there are practitioners who, as a matter of ethics and 
successful treatment, must be able to ensure their patients 
that their records are protected. We have a patchwork of State 
laws that provide some protections to some people, some of the 
time, in some places. We need this national standard for basic 
protections for all of our people, all of time, in every place 
in this Nation.
    Thank you Mr. Chairman. I remain available to answer any 
questions.
    [The prepared statement of Mary E. Foley follows:]

    PREPARED STATEMENT OF MARY E. FOLEY, PRESIDENT, AMERICAN NURSES 
                              ASSOCIATION

    Mr. Chairman and Members of the Subcommittee: I am Mary Foley, 
President of the American Nurses Association, which is the only full-
service professional organization representing the nation's registered 
nurses through our 53 state and territorial nurses associations. It is 
a pleasure to be here this afternoon to offer our views on the patient 
privacy and confidentiality regulations issued by the Department of 
Health and Human Services in December of last year.
    Mr. Chairman, I am a health care practitioner. Until I became 
President of the American Nurses Association just over a year ago, I 
was a nurse executive in a medium-sized hospital in California. Before 
that, I spent seventeen years as a staff nurse, and I have served as 
clinical instructor in nursing.
    The second charge in the Code for Nurses states, ``The nurse 
safeguards the client's right to privacy by judiciously protecting 
information of a confidential nature.'' That simple statement is an 
obligation the nursing profession takes very seriously.
    Virtually all of ANA's members are involved in creating, 
transmitting, maintaining, and safeguarding patient records on a daily 
basis as an integral part of their professional practice. Working on 
the front line of health care, registered nurses are well aware of the 
concerns of their patients regarding privacy and confidentiality and 
are professionally committed to strong enforceable standards to protect 
the confidentiality of the health information of their patients.
    This commitment has always been a part of professional practice. 
But the need for Federal law is in large part a function of the 
momentous change in communications technology. Health care 
professionals have always been aware of the importance of 
confidentiality and the possibilities for carelessness; the need for 
that reminder in the code of ethics is real. But the complexity of the 
health care system means that transgressions of patient 
confidentiality, intentional or not, have much broader consequences 
than ever before, because the information travels further and faster 
and cannot be retrieved.
    In my testimony, I will focus on two aspects of this issue that I 
can speak to as a nurse and as a representative of the nursing 
profession: First, is the necessity to keep our focus on what is best 
for the patient. Second, is the practical application of this standard 
in health care settings.
    The most important test that these regulations must meet is whether 
every individual patient's reasonable expectations for privacy and 
confidentiality are addressed. Can I assure my patients that `` when 
they are describing the most intimate, troublesome, embarrassing, 
frightening aspects of their lives to people who will treat them and 
care for them `` there will be safeguards for maintaining the 
confidentiality of this sensitive information?
    Mr. Chairman, if I can't do that, many of my patients will go 
without treatment or will disclose only some of the information, a 
dangerous proposition, which can lead to improper diagnosis, improper 
treatment, complications in an illness or injury, even death. It is 
hard to talk about a whole range of sensitive issues, which might 
include mental illness, sexual practices, and physical abuse. And it 
will not happen at all if you think your story is going to be grist for 
the local gossip mill or sold to a corporation that will farm it out to 
telemarketers in case you might be in the market for a pregnancy test 
or be available to your employer, who will have then the opportunity to 
consider the implications of a prescription for anti-depressants.
    This concern for our patients must be our overriding concern, not 
whether the rule will be inconvenient for hospitals or practitioners or 
staffers who handle insurance paper work.
    This regulation requires that ``a covered entity must reasonably 
safeguard protected health information from any intentional or 
unintentional use or disclosure . . .'' Of course it must. Accrediting 
bodies for hospitals already require it. Any suggestion that this is a 
new or burdensome requirement for health care institutions is really 
unfounded. Watch your voice, don't talk about patients by name in the 
hallways, post prominent notices for patients informing them that staff 
will work to meet their requests for great privacy--and do it. These 
instructions are the stuff of daily work in a hospital setting. Every 
nurse is trained to be attuned to its importance. And any hospital or 
practitioner that isn't already doing it--and doing it seriously--is a 
menace.
    The American Nurses Association has long been in the forefront of 
organizations that have worked for better and more standardized 
electronic communications among health care providers as an important 
improvement in patient treatment and care. It is clear that the work in 
this area undertaken as a result of the Health Insurance Portability 
and Accountability Act will provide a huge cost benefit to plans and 
providers, as well. For the health care industry to accept this 
financial boon and then attempt, as is apparent in recent weeks, to 
weaken or impede these important safeguards to patient privacy and 
confidentiality is unfortunate and counterproductive.
    We believe that this rule should go forward as issued. Congress 
ordered the Department of Health and Human Services to develop and 
promulgate this standard, absent Congressional action in the three 
years following enactment of the Health Insurance Portability and 
Accountability Act. The Department issued the standard as directed, 
after having sought and worked through an immense number of comments 
from a full range of stakeholders in the process. It is certainly 
remarkable to hear that some stakeholders believe that they have not 
been afforded a full opportunity to be heard. As would be expected, 
changes were made in the proposed rule in response to comments. The 
Department was careful to point out in its request for comments areas 
in which more information was wanted, such as the approach on 
requirements for patient consent. No final rule can ever be issued if 
it is always subject to additional comment. It is clear from a decade 
of Congressional attempts to fashion legislation on this issue that not 
all stakeholders will agree on some aspects of the issue, but the 
paramount concern must be the continuing and growing need for the 
regulation.
    Are there issues that ANA considers important for future regulatory 
or legislative action? Yes. There is still inadequate protection for 
occupational health nurses who are daily pressured by their employers 
for access to information about employees who are treated at the work 
place. There is still no private right of action for individuals whose 
identifiable health information is recklessly disclosed. There is still 
inadequate protection from the use of private information for marketing 
purposes--the essence of privacy is the right to be left alone. There 
are still inadequate restraints on law enforcement access to 
information.
    But these issues--and issues that may trouble other providers, 
consumers, or covered entities--may be dealt with in the future through 
legislation or regulation. Congress wisely in 1996 recognized that a 
legislative remedy could be difficult to achieve and wisely recognized 
that health privacy and confidentiality are far too important to be 
left subject to the vagaries of a difficult legislative environment.
    We come back to our original point: for nurses, the first issue is 
protecting our patients. The regulation as issued is too important to 
be delayed or rescinded. There is time, if efforts are made in good 
faith, for covered entities to comply with this regulation. And there 
are administrative and--of course, ultimately--legislative remedies 
available for any aspect of the rule that should prove to be 
unworkable.
    In the meantime, every day there are practitioners who, as a matter 
of ethics and successful treatment, must be able to assure their 
patients that their records are protected. We have a patchwork of state 
laws that provide some protections to some people some of the time in 
some places. We need this national standard of basic protections for 
all of our people all of the time in every place in the nation.

    Mr. Bilirakis. Thank you very much, Ms. Foley.
    Dr. Melski.

                    STATEMENT OF JOHN MELSKI

    Mr. Melski. Thank you, Chairman Bilirakis, for the 
opportunity to speak to the House Subcommittee on Health, and 
special thanks to Representatives Sherrod Brown and Tom 
Barrett.
    I speak to you as a physician whose code of ethics 
recognizes the solemn duty for confidentiality of what our 
patients reveal to us. And I also speak to you as Medical 
Director of Informatics, whose mission is to ensure that no 
patient ever suffer and to make sure that information is always 
available, whenever and wherever needed. Thus, my entire 
professional life is a struggle for a balance between 
concealment and revelation.
    As technology has advanced and the demand for both 
concealment and revelation has increased, the stakes have 
become higher. I am here to bear witness that some of the well-
intentioned provisions in the privacy regulations may have 
undesirable consequences, even though we support the 
predominance of the regulations.
    If you take away only one thing from my testimony, let it 
be that privacy and secrecy can be two sides of the same coin. 
As you consider any privacy regulation, substitute in your mind 
the word ``secrecy'' to ensure that you fully considered the 
consequences of the regulation. Privacy is not exactly the same 
as secrecy. Privacy applies to the narrow domain of personal 
information. Privacy is essential to our identity and our 
autonomy. But within this domain of personal information, your 
privacy is secrecy to me and my privacy is secrecy to you. In 
the real world of caring for the sick, the poor, the mentally 
ill, the aged, and the young, the letters abound because of the 
duality of privacy and secrecy.
    Consider the estimated 20 percent of patients who are told 
that death is near, yet have no memory of the news after a few 
days. Or the alcoholic in denial, or the school bus driver with 
a serious heart condition, or the parent with a genetic disease 
they wish to conceal from their children, or the elderly 
patient who is becoming forgetful, or the frightened adolescent 
who is pregnant or addicted, or the patient with a disease that 
is both contagious and stigmatizing, or the troubled patient 
who reveals their intent to harm themselves for another, or the 
child with evidence of abuse.
    Only by appreciating that the favorable presumption 
afforded to privacy is not always correct in the complex worlds 
of health care can this committee appreciate that regulation 
can never fully substitute for discretion. It is discretion 
that is needed to choose between the privacy of the individual 
and revelations to the healing community. The sinking of the 
Titanic is said to have initiated the modern era of regulation, 
but discretion in health care will never be as easily 
prescribed as the number of life boats.
    Consider the potentially disastrous consequences of the 
requirement for prior consent treatment. In a recent 
conversation with my mother on the occasion of her 83rd 
birthday, she was told that I would be testifying to this 
committee on privacy and health care. It was a challenge for 
her to understand why I needed to do this, because I hope that 
neither she nor any of my vulnerable patients will be 
confronted with yet another barrier to health care. It is 
because the nine pages proposed as a model of what patients 
need to understand in other to consent will be incomprehensible 
to those most in need. It is because it is incomprehensible to 
me that we would jeopardize the delicate task of building trust 
between the physician and patient by requiring a legal contract 
before the relationship has even begun.
    What message does prior consent send to our patients who 
have impaired vision, hearing, or literacy? How will prior 
consent help or even work in life's transitions from childhood 
to adulthood, from independence to dependence, from competency 
to incompetency? How many patients will forsake evidenced-based 
medicine in favor of supplements and anecdotal remedies because 
of prior consent? How many children will not be immunized 
because of the barrier of the prior consent? And what will 
become of our dream to share other preventive information with 
all providers for the benefit of all our patients?
    In the transition to a world of prior consent, how will 
patients make appointments, get answers to their questions over 
the phone or by e-mail, get new prescriptions, or get old 
prescriptions refilled? In a world after prior consent, how 
will we help those who ill-advisedly revoke their consent? How 
will we process their bills and do peer review or even take 
care of them?
    Another conundrum resulting from the attempt to regulate 
discretion is the minimum standard. The phrase, ``reasonable 
efforts to limit the use of health information,'' will likely 
consume yet more precious resources in the possibly futile task 
in interpreting the definition of the use. What will the 
minimum necessary standard mean for teaching, for coordination 
of care, for cross coverage, or even consultation? And for 
those of us charged with creating an electronic medical record, 
how in this century will we ever program the rules of 
discretion implied by the minimum necessary standard?
    In conclusion I suggest that public disclosure of privacy 
policies is reasonable, but the burden of prior consent is not. 
I suggest that allowing clinical discretion in matters of 
privacy is reasonable, but the burden of the minimum necessary 
standard is not.
    Thank you for your attention.
    [The prepared statement of John Melski follows:]

  PREPARED STATEMENT OF JOHN MELSKI, MEDICAL DIRECTOR OF INFORMATICS, 
                           MARSHFIELD CLINIC

    On behalf of Marshfield Clinic, I am pleased to have the 
opportunity to submit comments on the final rule adopting standards for 
the privacy of individually identifiable health information (``final 
privacy rule'') published in the Federal Register on December 28, 2000. 
I commend you for holding this hearing and believe that Secretary 
Thompson should be applauded for seeking public input on the rule. Our 
internal analysis of the final rule suggests that patient care will be 
compromised significantly if this rule is implemented. In this 
testimony I will identify the problems that we have found and suggest 
remedies that may be applied.
    The Marshfield Clinic is the largest private group medical practice 
in Wisconsin and one of the largest in the United States, with 603 
physicians, 4,546 additional employees, and 1.6 million annual patient 
encounters. A not-for-profit corporation, the Marshfield Clinic system 
includes a major diagnostic treatment center, a research facility, a 
reference laboratory and 39 regional centers located in northern, 
central and western Wisconsin. Patients from every state in the nation 
plus patients from every county in Wisconsin were seen within the 
system in the last fiscal year. Security Health Plan of Wisconsin, a 
not-for-profit health maintenance organization, is a wholly owned 
subsidiary of the Marshfield Clinic and provides financing for health 
care services for almost 120,000 members throughout northern, central 
and western Wisconsin. During the last three decades, Marshfield Clinic 
has funded and installed a sophisticated electronic medical record 
which now contains years of historical data, including diagnoses, 
procedures, test results, medications, immunizations, alert events, 
outcome measurements, and demographics. Marshfield Clinic's 39 regional 
centers are linked by common information systems. Our physicians have 
stated that one of the greatest advantages of the electronic record is 
that they can quickly review their patient's care at other Marshfield 
facilities so that they can easily use the knowledge gained by their 
colleagues to provide the best possible care. Easy access to previous 
diagnostic test results avoids duplicate ordering of lab and radiology 
tests. Marshfield Clinic has invested significant time and resources to 
build a state-of-the-art electronic medical record system to better 
serve patients through accessible, high quality health care, research, 
and education. We presently put 2.5% of revenue into the operation and 
maintenance of the Clinic's information system, a cost for FY 2001 that 
works out to $22,073 per physician. We believe that if this rule is 
implemented our annual operational costs may increase significantly, in 
addition to the start up costs of implementation. We do not believe 
that these new costs would add any benefit to patient care.
    Marshfield Clinic is committed to protecting patient privacy and 
confidentiality. We support the administrative simplification goals of 
the Health Insurance Portability and Accountability Act (``HIPAA'') to 
reduce the administrative costs of providing health care. However, in 
analyzing the impact of the final privacy rule, our overriding 
consideration is the best interest of our patients. Certain provisions 
of this final rule are incongruent with Marshfield Clinic's mission of 
serving patients through accessible, high quality health care, research 
and education. We do believe it is possible to balance the goals of 
protecting the confidentiality of patient information, while also 
allowing health care professionals to obtain the necessary information 
to coordinate patient care. We anticipate that the costs associated 
with compliance with this rule will substantially exceed HHS' 
estimates.
    We have spent a great deal of time and resources to gain a working 
knowledge of this extremely complex rule--both in its proposed and 
final forms--and have kept an accounting of our internal costs, which 
are not insignificant. We have also identified problems in the final 
privacy rule that are simply unworkable and could seriously disrupt 
patient access to health care. We believe that the final privacy rule, 
as it is now written, may impede effective and accurate treatment, 
curtail preventative health care measures, and impose compliance costs 
that are completely antithetical to HIPAA's administrative 
simplification goals.
    We will focus our comments on two key areas of concern: the prior 
consent requirement and the minimum necessary standard. We also 
summarize other issues that betray inconsistencies in the rulemaking 
process.
Prior Consent for Treatment, Payment and Health Care Operations
    Section 164.506 of the final privacy rule requires health care 
providers to obtain a patient's written consent prior to using or 
disclosing protected health information to carry out treatment, 
payment, or health care operations. The consent form must refer the 
patient to the provider's notice of privacy practices (as required by 
section 164.520) for a more complete description of such uses and 
disclosures and it must state that the patient has the right to review 
the notice prior to signing the consent.
    We are deeply concerned about the potential impact of this 
provision on our ability to deliver health care to patients. Although 
we submitted comments on the proposed privacy rule, we did not have an 
opportunity to comment on this major new provision because it was not 
in the proposed rule. In fact, in the Preamble to the proposed rule, 
the Department of Health and Human Services (``HHS'') went to great 
lengths to explain why a consent requirement was unworkable and 
therefore rejected.1 In that regard, we strongly support 
HHS' original approach. We question whether HHS's deviation from its 
previously stated intent can be supported under the Administrative 
Procedures Act. As now codified, the consent and authorization 
provisions in the final privacy rule raise serious procedural and 
practical issues that were not subject to prior public comment.
---------------------------------------------------------------------------
    \1\ See Preamble to the proposed privacy rule, Section 164.506(a), 
page 59940, Federal Register, Volume 64, No. 212. For example, HHS 
stated that:
    ``Our proposal [to permit covered entities to use and disclose 
protected health information without individual authorization for 
treatment, payment purposes, and health care operations purposes] is 
intended to make the exchange of protected health information 
relatively easy for health care purposes and more difficult for 
purposes other than health care. For individuals, health care treatment 
and payment are the core functions of the health care system. This is 
what they expect their health information will be used for when they 
seek medical care and present their proof of insurance to the provider. 
Consistent with this expectation, we considered requiring a separate 
individual authorization for every use or disclosure of information but 
rejected such an approach because it would not be realistic in an 
increasingly integrated health care system. For example, a requirement 
for separate patient authorization for each routine referral could 
impair care, by delaying consultation and referral, as well as 
payment.''
---------------------------------------------------------------------------
    The prior consent requirement as promulgated in the final rule may 
unintentionally compromise the delivery of health care in the following 
ways:

 We will not be able to use patient information to schedule 
        appointments, send appointment reminder letters, answer 
        questions about treatment or medications when patients call, or 
        conduct similar ongoing treatment and health care operations 
        activities until we have a signed consent from every patient on 
        file. We do not currently obtain consents for the use or 
        disclosure of patient information for these purposes and are 
        not required to do so by Wisconsin law. We do obtain consent 
        prior to the release of records outside our system.
 Physicians may not be able to order a prescription and 
        pharmacists may not be able to fill or refill a prescription 
        without a prior written consent from the patient. This could be 
        especially harmful to our elderly and disabled patients who 
        often send a relative or neighbor to pick up their 
        prescriptions. This requirement may disrupt care for many of 
        our elderly patients who are ``snow birds'' when they call from 
        other states to refill their prescriptions. For some patients 
        this may be a mere inconvenience but for others the prior 
        consent requirement may prove dangerous. We do not currently 
        obtain consents for the use or disclosure of patient 
        information for these purposes and are not required to do so by 
        Wisconsin law.
 Marshfield Clinic has developed innovative preventative health 
        care measures such as an immunization registry (Regional Early 
        Childhood Immunization Network or ``RECIN''). RECIN is a 
        computer program that allows the sharing of immunization 
        information between and among providers and public health 
        departments. RECIN allows providers to have electronic access 
        to a child's immunization history including any alerts or 
        reactions to immunizations. Such access minimizes the 
        possibility of over-immunization and potentially severe 
        allergic reactions. Equally important, access to this 
        information allows public health personnel to target children 
        who have not been immunized. As a consequence of this program, 
        Marshfield Clinic and concerned public agencies have been able 
        to increase childhood immunization rates from 67% to 92% in 
        Wood County alone. We hope for similar results throughout the 
        region, but these will never be achieved under the constraints 
        of the final privacy rule. Although Wisconsin law does not 
        require prior consent for the release of immunization records, 
        Marshfield Clinic has implemented a process to permit parents 
        to decline to have their children participate in the RECIN 
        registry and to receive immunization reminder letters. To 
        comply with the final privacy rule, it appears that we will 
        have to have a signed consent on file (that permits the use or 
        disclosure of patient information for treatment, payment, or 
        health care operations) from every parent before providers may 
        use or disclose that parent's child's immunization information 
        in RECIN. Although section 164.512 states that a written 
        consent (or authorization or opportunity for the individual to 
        agree or object) is not required for uses and disclosures for 
        public health activities, this exception is limited to 
        disclosures to and uses by a public health authority. If the 
        use or disclosure of preventative health data falls within the 
        definitions of ``treatment'' or ``health care operations,'' 
        prior written consent must be obtained. This requirement may 
        actually harm patients rather than protect them and impede the 
        achievement of the federal Healthy People 2010 objective 14-26, 
        which has as its target the enrollment of 95% of children under 
        age 6 in population based immunization registries.
    Implementation of the prior consent requirement will be an 
administrative burden for the following reasons:

 We will have to obtain a one-time consent from patients to use 
        or disclose their health information for treatment, payment, or 
        health care operations purposes. While implementing this 
        requirement in hospitals may be readily achievable (since 
        hospitals typically obtain an admitting consent from patients), 
        most group medical practices do not have a comparable process 
        for obtaining this type of consent. We wonder when and where 
        patients would sign such a consent document? To achieve 100% 
        compliance with this requirement the Marshfield Clinic would be 
        compelled to obtain signatures from patients who come to the 
        Clinic from every state in the nation. It might also be 
        necessary to re-configure patient flow processes to assure that 
        all patient consents are captured uniformly. An alternative to 
        implementing an admitting-type consent would be to amend 
        existing consent forms to include the use or disclosure of 
        patient information for treatment, payment, or health care 
        operations. This would involve the time-consuming task of 
        taking an inventory of the consent forms we currently use and 
        amending these forms to comply with the consent requirements of 
        the final privacy rule.
 We will have to develop a consent form and notice for 
        patients. The notice requirements of the final privacy rule 
        will require many pages of information about how we use and 
        disclose patient information (for example, the model notice 
        developed by the American Hospital Association is 9 pages 
        long). The consent and notice will have to be written in terms 
        sufficiently simple to be comprehensible to our patients, a 
        task which may be impossible due to the complexity and sheer 
        volume of the notice (it has taken our physicians and legal 
        staff months to interpret these provisions). We will have to 
        explain the consent and notice to each patient. We wonder who 
        will explain these forms to our patients? We suspect that we 
        will need to hire and train informed consent counselors who 
        must staff our regional centers on a full time basis. 
        Explaining the meaning and significance of the consent document 
        may add as much as 30 minutes to the duration of each new 
        patient visit. Will this time be reimbursable? We see several 
        hundred new patients every day many of which come through 
        urgent care centers. Our providers already face time 
        constraints in obtaining consents for treatment and explaining 
        the attendant risks. The length and complexity of this notice 
        will ensure that our medical assistants and appointment 
        coordinators will not be able to explain it to patients in 
        addition to their normal responsibilities. Moreover, due to the 
        length and complexity of the notice and in direct contradiction 
        to the purpose of the notice requirement, it seems unlikely 
        that patients will actually be able to make an informed 
        decision. The notice will have to be made available to every 
        patient before consent for the use or disclosure of patient 
        information for treatment, payment, or health care operations 
        may be obtained.
    Our estimate of the direct cost of this requirement:

350,000 unique patient per year @ 0.50 Hr/Patient = 175,000 hours
which is equivalent to 103 Full time employees at 1700 hours per year
103 FTES @ $25,000/EMPLOYEE = $2,575,000 in direct personnel costs to 
gather consents in the first year.

    We are uncertain about the indirect costs associated with 
producing, distributing, and tracking consents. Children and other 
patients in legal guardian arrangements are included in our patient 
population but we remain uncertain about the additional complexity this 
will impose.

 The notice will have to be changed, reprinted, and staff 
        retrained whenever we change our privacy practices. We will 
        have to inform patients about how they may obtain a revised 
        notice. All of these mandates will require us to devote 
        enormous time and resources to develop an implementation 
        process.
 The consent must be signed, kept on file and tracked. We will 
        need to develop a system to track consents to determine whether 
        we may use or disclose patient information for treatment, 
        payment or health care operations purposes and to ensure that 
        patients are not approached to sign a consent more than once. 
        We will need to develop new information systems to coordinate 
        the implementation and tracking of consents and notices with 
        other requirements imposed by the final privacy rule such as 
        authorizations and disclosures. The Marshfield Clinic presently 
        tracks all authorized disclosures, but only a small amount of 
        this information is tracked electronically. We also maintain an 
        electronic log of every instance when a medical record is 
        accessed. It is operationally very challenging to program 
        accurate use categorizations for every instance of access. The 
        software engineering involved in tracking all disclosures will 
        require new fields and data capture, vastly expanding the 
        storage volume of each record. This requirement will 
        significantly add to the capitalization requirements and annual 
        operating costs of our information system.
 A consent for uses and disclosures to carry out treatment, 
        payment, or health care operations must state that the patient 
        has the right to revoke the consent in writing, except to the 
        extent that the covered entity has taken action in reliance 
        upon the consent. What happens if a patient gives permission 
        for treatment but subsequently revokes his or her consent? 
        Consider the following circumstance: a patient signs a consent, 
        and then undergoes surgery; a complication occurs; the patient 
        hires a lawyer; the lawyer requests all medical records, and 
        sends an authorization that revokes all prior consents and 
        authorizations. We have the following questions: May we send 
        the patient's insurance company a bill for the services? May we 
        do peer review? What if the patient was seen for heart 
        palpitations, and revokes his consent after the service was 
        provided? Shortly thereafter, the patient is brought to the 
        emergency room in congestive heart failure. May we look at the 
        previous records? Will we have to remove the patient's 
        information from our all of electronic files to ensure that the 
        information is not used for treatment, payment, or health care 
        operations purposes?
 A single patient encounter may produce data in multiple 
        information systems. A purge of the patient's health 
        information from the electronic files in these systems would 
        require a file-by-file manual process. This would also result 
        in throwing our billing books out of balance. A report of 
        number of patients seen, charges and revenues generated, etc. 
        would be in error. Lack of accurate information may cause us to 
        violate existing requirements for Medicare reimbursement and 
        accreditation agencies.
 Some of our electronic files do not readily support removal of 
        data. How will we be able to prevent use of the patient's 
        information in these files after a patient has revoked consent? 
        To add to the confusion, what if a patient revokes consent to 
        use or disclose only part of his/her health information? A full 
        or partial revocation will impact our peer review activities 
        thereby interfering with our quality improvement and quality 
        assessment activities. All our staff rely upon accessing 
        patient information electronically. It is unlikely that our 
        staff would understand all of the exception steps that would be 
        required to deal with patients who refused to sign the consent. 
        Clinic costs to handle appointments, documentation, and billing 
        in a fully manual mode for patients would run $30-100 per 
        encounter. Clearly the Clinic would prefer not to refuse 
        service to people who do not sign the consent. In some rural 
        Wisconsin counties, all physicians are members of the 
        Marshfield Clinic. How would these people receive care?
 The lack of adequate transition rules for the prior consent 
        requirement raises the possibility of severe disruptions in the 
        delivery of health care to patients in April 2003. In two 
        years, a health care provider will not be able to use or 
        disclose patient information for treatment, payment, or health 
        care operations without a signed consent form on file. That 
        consent form must state that permission was given for the use 
        or disclosure of information for treatment, payment, or health 
        care operations. Our existing consent forms do not address 
        these in specific terms. Logistically, it will be impossible to 
        have a consent on file for all of our patients by the 
        compliance date.
    Even for an entity like Marshfield Clinic with an integrated health 
care system and sophisticated electronic medical record, the 
implementation costs associated with the prior consent requirement will 
be enormous. The start-up costs for compliance with the regulation will 
increase our ongoing overhead. For example, the single task of 
reviewing and analyzing the final privacy rule over a 2 month period 
has cost the Marshfield Clinic approximately $15,000 in personnel time. 
Rather than going toward patient care, preventative health care 
measures, or quality improvement, these costs will go toward compliance 
with administrative burdens imposed by the final privacy rule that do 
not improve the confidentiality of medical information and perhaps 
detract from patient care. For these reasons, we urge HHS to eliminate 
the prior consent requirement from the final privacy rule.
The Minimum Necessary Standard
    Sections 164.502(b) and 164.514(d) require that, when using or 
disclosing protected health information or when requesting protected 
health information from another covered entity, covered entities (i.e., 
providers, plans and clearinghouses) make reasonable efforts to limit 
protected health information to the minimum necessary to accomplish the 
intended purpose of the use, disclosure, or request. The minimum 
necessary standard does not apply to disclosures to or requests by a 
health care provider for treatment. As ``protected health information'' 
is defined in section 164.501, this standard applies to patient 
information in any form (oral or written) or medium (paper or 
electronic).
    We are pleased that the minimum necessary standard does not apply 
to disclosures to a health care provider for treatment purposes. This 
represents a significant improvement over the initial approach of the 
proposed rule. Nevertheless, we need clarification as to whether the 
minimum necessary standard applies to the use of patient information by 
a health care provider for treatment purposes. In section 164.501 of 
the final privacy rule, ``use'' is defined as ``the sharing, 
employment, application, utilization, examination, or analysis of such 
[i.e., individually identifiable health information] information within 
an entity that maintains such information.'' We are gravely concerned 
that this exception appears to exclude uses of patient information for 
treatment purposes. Limiting the ability of teams of health 
professionals and trainees (such as residents and medical students) 
within an integrated health care system to use a patient's entire 
medical record could be disruptive and dangerous. Similarly, oral 
communications between health care professionals in the course of 
treatment are an important part of the coordination of care. The 
omission of critical information that could result from the application 
of the minimum necessary standard to such uses and communications could 
place the patient in jeopardy. We strongly urge HHS to exclude both 
disclosures and uses by providers for treatment from the minimum 
necessary standard.
    Another concern we have with the minimum necessary standard is the 
lack of an objective standard to guide providers in their 
implementation efforts. We do not know what constitutes ``reasonable 
efforts'' to limit information to the minimum necessary. In the 
Preamble to the final privacy rule, HHS explains that ``the policies 
and procedures [to limit access] must be based on reasonable 
determinations regarding the persons or classes of persons who require 
protected health information, and the nature of the health information 
they require, consistent with their job responsibilities. For example, 
a hospital could implement a policy that permitted nurses access to all 
protected health information of patients in their ward while they are 
on duty.'' Consistent with its commitment to protect patient privacy, 
Marshfield Clinic has long had confidentiality policies limiting access 
to patient information based on job responsibilities. Access to 
patients' electronic medical records is granted to a staff member only 
if their job responsibilities require this access. Because it is not 
possible to know which patients a staff member needs to access, they 
have access to all patients' records. (In compliance with Wisconsin 
law, some information relating to psych patients has further 
restrictions to access.) The Clinic follows a need-to-know policy, and 
it is a violation of the policy to access a patient's record without a 
need to know. All electronic accesses are electronically logged and 
violators of Clinic policy have been terminated from employment at the 
Clinic. Since Marshfield Clinic has such a system, will a policy 
approach to limit access, without accompanying electronic restrictions, 
be deemed ``reasonable'' under the final privacy rule? Our electronic 
system is not set up to handle electronic restrictions and adding this 
capability to our system would be cost prohibitive. In addition, some 
employees presently perform multiple functions and may have access to 
the patient record during one activity but would be denied it during 
another. Many providers see patients in multiple sites on a changing 
schedule. Their staff either travel with them or are reassigned at 
their site. It is not unusual for one employee to work in two or three 
locations within the course of a week, and sometimes in the course on 
one day. They may even change job roles--for example a medical 
assistant filling in as a receptionist, appointment coordinator or 
phlebotomist. Modifying their ability to access patient information as 
they move will require additional security staff, verification by a 
manager to confirm that it needs to be done. This will also result in 
delays, as an employee arrives at a new location and cannot do their 
job until their rights are approved and changed in the computer system. 
In such situations will we have to restructure the tasks or hire 
additional personnel? The reconfiguration of administrative processes 
is not accounted for in HHS cost estimates for implementing the privacy 
regulation. We request that HHS provide an objective standard to guide 
providers in their implementation efforts with the minimum necessary 
standard.
    We also see problems in the rule for psychotherapy notes that 
contemplates use of the note only by the originator of the note or for 
use in training programs. This does not represent the way mental health 
care is delivered in integrated systems of care: by a team of 
professionals, often in multi-disciplinary staffing arrangements (e.g., 
psychiatrist, psychologist, social worker, psychiatric nurse). These 
would not likely be training programs; these individuals are generally 
all on staff. This provision also does not seem to allow use by the 
psychiatrist on call, a very dangerous proposition. For use by others 
on the treatment team who are not the originator of the note, we would 
need the patient's authorization (which the patient may refuse to 
provide and we may not condition treatment on provision of an 
authorization).
    We have identified numerous problems in other provisions of the 
final privacy rule. However, we chose to focus on the prior consent 
requirement and the minimum necessary standard to highlight the most 
serious consequences that will result from implementation of the final 
privacy rule. We anticipate that the reworking of all business 
associate contracts, the development of internal policies and 
procedures to comply with the privacy regulation, and the training of 
all employees in privacy policies will be costly, time consuming, and 
administratively complex.
    In summary, we believe that the final privacy rule, as presently 
written, threatens to disrupt patient care and unnecessarily divert 
time and resources from Marshfield Clinic's foremost priority of 
treating patients. We therefore respectfully request that Congress 
direct HHS to reevaluate the final privacy rule and revise the 
troublesome provisions.
    Thank you for considering our views.

    Mr. Bilirakis. Thank you very much, Dr. Melski.
    Dr. Appelbaum.

                   STATEMENT OF PAUL APPELBAUM

    Mr. Appelbaum. Mr. Chairman, I am Paul Appelbaum, M.D., 
vice president of and testifying on behalf of the American 
Psychiatric Association, a medical specialty society 
representing more than 40,000 psychiatric physicians 
nationwide. I am professor and chair of the Department of 
Psychiatry at the University of Massachusetts Medical School 
where I treat patients and oversee our department's biomedical 
and health services research.
    Chairman Bilirakis, and Ranking Member Brown, I would like 
to thank you for the opportunity to testify today. We recognize 
that there is still work to be done with the HIPAA regulations 
to improve their protection of patient privacy. At the same 
time, we believe that any delay in implementation is contrary 
to the health needs of the American people. Regrettably, the 
centrality of confidentiality to high-quality health care is 
often overlooked. Some patients refrain from seeking medical 
care or drop out of treatment in order to avoid the risk of 
disclosure of their records, and some patients simply will not 
provide the full information necessary for successful 
treatment.
    Patient privacy is particularly critical in ensuring high-
quality psychiatric care. Accordingly, the APA recommends that 
at the close of comment period, the administration not delay 
implementation but, rather, use its regulatory authority to 
respond appropriately to comments. And we suggest this 
notwithstanding our concerns detailed below.
    In our view, the final privacy regulations are an important 
step toward protecting patient privacy, because the regulations 
ensure, among other positive provisions, non-preemption of more 
privacy protective State laws:
    A rule that psychotherapists' notes may not be disclosed 
without the patient's specific authorization.
    A requirement that the entire medical record not be used in 
cases where a portion of the record will suffice; that is, the 
``minimum amount necessary'' requirement.
    However, it is clear that in several places, these 
regulations fall short of adequate protection for patient 
privacy. Let me offer you four examples, and there are others 
cited in our written testimony.
    First, holders of medical information should be required to 
obtained meaningful consent from patients before their medical 
record can be disclosed for treatment, payment, or health care 
operations. In this regard, we are concerned about blanket 
consent at the time of entry into a health plan. This blanket 
consent means a patient is authorizing subsequent disclosures 
of personal information without knowing the type of information 
to be disclosed or who will receive the information.
    Second, significantly narrower definition of the 
information that may be released for payment purposes is 
needed. Excessive demands by payers for access to patients' 
medical information, which often include requests for entire 
patient records for which there is no legitimate need, should 
not be allowed. We ought to bring the interested parties 
together to work out an objective standard for the necessary 
information.
    Third, additional protections consistent with the Supreme 
Court's Jaffee v. Redmond decision for mental health and other 
particularly sensitive medical record information are 
essential. Language needs to be added to extend the 
regulations, psychotherapy privacy protections to all 
psychiatric information, including information that is part of 
the patient's medical record. Currently only psychotherapy 
notes outside the record would receive special protection under 
these regulations.
    Fourth, we also want all Americans to be free from 
unreasonable police access to their most personal medical 
record information. Under these regulations law enforcement 
agents could simply issue written demands to doctors, hospitals 
and insurance companies to obtain patient records without 
judicial review. A separate provision would allow for the 
release of medical record information any time the police are 
trying to identify a suspect. This broad exception would allow 
computerized medical records to be sifted through by the police 
looking for matches for blood or other traits.
    We believe that the same constitutional protections, that 
is a Fourth Amendment probable cause standard including 
independent judicial review for all requests, should apply to a 
person's medical history as applies to their household 
possessions.
    We also have concerns about the administrative burdens 
placed on practitioners. At a minimum, similar to small health 
plans, small physician offices should be allowed 36 months for 
compliance to spread the costs over a longer period of time, 
and responsibility for violation of the regulations by business 
associates clearly needs to be rethought.
    In conclusion, we believe the privacy regulations are very 
much needed, but at the same time believe that some provisions 
are inadequate to protect our patients. Yet our biggest concern 
is that certain parties who are disappointed at how protective 
these regulations are of patient privacy will, in support of 
their own interests, be arguing for surrendering many of the 
protections that patients have just gained.
    To preclude diminution of medical record privacy 
protections, we recommend that the Secretary use his regulatory 
authority after the close of the comment period to work with 
the stakeholders' representatives to find an appropriate 
solution to the problems identified.
    We thank you for this opportunity to testify, and we look 
forward to working with the committee on medical records 
privacy issues.
    [The prepared statement of Paul Appelbaum follows:]

    PREPARED STATEMENT OF PAUL APPELBAUM, VICE PRESIDENT, AMERICAN 
                        PSYCHIATRIC ASSOCIATION

    Mr. Chairman, I am Paul Appelbaum, M.D., Vice President of and 
testifying on behalf of the American Psychiatric Association (APA) a 
medical specialty society representing more than 40,000 psychiatric 
physicians nationwide. I am Professor and Chair of the Department of 
Psychiatry at the University of Massachusetts Medical School. I 
frequently treat patients, and I also oversee the Department's 
biomedical and health services research including medical records based 
research.
    Chairman Bilirakis, and Ranking Member Brown I would like to thank 
you for the opportunity to testify today. I would also like to thank 
the members of the Committee, Representatives Greenwood and Waxman, who 
have focused the Committee's attention on medical records privacy.
    Privacy and particularly medical records privacy is an issue all 
Americans are concerned about. I thank you for your continued 
commitment to protecting medical records privacy and for holding this 
hearing on the recently released Medical Privacy Regulation.
    We recognize there is still work to be done to overcome 
implementation obstacles to achieve compliance if these regulations are 
to appropriately serve the needs of the American people. At the same 
time please know that any delay in the implementation date is contrary 
to the health needs of the American people.
    Regrettably, it is often overlooked that confidentiality is an 
essential element of high quality health care. Some patients refrain 
from seeking medical care or drop out of treatment in order to avoid 
any risk of disclosure of their records. And some patients simply will 
not provide the full information necessary for successful treatment. 
Patient privacy is particularly critical in ensuring high quality 
psychiatric care.
    Both the Surgeon General's Report on Mental Health and the U.S. 
Supreme Court's Jaffee v. Redmond decision conclude that privacy is an 
essential requisite for effective mental health care. The Surgeon 
General's Report concluded that ``people's willingness to seek help is 
contingent to the comments received on their confidence that personal 
revelations of mental distress will not be disclosed without their 
consent.'' And in Jaffee, the Court held that ``Effective psychotherapy 
depends upon an atmosphere of confidence and trust . . . For this 
reason the mere possibility of disclosure may impede the development of 
the confidential relationship necessary for successful treatment.''
    Accordingly, the APA recommends at the close of the comment period 
the Administration move forward with the publication of the regulations 
and not delay the implementation date but rather use their regulatory 
authority to respond appropriately in the public interest and to 
protect the privacy of the medical record. And we suggest this 
notwithstanding our concerns that we believe changes in the provisions 
on mental health records are critically needed to ensure the delivery 
of effective mental health care, or other comments that may be 
submitted.
    The regulations should be implemented, then after the comments have 
been reviewed by HHS the ``stakeholders'' can be brought together, and 
we can secure the necessary stronger protections to advance patient 
privacy which we as physicians believe that our patients and our 
families need.
    While, the APA is concerned that some provisions are inadequate to 
protect patients and that some administrative requirements are 
unnecessarily complex. The final privacy regulation is an important 
first step toward protecting patient privacy because the regulation 
ensures:

 the general rule of non-preemption of more privacy protective 
        state laws
 a higher level authorization is required for any use or 
        disclosure of psychotherapy notes, and most importantly 
        psychotherapy notes may not be disclosed without the patient's 
        specific authorization
 the requirement that the entire medical record not be used in 
        cases where a portion of the record will suffice, i.e. the 
        ``minimum amount necessary'' requirement. Physicians can cite 
        this provision when dealing with unreasonable health plan 
        requests for information.
 the requirement that an entity must notify enrollees no less 
        than once every three years about the availability of the 
        notice of privacy policies and how to obtain a copy of it
 extension, in many circumstances, of federal ``common rule'' 
        research protections to privately funded research
 the right to request restrictions on uses or disclosures of 
        health information (such as requesting that information not be 
        shared with a particular individual)
 the right to request that communications from the provider or 
        plan be made in a certain way (such as prohibiting phone calls 
        to an individual's home)
 the right to inspect and copy one's own health information 
        with the exception of psychotherapy notes and when the access 
        is reasonably likely to endanger the life and physical safety 
        of the individual or another person
 the right of patients to be provided documentation on who has 
        had access to this information and the right to request 
        amendment to the record if it contains incorrect information
    Health care plans, and clearinghouses must be required to obtain an 
individual's meaningful consent before their medical record can be 
disclosed for treatment, payment, or other health care operations it 
should not be limited only to providers. Patients should be able to 
choose who will see their medical records. In this regard, we are 
concerned about blanket consent at the time of entry into a health 
plan. This blanket consent means a patient is authorizing subsequent 
disclosures of personal information without knowing the type of 
information allowed to be disclosed, or who can receive this 
information. While the regulations allow the patient to revoke this 
consent, the regulations do not protect the patient from being 
dismissed from the plan for doing so. The patient should have the 
ability to revoke the consent at any time. The APA feels the rule does 
not adequately provide this patient protection.
    Currently, most hospitals ask patients to sign a consent form for 
treatment and payment. Excessive demands by payers for access to 
patients' medical information, which often amount to requests for 
entire patient records, should not be allowed. The demands routinely 
include information for which there is no legitimate need for payment 
purposes. Significantly narrower definition of the information that may 
be released for payment purposes is needed to protect patient privacy. 
We need to bring the interested parties together to work out an 
objective standard for the information that is needed, not a subjective 
standard.
    Patients should have the right to consent to--or refuse--
participation in disease management programs. In addition, an 
individual's enrollment or costs should not be affected if he or she 
declines to participate in a plan's disease management program. We 
oppose any disclosures of health information for disease management 
activities without the coordination and cooperation of the individual's 
physician. Yet, there is no such requirement in the final rule. We 
believe ``disease management'' needs to be defined narrowly, in order 
to prevent inappropriate use and disclosure (for example for marketing 
purposes) of health information without the patient's consent.The APA 
is concerned about the disclosure of medical records for judicial and 
administrative proceedings. Patients will lose some existing privacy 
protections because the current practice of hospitals and doctors, 
generally requiring patient consent and/or notice before disclosure, 
will change as a result of the regulation. Patients' ability to decide 
when their medical record information will be disclosed outside the 
health system will be reduced.
    For example, currently when hospitals or doctors receive a request 
for a medical record from an attorney for civil and administrative 
purposes, they will generally not disclose medical records information 
without notice to the patient and/or the patient's consent. But the new 
regulation would allow providers to disclose medical records 
information to attorneys who write a letter ``certifying that the . . . 
information requested concerns a litigant to the proceeding and that 
the health condition of such litigant is at issue''. These procedures 
provide no check on attorneys' behavior in requesting records of 
marginal relevance to a case or for the purpose of embarrassing or 
intimidating opposing parties. Once the information is disclosed, the 
damage is done; post hoc remedies cannot restore parties' privacy.
    The APA is very concerned about a marketing and fundraising 
loophole that exists in the regulation. A patient's authorization is 
not needed to make a marketing communication to a patient if: it occurs 
face-to-face; it concerns products or services of nominal value; and it 
concerns the health-related products and services of the covered entity 
or of a third party and meets marketing communication requirements. For 
example, a marketer could knock on the door of a pregnant woman and try 
to sell her a product or service. Under the fundraising loophole a 
covered entity may use or disclose patient's demographic information 
and dates of health care to a business associate or to an 
institutionally related foundation, without a patient's authorization. 
We are aware the covered entity must include in any fundraising 
materials it sends to a patient a description of how the patient may 
opt out of receiving any further fundraising communication. However, 
the APA maintains that the patient should be asked for consent before 
the fundraising communication is sent. For example, a commercial 
fundraising organization for a health facility could use confidential 
information about a Governor being a patient at that facility without 
the Governor's consent for use in their fundraising. The APA is 
particularly concerned about the need for sensitivity with psychiatric 
patient's names. Commercial fundraisers should not be allowed to take 
advantage of patients especially those with mental illness.
    We strongly believe that personal health information should never 
be shared for the purposes of marketing or fundraising without the 
patient's informed consent and are disappointed that the rule only 
permits an ex post facto withdrawal of consent after the marketing and 
fundraising damage has occurred. There is an easy solution, merely 
require the fundraising endeavors to have a patient consent (opt in) 
before the activity occurred rather than the regulation's authorizing 
the patient to opt out of any further fundraising endeavors.
    Additional protections consistent with the Supreme Court's Jaffee 
v. Redmond decision for mental health and other particularly sensitive 
medical record information are essential. Without such additions the 
protections essential for effective mental health care will be lost. 
This is necessary until all medical records enjoy a level of protection 
so that no additional protections are needed for psychiatric or other 
sensitive information. In fact, the U.S. Supreme Court recognized the 
special status of mental health information in its 1996 Jaffee v. 
Redmond decision and ruled that additional protections are essential 
for the effective treatment of mental disorders.
    APA believes that the rule allows for the use and disclosure of far 
too much information without the patient's consent. We also believe 
that language needs to be added to clarify that the amendment's privacy 
protections cover treatment modalities broader than psychotherapy (and 
indeed virtually all psychiatric information) and also cover 
information that is part of the patient's medical record. The 
regulations change the current standard of practice relevant to the 
psychotherapy documentation. There is a new requirement for keeping a 
second set of records, which most psychiatrists do not now do, and 
which will result in increased time, difficulty, and cost associated 
with record keeping.
    We also want all Americans to be free from unreasonable police 
access to their most personal medical record information. The 
Administration's proposal falls short in this area. Under these 
regulations law enforcement agents would simply issue written demands 
to doctors, hospitals and insurance companies to obtain patient 
records, without needing a judge to review the assertions. We are also 
very concerned by the separate provision that would allow for the 
release of medical record information anytime the police are trying to 
identify a suspect. This broad exception would allow computerized 
medical records to be sifted through by police to seek matches for 
blood, DNA or other health traits. In addition, the provision that 
allows disclosure on the basis of an administrative subpoena or 
summons, without independent judicial review, is particularly 
troublesome.
    We believe that the same constitutional protections (a Fourth 
Amendment probable cause standard including independent judicial review 
for all requests) should apply to a person's medical history as applies 
to their household possessions.
    The business associate provisions of the proposed regulation result 
in overly broad physician liability, and the regulations also need to 
be reconsidered in light of the need to limit the administrative burden 
on physicians who practice independently or in small practices. The 
rule identifies most health care related entities other than 
physicians, providers, health plans, and health data clearinghouses as 
``business partners'' of physicians, which could only be held to the 
confidentiality standards of the regulation through contracts with the 
covered entities, such as physicians. In essence this enormous 
regulatory framework will be achieved largely through the inappropriate 
liability placed upon physicians.
    A covered entity will have a new duty to mitigate any known harmful 
effects of a violation of the rule by a business associates. This duty 
may, in effect, compel covered entities to continue to monitor 
activities of business anyway. It is not clear if a psychiatrist, for 
example, could be held accountable for prohibited activity by its 
business associate, if the psychiatrist should have known of the 
prohibition. For purposes of the rule, actions relating to protected 
health information of an individual undertaken by a business associate 
are considered to be actions of the covered entity. Therefore even 
though covered entities may avoid sanctions for violations by business 
associates if they discover the violation and take the required steps 
to address the wrongdoing, they may be vulnerable to a negligence 
action. APA believes these provisions present the potential for overly 
broad liability for physicians who, themselves, are complying with the 
regulation's requirements.
    It is not unreasonable to expect that some additional burdens will 
fall on physicians as part of efforts to increase patient privacy. 
However, the level of administrative burden currently contained in 
these regulations is not equitably distributed. Particularly important 
is expanding the concept of scalability so that the administrative 
burden on physicians in solo or small practices will be manageable, 
taking into consideration their limited resources and staffing. As I 
discussed, the regulatory framework of this regulation relies too 
heavily on physician liability. If indeed it is the framework by the 
Secretary that is enacted through regulation or through congressional 
action, we could not support providing individuals with a private right 
of action.
    The special rules in the specialized government functions are 
overly broad and do not provide adequate procedural protections for 
patients. Except in very narrow circumstances the consent of the 
individual should be the rule for the use and disclosure of 
governmental employees' medical records information. We also note that 
intelligence agencies and the State Department are not even required to 
publish a rule, subject to public comment, defining the scope and 
circumstances of their access to medical records. Particularly 
objectionable are the provisions allowing broad access without patient 
consent for use and disclosure of medical records of Foreign Service 
personnel and their families.
    The APA believes the estimated costs imposed on small 
psychiatrist's offices for the first year of $3,703 and consecutive 
years of $2,026 seem unrealistically low. Psychiatrists will experience 
significantly higher costs and will have a heavy administrative burden, 
such as getting satisfactory assurances from a business associate 
through a written contract, keeping psychotherapy notes separate and 
locked away from the rest of the psychiatric record, and providing 
written notice of their privacy practices to their patients. Similar to 
small health plans, small physician offices should be allowed to have 
36 months for compliance to spread the cost over a longer period of 
time.
    A clarification is needed on the privacy official provision. For 
example, can a psychiatrist who does not have any staff serve as the 
privacy official? If a privacy official makes a mistake will only the 
privacy official be liable?
    In conclusion, we believe the privacy regulations are very much 
needed but at the same time believe some provisions are inadequate to 
protect our patients. Yet, our gravest concern is that certain parties 
that were disappointed at how protective these regulations are of 
patient privacy will, in support of their own interests, be arguing for 
surrendering many of the protections that patients have just gained. In 
order to insure that interested stakeholders' regulatory comments do 
not diminish medical record privacy protections we recommend that the 
Secretary not only receive all interested stakeholders' (such as 
insurers, providers, health care clearinghouses, and consumer groups) 
comments, but use his regulatory authority after the close of the 
comment period to work with the stakeholders' representatives to find 
solutions. Moreover, the regulation's preamble says ``the privacy 
standards are consistent with the objective of reducing the 
administrative costs of providing and paying for health care''.
    We of course encourage the Administration to stand firm on these 
issues and support strong protection of medical record privacy. 
Secretary Thompson has stated that he would ``put strong and effective 
health privacy protection into effect as quickly as possible.'' We hope 
the Administration keeps their promise to the American people.
    We thank you for this opportunity to testify, and we look forward 
to working with the Committee on medical records privacy issues.

    Mr. Bilirakis. Thank you very much, Dr. Appelbaum.
    To introduce the next witness to us on behalf of himself 
and also on behalf of his Congressman Pat Kennedy, the Chair 
recognizes Mr. Brown.
    Mr. Brown. Thank you, Mr. Chairman.
    Congressman Kennedy was up here a moment ago and wanted to 
stay and introduce Carlos Ortiz, who also I have worked with 
for some years on prescription drug issues. And Congressman 
Kennedy had to go to another hearing, but he wanted to extend 
his wishes to you and thanks for joining us.

                  STATEMENT OF CARLOS R. ORTIZ

    Mr. Ortiz. Thank you, Congressman Brown.
    Mr. Chairman and other members of the subcommittee, my name 
is Carlos Ortiz, and I am director of government relations for 
CVS Pharmacy, and I am also a pharmacist. I very much 
appreciate this opportunity to testify before the subcommittee 
today on the impact of the recent Federal privacy regulations 
on community pharmacies and the patients we serve.
    As the largest private pharmacy provider in the Nation, CVS 
operates almost 4,100 pharmacies in 32 States and through our 
Internet CVS.com in all 50 States. In 2001, we will provide an 
estimated 325 million prescriptions to approximately 40 million 
patients. CVS operates 278 pharmacies in the districts of the 
subcommittees--districts of the members of the subcommittee.
    CVS wants to reiterate our commitment to strong Federal 
standards with State preemption to protect the privacy of 
medical records. CVS believes that the new Federal privacy 
standards that are developed, whether through statute or 
regulation, must ensure that patients can obtain prescription 
services in a timely and efficient manner.
    Unfortunately some aspects of the new final rules are 
unworkable and will have unintended consequences for patients 
and pharmacies. We support Secretary Thompson's action to seek 
further comments on the final regulation. Many provisions in 
the final rule were not included in the proposed rule and thus 
not fully vetted.
    I think most people understandably want to have their 
prescriptions filled as quickly as possible. No one wants to 
spend more time in a pharmacy than they need to when they are 
not feeling well. And it is important to start drug therapy as 
soon as possible. However, a new requirement in the final rule 
which was not in the proposed rule would require direct 
treatment providers such as pharmacists to obtain signed 
written consent from the patient before they can use the 
patient's information to provide treatment or seek payment. 
That is, pharmacies cannot fill or begin the process of filling 
prescriptions before the patient's signed written consent is on 
file. This will increase waiting times, inconvenience patients, 
and negatively impact the quality of care.
    Currently no State law requires pharmacies to obtain 
written consent from patients, so this requirement represents a 
fundamental change in how patients interact with the pharmacies 
and how pharmacies interact with patients. We believe in the 
concept of statutory authorization; that is, the presentation 
by the patient of a prescription to the pharmacy demonstrates 
sufficient consent for the pharmacy to use the patient's 
information to provide the medication and bill for payment. We 
assume the patient--if the patient did not want the 
prescription filled or refilled, he or she would not take it to 
that pharmacy or have the physician call it in to that 
pharmacy.
    You should know that approximately 40 percent of all 
prescriptions are dropped off and picked up by someone other 
than the patient. Problems will result when the patient's 
representative shows up at the pharmacy and finds that because 
a signed written consent was not on file, they have to go back 
to the patient's home, have the consent signed, and then drive 
back to the pharmacy and wait and have the prescription filled.
    I would venture that this is a prescription for chaos. We 
believe it will cost us at least $60 million to communicate in 
writing with our 40 million patients about the need to have a 
prior consent on file prior to the effective date of the final 
rule if they are to go on and continue to receive prescription 
service uninterrupted.
    Additionally, the oral communications, having the prior 
consent apply to oral communications, provides very certain 
barriers to the ability of the pharmacist to provide 
information concerning nonprescription medication. Imagine a 
customer coming in, who is not a regular pharmacy patient, 
indicating to you that they are diabetic and would like a 
sugar-free cough syrup, and you have to tell them, sorry, 
before I can take that information and use it and provide you 
with information concerning a proper cough syrup for your use, 
I am going to need a written consent from you because you are 
not one of my regular pharmacy patients.
    At a time of pharmacist and staffing shortages, these added 
costs will go toward patient--will not go toward patient care, 
quality improvement or innovation.
    CVS also believes that the new comprehensive privacy laws 
should preempt State privacy law. Community retail pharmacies 
are operating thousands of stores in multiple States. Given the 
significant length and scope of privacy notices and consents 
required, the cost of exchanging and reissuing them every time 
a State law or regulation is exchanged is staggering when you 
are dealing with millions of patients.
    In conclusion, let me iterate our strong commitment to 
Federal standards with State preemption to protect the privacy 
of medical records. However, we believe that the new written 
prior consent requirement, especially for the billions of 
prescriptions filled annually by community retail pharmacies, 
presents significant operational, logistical and patient care 
challenges. The unintended consequences of this requirement 
will result in patient frustration and longer waiting times at 
the pharmacy counter.
    Thank you for the opportunity.
    [The prepared statement of Carlos R. Ortiz follows:]

PREPARED STATEMENT OF CARLOS ORTIZ, DIRECTOR OF GOVERNMENT AFFAIRS, CVS 
                                PHARMACY

    Mr. Chairman and Members of the Subcommittee. My name is Carlos 
Ortiz and I am Director of Government Relations for CVS Pharmacy 
Corporation, based in Woonsocket, Rhode Island. I am also a pharmacist 
and have been since 1966. I very much appreciate the opportunity to 
testify before the subcommittee today on the issue of medical records 
privacy and the impact of the recent final Federal privacy regulations 
on community pharmacies and the patients that we serve.
    As the largest private pharmacy provider in the nation, CVS 
operates almost 4,100 community pharmacies in 32 states and through 
CVS.com in all 50 states. In 2001, we will provide an estimated 325 
million prescriptions to over 60 million patients. CVS operates 278 
pharmacies in the districts of this subcommittee's members.
    CVS is committed to safeguarding the privacy of patient medical 
records. Currently, in most states, licensed pharmacists must abide by 
patient privacy standards specified in state pharmacy practice acts, 
state board of pharmacy regulations, and other state laws. In addition 
to these requirements, retail pharmacies commonly require employees to 
comply with stringent patient privacy policies.
    CVS wants to reiterate our commitment to strong, Federal standards, 
with state preemption, to protect the privacy of medical records. CVS 
believes that any new Federal privacy standards that are developed, 
whether through statute or regulation, must strike the appropriate 
balance of assuring that any new protections do not outweigh the 
ability of patients to obtain prescription services in a timely and 
efficient manner.
Impact on Patients and Pharmacies of Prior Written Consent Requirement
    Unfortunately, these new final regulations, if implemented in their 
current form, are unworkable and will have unintended consequences for 
community retail pharmacies and the patients that we serve. We support 
Secretary Thompson's action to seek further comments on the final 
regulation, because we believe that there were many provisions in the 
final rule that were not included in the proposed rule, and thus not 
fully vetted.
    Most people want to have their prescriptions filled as quickly as 
possible. That is understandable. No one wants to spend more time in a 
pharmacy than they need to when they are not feeling well, and it's 
important to start drug therapy as soon as possible.
    A new requirement in the final rule, which was not in the proposed 
rule, would require direct treatment providers, such as pharmacies, to 
obtain signed written consent from the patient before they can use the 
patient's information to provide treatment or seek payment. That is, 
pharmacies cannot fill or even begin the process of filling 
prescriptions before the patient's signed, written consent is on file. 
Even HHS said that such a prior consent requirement was unworkable, and 
rejected its use in the original proposed rule.
    Requiring pharmacies to obtain signed written consent from patients 
before we can provide prescription services will increase waiting 
times, inconvenience patients, and negatively impact the quality of 
care. Currently, no state law requires pharmacies to obtain written 
consent from patients, so this requirement represents a fundamental 
change in how patients interact with pharmacies and how pharmacies 
interact with patients.
    We believe that the presentation by the patient of a prescription 
to the pharmacy demonstrates sufficient consent for the pharmacy to use 
the patient's information to provide that medication and subsequently 
bill for payment. We assume if the patient did not want the 
prescription filled (or refilled), he or she would not take it to the 
pharmacy. If the patient did not want the physician to call the 
prescription into a particular pharmacy, he or she wouldn't ask the 
physician to do so. That, we believe, represents sufficient consent.
    Moreover, we do not see how this prior written consent requirement 
creates any additional privacy protections for patients, as long as the 
pharmacy's use of the information is limited to that which is allowed 
under the definitions of treatment, payment, and health care 
operations.
    Yet, the requirement for prior written consent was included in the 
final rule, without any opportunity for public comment. We do not 
believe that the full implications and unintended consequences of this 
inclusion are yet understood by patients.
    Approximately 40% of all prescriptions are dropped off and picked 
up by someone other than the patient. As a result, you can see the 
potential for problems being created when the patient's representative 
shows up at a pharmacy and finds that, because a signed written consent 
is not on file, they have to go back to the patient's home, have the 
consent signed, and then drive back to the pharmacy and wait to have 
the prescription filled. This could be especially burdensome for those 
individuals that live in rural areas, and those who live in urban areas 
and don't have easy access to transportation.
    For example, parents with sick children, and others, such as 
elderly, disabled, and other homebound individuals, would have to come 
to the pharmacy to sign a consent or send someone on their behalf to 
obtain a consent and take it back home for signature and then back to 
the pharmacy before the pharmacist may fill or refill a prescription. 
So, a mother, who had expected to pick up the prescription that was 
phoned in earlier by the doctor, will now find that she has to wait for 
her child's medication.
    The homebound elder without any nearby relatives would have to find 
someone to go to the pharmacy and get the consent form, bring it back 
to the patient for their signature, then return to the pharmacy with 
the consent and the prescriptions, and wait for the prescriptions to be 
filled.
    Furthermore, if the written prior consent requirement goes into 
effect, patients with active prescription refills on file would first 
have to go to the pharmacy and provide a signed, written consent before 
we could refill the prescription. How will we communicate to those 
patients that they need to go into the pharmacy and sign a written 
consent form before we can refill their prescription? Should we wait 
until they call in their refill or until they show up at the pharmacy 
counter expecting their prescription to be refilled in a timely manner?
    This is a prescription for chaos. I would venture that we will try 
and communicate ahead of time, in anticipation of the effective date of 
the final rule, if the final rule contains the requirement for prior 
written consent, probably in writing. Yet even the simple act of trying 
to communicate in writing with 60 million patients will be a difficult 
and very expensive proposition, probably in excess of $60 million.
    Because the final regulation also extends privacy protections to 
``oral communications'' between pharmacists and patients, the 
pharmacist cannot talk to the patient about their health condition in 
order to recommend a possible over-the-counter product, until the 
patient signs a written consent at the pharmacy.
    Millions of Americans patronize pharmacies everyday to seek advice 
from pharmacists about non-prescription medicines. How can we 
logistically obtain all these consents, commit this information to 
paper, and then recommend an appropriate medication in a timely manner? 
This interference may cause customers to start going to other outlets 
that also sell OTCs, such as convenience stores that are not direct 
treatment providers. We think this is bad medicine. Consumers should 
have the benefit of consulting with a pharmacist without having the 
hassle of having to sign a written consent before they are able to do 
so.
    The cost of compliance with this massive regulation is itself 
staggering. Those costs will not go toward patient care, quality 
improvement, or innovation. Rather, pharmacies, at a time of pharmacist 
and staffing shortages, will be required to implement these time-
consuming regulations at the expense of patient care.
Strong Federal Privacy Protections with Preemption of State Laws
    CVS also believes that new comprehensive Federal standards should 
preempt state privacy laws. Community retail pharmacies, operating 
thousands of chain pharmacies in multiple states, need one Federal 
standard rather than 50 different standards to interpret. Subsequently, 
conflicts between federal and state law could be virtually impossible 
for health care providers to resolve on a patient-by-patient basis.
    This final regulation does not preempt many state-based privacy 
laws. In fact, states can and likely will enact a ``patchwork'' of 
privacy laws, creating a situation where providers will have to 
determine themselves which is stronger, state based laws, Federal 
regulations, or court cases relating to patient privacy that might be 
relevant in particular situations. Moreover, the final rule does not 
provide for the Secretary to issue guidance to providers concerning 
which state laws are contrary to and more restrictive than the rule, or 
to regularly update the guidance.
    As a result, community pharmacies will have to develop a process to 
regularly monitor which law, regulation, or court case should be 
applied, and have to update their ``privacy notices'' accordingly. 
Given the significant length and scope of the privacy notices and 
consents required under the rule, the cost of changing and re-issuing 
them every time a state law or regulation is changed is staggering. 
This is especially true when you are providing millions of 
prescriptions each year and operating in multiple states.
    While we understand that only a new Federal statute can preempt 
state law, not Federal regulations, we believe that Federal 
policymakers should take action this year to preempt state laws and 
create nationally uniform Federal privacy protections. At the very 
least, we urge that HHS be required to provide guidance in the 
regulations and in their implementation that will provide certainty to 
covered entities as to which state laws are ``more stringent'' than the 
HHS regulations.
Conclusion
    CVS wants to reiterate our commitment to strong, Federal standards, 
with state preemption, to protect the privacy of medical records. We 
are seriously concerned about this new written prior consent 
requirement in the final HHS regulations for direct treatment 
providers, which did not appear in the proposed rule, and for which 
public comment has not been allowed or the implications for patients 
adequately assessed.
    We believe that this new written prior consent requirement, 
especially for the billions of prescriptions filled annually by 
community retail pharmacies, presents significant operational, 
logistical, and patient care challenges, and that the unintended 
consequences of this requirement will result in patient frustration and 
longer waiting times at the pharmacy counter.
    We have joined with other organizations in asking Secretary 
Thompson to delay the April 14, 2001 effective date of the rule and to 
work with us, as well as other affected parties, to determine how we 
might best address these and other important implementation issues. We 
want to work with Members of this Committee and the Congress to assure 
that reasonable privacy protections result from this process, and that 
patients' access to efficient, effective pharmacy services remains. 
Thank you for the opportunity to submit these comments for the record.

    Mr. Bilirakis. Thank you.
    Ms. Goldman.

STATEMENT OF JANLORI GOLDMAN, DIRECTOR, HEALTH PRIVACY PROJECT, 
   INSTITUTE FOR HEALTH CARE RESEARCH AND POLICY, GEORGETOWN 
                           UNIVERSITY

    Ms. Goldman. Thank you, Mr. Chairman and members of the 
committee, for the opportunity to testify today. No one has 
ever said that they can't hear me, but having the mike, I 
guess, helps.
    I wanted to thank you for inviting me here to testify 
today, and I know we don't have much time, so I wanted to say 
that while I have heard so many things here today that are 
distressing in terms of what the actual regulation says, and I 
think there is some misinterpretation and inaccuracies, our 
full statement does try to anticipate some of those statements 
and to correct them.
    And I want to suggest at the outset that this is not a new 
process. For those of you who have worked on this issue, we 
have been at it for over a decade. Congress has been at this 
since the early 1990's, if not before. Many of the issues that 
are in the final regulation were incorporated into bills that 
were introduced on a bipartisan basis by many members of this 
committee and in the Senate as well, so there has been a great 
opportunity to look at this.
    The comment period on the regulation was extended in 
response to requests by industry groups and consumer groups, 
and then there was a 10-month fact-finding process where HHS 
tried to develop a workable and a strong rule. And I say that 
at the end, consumer advocates and providers got some of the 
things we asked for, and health plans and others got some of 
the things they asked for. Nobody got everything. But there was 
an attempt within the constraints that HIPAA set on the 
administration to craft a strong privacy rule that was 
workable.
    Protecting privacy we now know is not only good for 
individuals, it is good for health care generally. And many, I 
think, of the leaders in the community are already developing 
privacy and security standards in their systems.
    The regulation is not perfect. There is no question some of 
the areas where we think it is weak are again areas where there 
were constraints imposed by the Congress in 1996, that it can 
only directly cover certain entities, that it only directly 
covers information in certain contexts. There is limited 
enforcement, limited liability.
    We did ask that there be an expansion in the scope of the 
regulation. Provider groups were very clear. Doctors and others 
said that they wanted a consent requirement because that is 
currently the status quo. There is not an--I don't ever go to 
the doctor where I am not asked to sign a consent form. I have 
never enrolled in a health plan where I am not asked to sign a 
consent form. So that is the status quo. And health care 
providers were adamant that that not be rolled back.
    In terms of the major points that I want to make today, we 
are urging the administration to go forward with the April 14 
effective date of this regulation. There has been adequate time 
over the last few months, and there will be over the next 
month, to look at where there may be some concerns, where there 
may be real barriers to implementation. And where they exist, 
and where they can be shown on a case-by-case basis, and not, 
you know, about the hyperbole and extreme concerns, but where 
we know there are going to be barriers, we urge Secretary 
Thompson to make the modifications necessary to permit 
compliance, to issue guidance where that would be helpful to 
allay some of the fears that have arisen around the 
implementation of the regulation. He has full legal authority 
to do that. We urge him to use it and to not further delay this 
regulation.
    A lot of the opposition, as I said, I think are based on 
inaccuracies and misstatements about this regulation, and it 
gives us concern that the efforts around delay are really to 
try to delay the regulation indefinitely. We have been at this 
for over a decade now. While many say they want privacy and 
they care about privacy, we have never really seen a true 
commitment to moving forward in this area. Many other 
industries have moved forward to put privacy protections in 
place and have worked closely with consumer groups and others 
in the financial area, in the communications area, in the video 
rental area, where it was critical to engender consumer trust 
and confidence that privacy protections were essential to get 
people to fully participate.
    E-commerce is a big issue right now, and the No. 1 barrier 
to people fully participating is concern about their privacy. 
But it appears that the health care industry has not moved 
forward with that same urgency to allay public concern and to 
calm people.
    We have seen major problems. We have seen at the University 
of Washington a major breach in security because there weren't 
rules in place saying what folks needed to do in order to 
adequately protect data. These privacy regulations, while not 
perfect, and while not comprehensive, will create tremendous 
uniformity. It will certainly, to an industry that needs to 
start to build privacy protections in, to say, here is the way 
to do it. It will give some calm assurance to the public, who 
is very concerned about sharing information and are withdrawing 
from full participation in their own care. People are afraid to 
get genetic tests because of how the information might be 
misused. They are afraid to go online to get access to 
information or services because of how the information might be 
misused.
    We would hope that the Secretary would take into account 
what some of the real concerns are. I think that there are some 
issues that can be addressed with his legal authority, and we 
would urge him to do that. But where, again, there is hyperbole 
or misstatements, we would urge the Secretary as well as this 
committee to take a look at those and hopefully to set the 
record straight. I hope this hearing is an opportunity to do 
that.
    [The prepared statement of Janlori Goldman follows:]

    PREPARED STATEMENT OF JANLORI GOLDMAN, DIRECTOR, HEALTH PRIVACY 
  PROJECT, INSTITUTE FOR HEALTH CARE RESEARCH AND POLICY, GEORGETOWN 
                               UNIVERSITY

    Members of the House Committee on Energy and Commerce, Subcommittee 
on Health: As the Director of the Health Privacy Project at Georgetown 
University's Institute for Health Care Research and Policy, I very much 
appreciate the invitation to testify before you today on the final 
medical privacy regulation.
                              introduction
    The medical privacy regulation issued by the Department of Health 
and Human Services (HHS) on December 28, 2000, is a milestone in 
federal law. It is the first--and only--federal law to protect the 
privacy of medical information in the hands of private health care 
providers and health plans. This regulation was initially scheduled to 
go into effect on February 26, 2001, but its effective date was changed 
due to the unfortunate failure of HHS to officially transmit the 
regulation to Congress. We urge the Administration and the Congress to 
ensure that this regulation goes into effect, as now scheduled, on 
April 14, 2001.
    After the regulation goes into effect, if covered entities have 
real and legitimate implementation concerns that guidance from HHS 
cannot address, the Secretary of HHS has the legal authority to make 
certain modifications to the regulation, as necessary to permit 
compliance. We are fully available to support Secretary Thompson should 
such modifications become necessary, and we look forward to working 
with him as we move forward. What we would not support, and, indeed, 
would vigorously oppose, is any action by HHS or Congress that would 
further delay the effective date or roll back the regulation.
    As you hear testimony today, we urge you to look at the actual 
language of the regulation as it is written and at HHS' intent as 
expressed in the preamble. It is essential that we not be swayed by 
distortions and exaggerations that we fear are part of a strategy to 
not only delay, but also to undermine the regulation. We believe that 
some in the health care industry are engaged in a campaign to do just 
that. Fortunately, not all health-related entities share that goal. 
Most notable are the trade associations and individual companies that 
know that protecting privacy is good for business, and support the 
regulation and the time line for implementing it.
    Our testimony today addresses: the importance of protecting privacy 
in the health care arena; the genesis of the health privacy regulation; 
why HHS should not further delay implementation of the regulation; a 
brief summary of the final regulation; the major areas of contention; 
the myths that are being propagated about the final regulation and the 
facts; a rebuttal of the industry's cost concerns; and our 
recommendations to Congress.

                 OVERVIEW OF THE HEALTH PRIVACY PROJECT

    The Health Privacy Project's mission is to press for strong, 
workable privacy protections in the health care arena, with the goal of 
promoting increased access to care and improved quality of care. The 
Project conducts research and analysis on a wide range of health 
privacy issues. Recent Project publications include: Best Principles 
for Health Privacy (1999), which reflects the common ground achieved by 
a working group of diverse health care stakeholders; The State of 
Health Privacy (1999), the only comprehensive compilation of state 
health privacy statutes; Privacy and Confidentiality in Health Research 
(2000), commissioned by the National Bioethics Advisory Commission; 
Privacy and Health Websites, which found that the privacy policies and 
practices of 19 out of 21 sites were inadequate and misleading; and 
``Virtually Exposed: Privacy and E-Health'' (2000), published in Health 
Affairs.
    In addition, the Project staffs the Consumer Coalition for Health 
Privacy, comprised of over 100 major disability rights, disease, labor, 
and consumer advocates as well as health care provider groups. The 
Coalition's Steering Committee includes AARP, American Nurses 
Association, Bazelon Center for Mental Health Law, National Association 
of People with AIDS, Genetic Alliance, National Multiple Sclerosis 
Society, and National Partnership for Women & Families.

               PRIVACY IS A CENTRAL VALUE IN HEALTH CARE

    Americans are increasingly concerned about the loss of privacy in 
everyday life, and especially about their health information. The lack 
of privacy has led people to withdraw from full participation in their 
own health care because they are afraid that their most sensitive 
health records will fall into the wrong hands, leading to 
discrimination, loss of benefits, stigma, and unwanted exposure. One 
out of every six people engages in some form of privacyprotective 
behavior to shield herself from the misuse of health information, 
including withholding information, providing inaccurate information, 
doctorhopping to avoid a consolidated medical record, paying out of 
pocket for care that is covered by insurance, and--in the worst cases--
avoiding care altogether. (Survey conducted by Princeton Survey 
Research Associates for the California Health Care Association, 1999)
    Unfortunately, people's fears are warranted. Medical privacy 
breaches are reported with increasing frequency by the media. To 
highlight a few--

 Terri Seargent was fired from her job after her employer 
        learned that she had been diagnosed with a genetic disorder 
        that would require expensive treatment. Terri was a valued 
        employee who received a positive review and a raise just before 
        her discharge from the company. A recent EEOC investigation 
        determined that the employer fired Terri because of her 
        disability.
 A few months ago, a hacker downloaded medical records, health 
        information, and social security numbers on more than 5,000 
        patients at the University of Washington Medical Center. The 
        University conceded that its privacy and security safeguards 
        were not adequate.
 Annette W. and her husband were involved in a difficult and 
        contentious divorce. In the midst of their separation, Annette 
        instructed her pharmacy not to disclose any of her medical 
        information to her estranged husband. Just one day later, the 
        pharmacist gave Annette's husband a list of all her 
        prescription drugs. Armed with this information, her husband 
        embarked on a campaign to label her a drug user. He sent 
        information to friends and family, to the Department of Motor 
        Vehicles, and threatened to have her children taken away.
 bYears ago, Ben Walker and his wife came to Congress to tell 
        their story. Ben had worked for the FBI for 30 years, but was 
        forced into early retirement after his employer learned that he 
        had sought mental health treatment. The FBI got hold of Ben's 
        prescription drug records when the Bureau was investigating his 
        therapist for fraud. In turn, the FBI targeted Ben as an unfit 
        employee and stripped him of many of his duties, even though he 
        was later found fit for employment. Ben and his wife testified 
        that he would never have sought treatment had he believed his 
        medical records would be used against him.
    In the absence of a federal health privacy law, these people 
suffered job loss, loss of dignity, discrimination, and stigma. And had 
they acted on their fears and withdrawn from full participation in 
their own care--as nearly 20% of people do--they would have put 
themselves at risk for undiagnosed and untreated conditions. In the 
absence of a law, people have faced the untenable choice of shielding 
themselves from unwanted exposure or sharing openly with their health 
care providers.

                     THE GENESIS OF THE REGULATION

    The new federal health privacy regulation is a major victory for 
all health care consumers. In fact, each one of us will benefit from 
these rules in some way, from more reliable data for research and 
outcomes analysis, to greater uniformity and certainty for health care 
institutions seeking to develop privacy safeguards as they modernize 
their information systems. The rules represent a significant and 
decisive step toward restoring public trust in our nation's health care 
system. Not only is it the most sweeping privacy law in U.S. history, 
it begins to fill the most troubling vacuum in federal law. The 
regulation sets in place a sorely needed framework and a baseline on 
which to build. Much of the regulation's unfinished business is due to 
the legal constraints imposed on HHS by Congress in its delegation of 
authority in the Health Insurance Portability and Accountability Act of 
1996 (HIPAA). At this juncture, it is imperative that Congress act to 
plug the gaps and strengthen the weaknesses in the rule.
    In fact, it was a Republican Congress in 1996 that imposed on HHS 
the legal duty to issue a health privacy regulation. Representatives of 
health care consumer groups, health plans, and health providers all 
reached a consensus in 1996 that the movement toward an electronically 
based health care system should not go forward without adequate federal 
protections in place for the confidentiality and privacy of health 
information. HIPAA reflects this consensus. It sets a schedule for 
adopting and implementing not only the standards for electronic 
transactions involving health information, but also for establishing 
privacy protections for health information.
    Many privacy bills were introduced after HIPAA passed in 1996. Some 
were bipartisan; others were not. Some were favored by consumer 
advocates, others by health plans. Numerous hearings were held in both 
the House and Senate, but not a single bill saw a mark-up. Achieving 
legislative consensus on health privacy rules is not a simple task. 
Congress' failure to meet the 3-year deadline set in HIPAA triggered 
the requirement for HHS to promulgate rules in this area by 2000.
    Pursuant to its mandate, HHS issued draft regulations in November 
1999. In response to requests from industry representatives and 
consumer advocates, the Department extended the formal comment period 
to allow sufficient time to respond to the proposal. Of the 52,000 
comments eventually submitted, more than half came from consumers and 
their representatives. After the comment period closed, HHS spent 10 
months engaged in extensive fact finding to respond to comments and 
concerns before it released the final regulation.
    The final regulation incorporates a number of the key changes 
sought by consumer groups as well as many of the changes urged by 
health care providers, health plans, clearinghouses, researchers, and 
others operating in the health care arena. From the text of the 
regulation itself, it appears HHS was striving to craft a strong and 
workable privacy law.
    It is important to note that the privacy rule is one of three 
regulations mandated in the section of HIPAA known as ``Administrative 
Simplification.'' The other rules address establishing uniform 
transaction standards for health care and security rules to safeguard 
the data. Congress intended this package of regulations to be 
implemented together so that privacy and security measures are built in 
as information systems and practices are standardized. The policy goal 
was to assure the public that, as their most sensitive personal 
information was being computerized and adapted to be shared instantly 
and cheaply, enforceable privacy rules would be implemented up front. 
The final transactions standards went into effect last fall, triggering 
a 24-month implementation period. The security regulations are expected 
to be released by HHS this spring.
   we urge hhs not to further delay this important privacy regulation
    We strongly support maintaining the current effective date of the 
final privacy regulation. HIPAA mandated that regulations governing the 
privacy of health information be promulgated by February 2000. These 
privacy standards are long overdue, already have been thoroughly 
debated, and should be put into effect as scheduled.
    The rule-making procedure up to this point has been lengthy, 
thorough, and orderly. Scores of HHS employees spent almost a year 
reviewing, analyzing, and crafting responses to the comments that the 
agency received on this rule. The thoroughness with which HHS 
considered these comments is reflected by the fact that almost 200 
pages of the preamble to the final regulation are devoted to 
summarizing and responding to these comments.
    Overall, the final product of these extensive rule-making 
procedures is a balanced regulation. HHS made many significant changes 
to accommodate the concerns of the major stakeholders. For instance, in 
response to concerns from the health care industry, the requirements of 
the ``business partner'' provisions were substantially relaxed. The 
requirement of a third party beneficiary clause in a business associate 
contract was eliminated as was the provision that would have held a 
covered entity liable for violations of its business associates that it 
should have known about. Now, they are merely liable for violations 
they actually knew about. Restrictions on marketing and fundraising 
activities were also substantially relaxed after vigorous lobbying by 
the health care industry. In response to the comments of health 
providers and health care consumers, authorization requirements were 
tightened. In sum, although no one group of stakeholders received 
everything that it requested, the comments of all major stakeholders 
were taken into account in crafting the final rule.
    If there are legitimate implementation issues that cannot be 
remedied through the issuance of guidance by HHS, HIPAA expressly 
provides a mechanism for resolving these difficulties after the privacy 
regulation becomes effective. Under Section 262 of HIPAA (adding 
Section 1174 to the Social Security Act), the Secretary has the 
authority to modify the privacy standards during the first 12 months 
after the standard is adopted (i.e., becomes effective) when such 
modification ``is necessary in order to permit compliance with the 
standard.'' Thus, HIPAA anticipates and provides a statutory mechanism 
for resolving implementation problems after the regulation becomes 
effective.
    At this critical juncture, it is time to move forward and devote 
our energy, time, and resources toward implementing the final 
regulation, rather than wasting precious resources debating whether the 
regulation should even take effect. Every day more progress is made 
toward electronically storing and transmitting health information. As 
Congress recognized in 1996, it is irresponsible to allow these changes 
to go into effect without having adequate privacy and security 
protections in place.

                    SUMMARY OF THE FINAL REGULATION

    Key provisions of the health privacy regulation are highlighted 
below. A more detailed, comprehensive summary of the rule can be found 
at our website, www.healthprivacy.org.

 Scope: The regulation applies to all health plans and 
        clearinghouses (entities that process and transmit claims data) 
        and to health care providers that transmit claims-type 
        information in electronic form. It covers identifiable health 
        information in electronic and paper records as well as oral 
        communications. Due to the constraints imposed by HIPAA, the 
        law does not directly cover employers, life insurers, 
        pharmaceutical companies, and others. Instead, the rule 
        establishes a chain of trust requirement, binding entities that 
        receive identifiable health information from a covered entity 
        to a contractual arrangement.
 Access: People have the right to see, copy, and amend their 
        own medical records. Most states do not currently grant people 
        such broad rights.
 Limits on Disclosure: The regulation restricts access to and 
        disclosure of health information. Of particular importance to 
        patients and providers, health care providers must obtain 
        patient consent for disclosures relating to treatment, payment, 
        and health care operations. We support this approach. However, 
        we believe the provisions on marketing and fundraising are 
        fundamentally flawed in allowing ``one free pass'' before first 
        giving people the chance to opt-out of receiving such 
        commercial communications.
 Employers: Group health plans are barred from disclosing 
        ``protected health information'' to employers except for 
        specific functions related to providing and paying for health 
        care. Employers must establish a firewall between the health 
        care division and those employees who make decisions about 
        employment. The rules are a powerful new tool to stop workplace 
        discrimination. However, due to constraints imposed by HIPAA, 
        employers that collect health information directly from 
        employees (and not in their capacity as providers, plans or 
        clearinghouses) fall outside the scope of the privacy rule. 
        Only Congress can close this gap.
 Law Enforcement: Health care providers and plans are 
        prohibited from releasing patient data to federal, state, or 
        local law enforcement without some form of legal process, 
        including a warrant, court order or administrative subpoena. 
        There is a broad consensus among consumer organizations and the 
        health care industry that HHS should have established stronger 
        legal process requirements. The Health Privacy Project had 
        argued to HHS that it should require a higher Fourth-Amendment 
        standard and review by a neutral magistrate.
 Research: All research, whether publicly or privately funded, 
        must be overseen by either an Institutional Review Board (IRB) 
        or privacy board if the researcher seeks a waiver of informed 
        consent.
 Penalties: Health care providers, health plans, and 
        clearinghouses are subject to civil and criminal penalties (up 
        to $250,000/year and 10 years in jail) for violating the law. 
        The Office for Civil Rights at HHS is charged with overseeing 
        the law and imposing penalties where appropriate. But HIPAA 
        constrained the Secretary from including a federal private 
        right of action for individuals to sue for violations of the 
        law. Congress should act to give people the ability to seek 
        redress directly if their rights are violated.
 Preemption: As required in HIPAA, the federal regulation does 
        not preempt or override stronger state law. Instead, the rules 
        establish a baseline of protections, above which states may go 
        to better protect their citizens. A 1999 report on state laws 
        issued by the Health Privacy Project demonstrated that such a 
        baseline is sorely needed.
                       major areas of contention
    As expected, the final rule has been the subject of much criticism 
from some of the entities that will be covered by it. In this section 
we address those criticisms that reflect policy differences between HHS 
and the covered entities--policy differences that were aired, debated, 
and resolved as part of this rule's lengthy rule-making process. In the 
next section we address the campaign of misinformation that opponents 
of the final regulation are waging in an effort to further delay its 
effective date.
Consent requirement for health care providers (Section 164.506)
    We are pleased that the final rule requires that a health care 
provider obtain a patient's consent before using or disclosing 
protected health care information. We are disappointed that the consent 
requirement was not extended to other covered entities, such as health 
plans.
    As a general rule, requiring patient consent prior to use or 
disclosure can:

 bolster patient trust in providers and health care 
        organizations by acknowledging the patient's role in health 
        care decisions;
 serve as recognition that notice was given and the patient was 
        aware of the risks and benefits of the use and disclosure of 
        their information; and
 define an ``initial moment'' in which patients can raise 
        questions about privacy concerns and learn more about options 
        available to them.
See Best Principles for Health Privacy, a Report of the Health Privacy 
Working Group, at 22.
    Patients should be encouraged to be active participants in their 
own health care--and obtaining an individual's consent is an integral 
piece of that picture. Accordingly, we believe that health plans should 
also be required to obtain an individual's consent prior to using or 
disclosing health information for treatment, payment, and health care 
operations purposes. This is particularly true in light of the breadth 
of activities encompassed in the definition of ``health care 
operations,'' which expanded considerably from the proposed rule.
    Some industry groups have claimed that the public comment process 
was circumvented because the final rule governing authorization and 
consent varied significantly from the proposed provision on this topic. 
See, e.g., Testimony of American Benefits Council before the Senate 
Committee on Health, Education, Labor, and Pensions at 7 (February 8, 
2001); Testimony of the American Hospital Association before the Senate 
Committee on Health, Education, Labor, and Pensions at 9 (February 8, 
2001). However, the Secretary's actions were well within the standard 
of appropriate rule-making behavior. Under the proposed rule, 
authorization or consent for treatment, payment, and health care 
operations purposes would not have been required. After explaining the 
basis for this proposed approach, the Secretary ``invit[ed] comments on 
whether other approaches to protecting individuals' health information 
would be more effective.'' 64 Fed. Reg. at 59941. The Secretary 
received some 52,000 comments on the proposed regulation, many of them 
from health care providers and consumer groups addressing the lack of 
any requirement for patient authorization for these purposes. Based on 
these comments, the Secretary strengthened the standard. This is how 
rule-making is supposed to occur: the agency makes a proposal, the 
public comments on it, the agency considers those comments and then 
modifies the rule, if necessary, in response to those comments. There 
was no circumvention of the rule-making process in establishing consent 
standards.
    In essence, the industry's argument boils down to a policy 
difference with HHS over the best approach to consent. Those views were 
aired thoroughly and then rejected by HHS as it crafted the final 
regulation.
    At least one organization has stated that the final consent 
requirement could, in fact, lead to actual harm of individuals seeking 
health care. They have expressed concern that treatment might be 
delayed when ``individuals seek[] medical care or services in those 
unavoidable instances where no consent form has been obtained.'' 
Testimony of American Benefits Council at 8. However, the final privacy 
regulation has taken this possibility into account. Section 
164.506(a)(3) provides that a health care provider may without prior 
consent use or disclose protected health information in emergency 
treatment situations and in circumstances where the provider is unable 
to obtain prior consent due to substantial barriers to communication 
with the patient.
    Some pharmacy groups have expressed concern that the consent 
requirement would substantially interfere with their current method of 
operation. Frequently, prescriptions are phoned or faxed into 
pharmacists by doctors. The pharmacist then uses the prescription 
information in order to have the medication ready when the patient or 
someone acting on behalf of the patient arrives to pick it up. We 
recognize that requiring a consent to be on file in advance of using a 
prescription for treatment purposes would interfere with these current 
business practices. We believe, however, that HHS can remedy this 
problem quite easily, either by issuing guidance that a pharmacist in 
such a situation would be considered to have an indirect treatment 
relationship with the patient or by making a minor change in the 
definition of ``indirect treatment relationship'' found in Section 
164.501. However, this potential need to ``fine tune'' the regulation 
does not justify delaying the effective date.
Business associates (Sections 164.502(e) and 164.504 (e))
    We strongly support the requirement that covered entities receive 
satisfactory assurance that their business associates will properly 
safeguard protected health information before either disclosing this 
information or allowing a business associate to receive protected 
health information on their behalf. Absent such a requirement, covered 
entities could easily circumvent the privacy regulation merely by 
contracting out their business functions.
    Ideally, a health privacy law or regulation would impose 
restrictions directly on all of those who receive protected health 
information, including the agents and contractors of health care 
providers and health plans. Unlike health care providers, these 
downstream users and processors often do not have an ethical obligation 
to maintain patient confidentiality. We recognize, however, that HHS 
was unable to directly cover these organizations due to the Secretary's 
limited authority under HIPAA. Regulating the agents and contractors of 
covered entities indirectly, through the covered entities, makes sense 
in these circumstances. This is particularly true since many covered 
entities already enter into some form of contract with their business 
partners.
    Some covered entities have protested that it is not fair to hold 
them accountable for the actions of others. However, this regulatory 
scheme is not a departure from traditional contractor/agency principles 
under which a contractor may be held responsible for its agents' 
actions. Furthermore, HHS took the fairness argument into account and 
weakened this provision in the final rule by limiting a covered 
entity's liability to circumstances where the covered entity actually 
knew of a material breach of the contract of the business partner and 
failed to act.
    Other organizations have complained that business associate 
contracts would be complex and result in significant time and resource 
burdens, and would require the writing or re-writing of many new 
contracts. We note at the outset that having contracts in place 
specifying what agents are permitted to do with sensitive health 
information just makes good business sense. Additionally, the 
implementation specifications for business associate contracts are 
clear and straightforward and should not result in complex contracts. 
In order to reduce any administrative burden, covered entities are free 
to develop standard contracts or standard addenda to existing 
contracts.
    Again, as with the final rule's approach to consent, the business 
associate concept was thoroughly debated during the rule-making process 
and there is no reason to reopen that debate.
Minimum necessary standard (Sections 164.502(b) and 164.514(d))
    We support the general standard that a covered entity must make 
reasonable efforts to limit protected health information to the minimum 
amount necessary to accomplish the intended purpose when using or 
disclosing protected health information or when requesting such 
information from another covered entity. We are particularly pleased 
that the minimization requirement extends to payment and health care 
operations.
    The final rule significantly modified the proposed minimum 
necessary standard and the related implementation specifications. In 
some ways, the rule has been improved, such as subjecting the requests 
of covered entities for health information to the minimum necessary 
standard. See Section 164.514(d)(4). However, in many other ways the 
standard is still lacking because it does not apply to a broad enough 
category of uses and disclosures of health information.
    Probably the most controversial aspect of the minimum necessary 
standard is the method in which it applies to protected health 
information that is being used or disclosed for treatment purposes. The 
minimum necessary standard does not apply to information that is 
disclosed to a health care provider for treatment purposes. See Section 
164.502(b)(2)(i). In contrast, the minimum standard does apply to 
health information that is being used for treatment. We believe that 
the minimum necessary standard should apply to both uses and 
disclosures of protected health information for treatment purposes.
    Under the structure of the final rule, a covered entity could 
adhere to this requirement by fashioning general policies that specify 
when and who should have access to medical information for treatment 
purposes. See Section 164.514(d)(3). For instance, a hospital might 
have a policy that would permit a treating physician access to a 
patient's entire medical record, but would limit a nurse's aide's 
access.
    The establishment of policies governing the amount of information 
accessible within a covered entity will become even more important as 
the health care delivery system continues to move toward 
computerization of medical records. As a practical matter, records in 
this format may be readily accessible to a wide range of personnel 
within the covered entity. Thus, it is imperative that a covered entity 
have policies that limit uses of health information to the minimum 
amount necessary.
Oral communications (Section 160.103, definition of ``health 
        information'')
    Much criticism of the final rule has focused on its applicability 
to oral communications. Some of this criticism has reached hyperbolic 
proportions. For example, Blue Cross and Blue Shield charges that ``new 
sound-proof walls and offices may need to be built in health care 
facilities.'' See Testimony of Blue Cross and Blue Shield Association 
before the Senate Committee on Health, Education, Labor, and Pensions 
at 7 (February 8, 2001). The American Hospital Association raises the 
specter of doctors not being able to talk to patients who share a 
hospital room with another patient ``for fear of running afoul of 
HIPAA's many prohibitions.'' See Testimony of the American Hospital 
Association before the Senate Committee on Health, Education, Labor, 
and Pensions at 10 (February 8, 2001).
    Health care professionals, and the hospitals in which they work, 
should take reasonable steps to make sure that conversations about one 
patient are not overheard by others. The regulation, though, merely 
requires covered entities to ``reasonably safeguard protected health 
information from any intentional or unintentional use or disclosure 
that is in violation of the standards.'' See Section 164.530(c)(2). 
Screens or curtains often separate patients from one another in 
hospital rooms to protect the privacy of patients. Health care 
professionals can and should modulate their voices so that private 
conversations can take place. This is true whether the conversation 
takes place in the patient's room or in the hallways, corridors, or 
elevators.
    We believe that HHS has the authority under HIPAA to regulate a 
broad range of health information in any format, including oral 
communications, and we strongly support this approach. Not only does 
HHS have the authority to protect health information in any format, it 
should protect this information.
    At the outset, protecting only health information in electronic 
format would leave a vast amount of health information unprotected by 
federal law. Furthermore, limiting coverage to only health information 
that at some point had been electronically maintained or transmitted 
would be impractical and unenforceable. Health information often 
changes format--it can start out as oral, then be written and then be 
stored electronically. It would be an administrative nightmare to try 
to discern what information in any particular health record had at some 
point been electronically stored or transmitted. Additionally, if there 
were an improper disclosure, it would be terribly difficult, if not 
impossible, to prove that the information disclosed had at some point 
been in electronic format.
    Leaving health information in paper and oral format outside the 
bounds of the privacy regulation may actually induce covered entities 
to retain paper record-keeping and filing systems in order to avoid 
regulation. This would be contrary to the goals of the administrative 
simplification provisions of HIPAA, which are intended to encourage the 
development of an electronic health care information system. Moreover, 
if oral communications were excluded from the regulation, covered 
entities could circumvent this regulation merely by reading aloud or 
orally telling someone what is contained in a computer or paper record.

             MAJOR DISTORTIONS ABOUT THE PRIVACY REGULATION

    Some in the health care industry oppose aspects of the privacy rule 
and the time line for implementing it, and are waging a ``chicken-
little-the-sky-is-falling'' campaign to delay and weaken it. In this 
section we rebut the major myths and inaccuracies about the final rule.
    Myth #1: The regulation will ``jeopardize the quality and 
timeliness of patient care'' and ``drive a wedge between individuals 
and their care providers.''
        Sources: ``HIPAA's Privacy Standards: Driving a Wedge Between 
        Patients and the Health Field,'' by Marilou M. King, attorney 
        representing the American Hospital Association (page 1); 
        Testimony of Blue Cross and Blue Shield Association before the 
        Senate Committee on Health, Education, Labor, and Pensions at 
        11 (February 8, 2001)(``This standard . . . could jeopardize 
        the quality and timeliness of patient care . . .'').
    Fact: The regulation will improve the quality of care and the 
patient/professional relationship. Concerns about lack of privacy now 
drive a wedge between patients and their providers and impede the 
provision of quality care because patients withhold information, avoid 
asking certain questions, or fail to seek care altogether. Among other 
benefits, the regulation creates the opportunity for patients and their 
health care providers to engage in a dialogue about how their 
information will be used and gives patients more control over uses and 
disclosures. This regulation will go a long way toward promoting 
confidence in the privacy of medical information and in the health care 
system.
    Myth #2: Family members and friends will no longer be able to pick 
up prescriptions for others at the pharmacy.
        Source: `` `As Craig Fuller has told me, the way it's set up 
        right now, if you are married and you're too sick to go to the 
        drug store, you can't send your spouse down to pick up your 
        medicine,' [HHS Secretary] Thompson said during a National 
        Chamber Foundation meeting March 1 in Washington, D.C.'' F-D-C 
        Reports' Research Services, ``Consulting NACDS,'' The Pink 
        Sheet, March 5, 2001 (page 5).
    Fact: The regulation explicitly provides that this common practice 
can continue. The regulation states that covered entities can use their 
professional judgment and experience with such practices so that family 
members, friends, and others may pick up items like filled 
prescriptions, medical supplies, or x-rays. See Section 164.510(b)(3).
    Myth #3: The ``minimum necessary'' standard will disrupt 
communications between providers involved in treating a patient. Some 
charge that providers treating patients will not be able to examine the 
patient's entire medical record.
        Sources: ``The minimum necessary rules may still place 
        artificial limits on the ability of doctors to use and disclose 
        health information for critical treatment situations--
        threatening the overall quality of care.'' Testimony of Blue 
        Cross and Blue Shield Association before the Senate Committee 
        on Health, Education, Labor, and Pensions at 11 (February 8, 
        2001).
          ``The regulation includes a strong discouragement regarding 
        the release of entire medical records of patients. The complete 
        exchange of medical information is absolutely critical to 
        assuring a patient receives the right treatment at the right 
        time.'' Testimony of Blue Cross and Blue Shield Association 
        before the Senate Committee on Health, Education, Labor, and 
        Pensions at 11 (February 8, 2001).
          ``Limiting the ability of teams of health professionals, and 
        health profession trainees, in a hospital setting to use a 
        patient's complete medical chart or freely discuss and 
        communicate among themselves in the course of treating patients 
        could be disruptive and potentially dangerous.'' Testimony of 
        the Healthcare Leadership Council before the Senate Committee 
        on Health, Education, Labor, and Pensions at 4 (February 8, 
        2001).
    Fact: The regulation explicitly exempts from the ``minimum 
necessary'' standard all disclosures to providers for treatment 
purposes. It also exempts all requests by health care providers for 
information to be used for treatment purposes. See Section 
164.502(b)(2)(i). As a result, information will flow freely between and 
among providers involved in treatment. Provisions in the regulation 
that require special justification for disclosing the entire medical 
record do not apply to treatment-related disclosures because they are 
not subject to the minimum necessary standard in the first place.
    With respect to uses of health care information for treatment 
purposes, the regulation allows the use of the entire medical record 
when it is specifically justified as the amount that is ``reasonably 
necessary'' to accomplish the purpose of the use. See Section 
164.514(d)(5). A provider is only required to have a policy as to the 
amount of health information that is to be used: a case-by-case 
determination is not required or anticipated. See Section 
164.514(d)(3). In fact, HHS states in the preamble to the regulation 
that HHS ``expect[s] that covered entities will implement policies that 
allow persons involved in treatment to have access to the entire 
record, as needed.'' 65 Fed. Reg. at 82544.
    Myth #4: Providers that disclose medical information for treatment 
purposes must meet the minimum necessary standard.
        Source: ``This exemption [from the minimum necessary standard] 
        does not cover . . . `disclosures by' providers.'' (emphasis 
        added) Testimony of Blue Cross and Blue Shield Association 
        before the Senate Committee on Health, Education, Labor, and 
        Pensions at 11 (February 8, 2001).
    Fact: This assertion takes the minimum necessary exemption out of 
context. The general rule imposes the minimum necessary standard on 
covered entities, including providers, when they are ``disclosing 
protected health information.'' See Section 164.502(b)(1). The 
provision goes on to state: ``This requirement does not apply to: . . . 
Disclosures to . . . a health care provider for treatment.'' See 
Section 164.502(b)(2). When read as a whole, it is clear that the 
exemption applies to disclosures by health care providers.
    Myth #5: The regulation will impede the training of medical 
students, in part because the regulation will not allow medical 
students to see a patient's entire medical record.
        Source: The Association of American Medical Colleges has 
        ``grave concerns'' about ``the effects of the rule on medical 
        and health education.'' ``The AAMC supports the proposition 
        that medical residents and medical and nursing students, as 
        well as other health professions students, as necessary, should 
        have unrestricted access to medical information of their 
        patients . . .--a proposition that the rule seems to recognize, 
        peculiarly, only with respect to psychotherapy notes.'' 
        Testimony of the Association of American Medical Colleges 
        before the Senate Committee on Health, Education, Labor and 
        Pensions at 2, 4 (February 8, 2001).
    Fact: The regulation respects the important role that covered 
entities play in the training of medical students. It includes the 
following within the definition of ``health care operations'' found in 
Section 164.501: ``conducting training programs in which students, 
trainees, or practitioners in areas of health care learn under 
supervision to practice or improve their skills as health care 
providers.'' Therefore, once a provider obtains a consent, an 
individual's health information can be used not only for treating the 
patient but also for training medical students. Disclosures, for 
treatment purposes, to medical students providing health care services 
to patients would not be subject to the minimum necessary standard 
because such medical students would be considered ``health care 
providers.'' See Section 160.103 (definition of ``health care 
provider'')(``any other person . . . who furnishes . . . health 
care''). Medical students--even those not actually considered ``health 
care providers'' because they do not furnish care--would be able to 
review a patient's entire medical record when the covered entity makes 
a policy determination that the entire medical record is ``reasonably 
necessary to achieve the purpose'' of training medical students. See 
Section 164.514(d)(5).
    Myth #6: The regulation is so complex it is 1,500 pages long.
        Source: U.S. News & World Report (Jan. 29, 2001, page 47) 
        refers to the regulation as ``the 1,500-page doorstopper.''
    Fact: The text of the actual regulation only covers 32 pages in the 
Federal Register. The preamble that precedes the regulation covers 337 
pages in the Federal Register. Over half of the preamble is devoted to 
summarizing and responding to the more than 52,000 comments received by 
HHS.
    Myth #7: ``Health care providers would have to keep track of 
everyone who received medical information from them. Patients could 
demand an accounting of all of these disclosures.''
        Source: Amitai Etzioni, ``New Medical Privacy Rules Need 
        Editing,'' USA Today at 13A (February 22, 2001).
    Fact: This is simply not true. Providers are not required by this 
regulation to keep an accounting of anyone within their own 
organization who has received (or had access to) medical information. 
This is because the accounting provision only covers ``disclosures,'' 
which are defined as the sharing of health information with someone 
outside of an organization. See Section 164.528(a) (right to accounting 
of disclosures) and Section 164.501 (definition of ``disclosure''). 
Furthermore, the regulation specifically states that a provider does 
not have to keep account of information disclosed (i.e., shared with 
someone outside of the organization) for treatment, payment, or health 
care operations. See Section 164.528(a)(1)(i). For example, a hospital 
would not have to keep track of health information sent to outside 
doctors providing follow-up care to patients. The result of these 
exclusions is that providers are required to account for only a narrow 
category of disclosures that primarily are not related to health care, 
such as those made to law enforcement personnel or pursuant to a 
request for documents in a lawsuit.
    Myth #8: The regulation allows patients to demand that doctors 
correct their medical records.
        Source: ``We all would be the beneficiaries if the regulations 
        as currently constituted were not allowed to go into effect 
        until they are subject to an expeditious and thorough trimming 
        and simplification . . . And while patients should be allowed 
        to see their medical records and attach their comments, they 
        should not be allowed to demand that doctors ``correct'' the 
        records.'' Amitai Etzioni, ``New Medical Privacy Rules Need 
        Editing,'' USA Today at 13A (February 22, 2001).
    Fact: There is no provision allowing patients to demand that 
doctors ``correct'' their records. An individual may request that a 
provider (or other covered entity) amend his or her records and append 
or otherwise provide a link to the location of the amendment. See 
Section 164.526(c)(1). Amending a medical record usually does not 
involve actually removing information, but adding an amendment with the 
accurate data. There are several grounds under which a provider may 
deny such a request to amend. See Section 164.526(d).
    Myth #9: The final regulation requires disclosures of protected 
health information to a variety of federal government departments and 
agencies.
        Source: ``What has not been widely reported are the rule's new 
        mandates requiring doctors, hospitals, and other health care 
        providers to share patients' personal medical records with the 
        federal government, sometimes without notice or advance 
        warning. (See, for example, Federal Register, Vol. 65, No. 250, 
        December 28, 2000, p. 82802, Sec. 160.310.) . . . Handing 
        sensitive medical records to federal departments and agencies 
        that are ill-equipped to protect that information is not a 
        solution; it is inviting abuse, errors, scandal, and tragedy.'' 
        Letter from Dick Armey, House Majority Leader, to Secretary 
        Thompson (dated March 5, 2001).
    Fact: The regulation requires covered entities to make only two 
types of disclosures: (1) disclosures to the individual who is the 
subject of the protected health information and (2) disclosures to HHS 
for the purpose of enforcing the regulation. See Section 164.502(a)(2). 
The regulatory section cited by Majority Leader Armey in his letter 
requires disclosures to HHS for compliance purposes. It restricts such 
disclosures to that information that is ``pertinent to ascertaining 
compliance with [the regulation].'' Without this provision, HHS would 
have no way of determining whether a covered entity had complied with 
the regulation, making enforcement of the law impossible. Moreover, HHS 
is limited in what it can do with health information obtained in this 
fashion. The regulation prohibits HHS from disclosing such information 
except where necessary to ascertain or enforce compliance with the 
regulation or as required by other law. See Section 160.310(c)(3). 
Under an executive order issued contemporaneously with the final 
regulation, HHS is also prohibited from using protected health 
information concerning an individual discovered during the course of 
health oversight activities for unrelated civil, administrative, or 
criminal investigations against the individual.
    The regulation does not require disclosures to any other person or 
entity, including to other federal agencies or departments. The 
regulation permits disclosures to government agencies only where the 
agency requesting or receiving the information has authority to request 
or receive the information through some other law. See, e.g., Section 
164.512(d)(1) (disclosures for health oversight activities ``authorized 
by law'').

           COST CONCERNS SUPPORT THE APRIL 14 EFFECTIVE DATE

    Industry opponents cite the cost of complying with the regulation 
as a reason to delay or weaken it.1 We believe the costs of 
not implementing this rule on schedule far outweigh the costs of 
implementing it. If we, as a society, do not put federal privacy 
protections in place, millions more people will engage in privacy-
protective behaviors--to the detriment of their own health and the 
integrity of research--and confidence in our health care system will 
continue to erode.
---------------------------------------------------------------------------
    \1\ ``An AHA-commissioned study, looking at hospital costs alone, 
found that the cost of only three key provisions of the proposed rule . 
. . could be as much as $22.5 billion over five years.'' Testimony of 
the American Hospital Association before the Senate Committee on 
Health, Education, Labor, and Pensions at 6 (February 8, 2001).
---------------------------------------------------------------------------
    HHS estimates that the cost associated with implementing the 
privacy regulation (approximately $17 billion over ten years) will be 
greatly offset by the cost savings associated with implementing HIPAA's 
transactions standards (approximately $29 billion saved over ten 
years). If implemented together, as contemplated by Congress, consumers 
will benefit, health care organizations will benefit, and the health of 
our communities will benefit. Delay would actually be more costly for 
industry because it would need to redesign and retool systems a second 
time if privacy protections are not put in place along with the 
transactions standards.
    Rather than spending resources on fighting this regulation, we urge 
the industry to work toward implementation. Some industry organizations 
already have urged Secretary Thompson to implement the regulation 
without further delay.2 We are aware of at least one 
national health plan that already is beginning the process of moving 
forward with this regulation, and we applaud them for doing so. These 
groups understand that protecting privacy is good for business.
---------------------------------------------------------------------------
    \2\ See, e.g., letters to Secretary Thompson from The Coalition for 
Health Information Policy (comprised of American Health Information 
Management Association, American Medical Informatics Association, and 
Center for Healthcare Information Management) (dated February 7, 2001), 
and Association for Electronic Health Care Transactions (AFEHCT) 
(comprised of a variety of organizations, including Aetna US 
Healthcare, IBM, Medscape, and WebMD) (dated February 2, 2001).
---------------------------------------------------------------------------

                               CONCLUSION

    Americans should be proud of what Congress set in motion with HIPAA 
and with the thoughtful and deliberate way in which HHS carried out its 
congressional mandate. While we would have preferred that HHS make 
different policy judgments in several areas--most notably in the areas 
of law enforcement and marketing/fundraising--we do not believe these 
weaknesses in the final regulation warrant further delay in the 
effective date or a reopening of the regulation. Similarly, the policy 
differences that some in the industry have with HHS over some aspects 
of the final regulation do not warrant further delay or a reopening of 
the rule-making process. We do urge HHS to issue guidance on the 
regulation, and to rely on its legal authority to act where necessary 
on a case-by-case basis during the two-year implementation phase.
    To improve privacy protections for consumers, Congress can 
intervene and pass a law that requires consumer consent before medical 
information can be used for marketing and fundraising purposes. 
Congress can also enact a law that strengthens the limits on law 
enforcement access to medical records. And Congress can fill in the 
gaps left by HIPAA by directly regulating other entities that collect 
and use personal health information and by equipping people with the 
federal right to go to court if their privacy is violated under the 
law.
    We look forward to continued progress on health privacy. Our health 
care system has changed dramatically in the last few years, bringing 
with it both promise and perils. We have mapped the human genome, but 
people are afraid to get tested. The Internet can deliver cutting edge 
research and health care services, but people are unwilling to trust 
their most sensitive information in cyberspace. We will never fully 
reap the benefits of these astounding breakthroughs until privacy is 
woven into the fabric of our nation's health care system.

    Mr. Bilirakis. Mr. Heird.

   STATEMENT OF ROBERT HEIRD, SENIOR VICE PRESIDENT, ANTHEM 
                      BLUECROSS BLUESHIELD

    Mr. Heird. Thank you, Mr. Chairman, members of the 
committee. I am Bob Heird, vice president of Anthem BlueCross 
and BlueShield, headquartered in Indianapolis, Indiana. We are 
also the Blue Cross and Blue Shield plan in seven other States. 
I am testifying today on behalf the Blue Cross and Blue Shield 
Association, and we appreciate this opportunity to share our 
views with you.
    Blue Cross and Blue Shield plans agree that a basic set of 
clear rules is necessary to assure consumers their health care 
information is strictly private. For us there is no question as 
to whether patient records should be kept private, but only as 
to how.
    Mr. Bilirakis. You are welcome to repeat that if you would 
like. I apologize for that.
    Mr. Heird. I was trying to outperform the buzzers.
    Our challenge is to review these rules through the eyes of 
our consumers. Our members demand and expect superior customer 
service. A key question for us is whether this rule meets those 
customer expectations, and we have concluded that they do no 
not, and that is because the rule is operationally infeasible, 
extremely costly, and could threaten quality improvements 
throughout the health care system. And because of these 
concerns, the need for further analysis, we are pleased Health 
and Human Services has provided another comment period to allow 
time to identify and correct those serious problems in the 
final regulation that could, in fact, harm consumers.
    Today I would like to highlight four issues. First, our 
members want clear guidelines about where to direct questions 
and problems. Unfortunately, the final rule would layer new 
Federal rules on top of existing State laws and would only add 
more red tape and confusion for everyone. Consider, for 
example, an Anthem customer living in Lawrenceburg, Indiana, 
working in the Cincinnati/Northern Kentucky Airport, and 
visiting a doctor in Cincinnati, Ohio. Each of those stops are 
about 25 minutes apart. If there is a concern about privacy, 
who do they call? Do they call the regulators in the State 
where they live? Do they call the regulator in the State where 
they work where the contract was issued; where care was 
provided? All three? And what is HHS's role in viewing those 
issues? So is it really four entities that they need to contact 
to work those issues through?
    Second, our customers want timely quality care, the kind of 
care that America prides itself on. The minimum necessary rule 
would require all of us to establish new procedures, and 
reorganize and redesign our operations so we are only using and 
disclosing the minimum information necessary. This would 
undermine all of our efforts to assure that patients receive 
the right care at the right time at the right price. Simply 
put, providers need complete and timely access to patient 
information, and as pointed out in the recent report of the 
Institute of Medicine, access to complete information is 
necessary to prevent wrong care.
    Third, we are concerned that the business associate 
provisions are unworkable, requiring business associates to 
establish procedures and notices consistent with the myriad of 
covered entities with whom they contract, and that would create 
an exponential numbers of different standards for business 
associates.
    And fourth, our customers want practical rules that 
facilitate their interaction with their doctors and hospitals 
and health plans. We are concerned that the required consent 
provisions applied to providers will generate negative 
downstream effects on our customers as you have heard this 
morning. We are concerned about these real-life implications.
    I want to spend a moment talking about cost. I want to be 
clear, for us the question is not whether privacy will increase 
costs, because it will. The issue is whether the regulation 
costs more than what it needs to, and we think it does. In 
addition, the high costs and other problems included in the 
privacy regulations are exacerbated by the HIPAA transaction 
and code sets that were released last August. These 
transactions regulate doctors and hospitals and health plans to 
reorganize their operations and codes and reengineer their 
systems in yet another way in less than 2 years. They are 
massively more complex and costly than Y2K, and many providers 
are unaware at this point of what they need to accomplish.
    Anthem and the Blue Cross and Blue Shield Association 
support administrative simplification; however, we believe a 
24-month implementation period is inadequate and should be 
extended. We believe that because we think the standardization 
of medical codes and the elimination of local codes is complex 
and very time-intensive. This requires not only major system 
upgrades, but is extremely resource-intensive. And these codes 
are intertwined through every aspect and every function of 
providers as well as health plans.
    Second, the staggered release dates of the various rules 
will make it difficult and costly to reengineer all the 
systems. In other words, we are effectively building the house 
before the blueprints have been signed off. Anthem and the Blue 
Cross and Blue Shield Association are advocating that the 
implementation time period for all the rules and administrative 
simplification be released in one final form. In other words we 
need those blueprints. This will allow health plans and 
providers adequate time to implement and test the new systems, 
spread costs and allow for proper provider education. Thank 
you.
    [The prepared statement of Robert Heird follows:]

PREPARED STATEMENT OF ROBERT HEIRD, SENIOR VICE PRESIDENT, ANTHEM BLUE 
     CROSS AND BLUE SHIELD ON BEHALF OF BLUE CROSS AND BLUE SHIELD 
                              ASSOCIATION

    Mr. Chairman and Members of the House Energy and Commerce 
Subcommittee on Health, I am Robert Heird, Senior Vice President for 
Anthem Blue Cross and Blue Shield, testifying on behalf of the Blue 
Cross and Blue Shield Association (BCBSA). BCBSA represents 46 
independent Blue Cross and Blue Shield Plans throughout the nation that 
provide health coverage to 79 million--or one in four--Americans. As 
part of the Blue Cross and Blue Shield system, Anthem Blue Cross and 
Blue Shield provides coverage to more than seven million members in 
eight states including: Connecticut, Maine, New Hampshire, Colorado, 
Indiana, Kentucky, Nevada, and Ohio.
    We appreciate the invitation to testify today on the final privacy 
regulations issued by the Department of Health and Human Services (HHS) 
on December 28, 2000. This testimony provides us the opportunity to 
view these regulations through the eyes of our customers--and to 
identify and discuss those issues that will have the most significant 
impact on them.
    BCBSA believes that safeguarding the privacy of medical records is 
of paramount importance. We support a basic set of clear federal rules 
for the health care industry that assures all consumers their health 
information is kept strictly confidential. At the same time, we know 
that our members demand and value superior customer service. Any set of 
rules needs not only to allow for timely delivery and payment of health 
care services, but also minimize hassles and costs.
    During the comment period following promulgation of the proposed 
rule, BCBSA submitted over 50 pages of detailed comments and 
recommendations. It is clear from the final regulation that HHS took 
into consideration many of our comments and sought a balance in the 
final rule.
    However, despite their efforts, the regulation still needs 
significant revision. Without substantial changes, the regulation is 
likely to slow the delivery and payment of care to consumers and the 
providers who take care of them.
    There are significant new provisions in the final rule--some of 
these represent improvements, but many other areas require more thought 
and opportunity for comments.
    Because of our existing concerns and the need for further analysis, 
we are pleased that the Department of Health and Human Services has 
provided another comment period to allow additional time to identify 
the many serious problems in the final regulation that would harm 
consumers. We are committed to helping HHS identify those problems and 
construct and implement a regulation that maximizes consumer 
protections, while preserving the ability of the health care system to 
provide efficient, quality services to consumers. We urge HHS to 
correct the serious problems in the regulation before asking the health 
care community to begin implementation.
    In today's testimony, I will discuss two aspects of the Health 
Insurance Portability and Accountability Act (HIPAA). First I will 
focus on the final privacy regulation issued late last year. Second, I 
will discuss the closely related HIPAA Administrative Simplification 
Transactions and Code Set regulation issued last August. And finally, I 
will discuss the costs and savings associated with these regulations:

I. Privacy Regulation
    A. Background on Privacy
    B. Key Concerns with the Regulation
    C. Positive Aspects of the Regulation
    D. Recommendations on Privacy
II. Administrative Simplification and the Transactions and Code Sets 
        Regulation
III. Cost of the Regulations

                         I. PRIVACY REGULATION

A. Background
    The Health Insurance Portability and Accountability Act (HIPAA) 
provided HHS the authority to promulgate privacy standards for health 
information if Congress did not pass legislation by August 1999. The 
statute was very narrow and directed HHS to issue privacy rules to 
assure that information transmitted as part of the new HIPAA 
standardized electronic transactions would be kept confidential.
    The final regulation would require covered entities (i.e., health 
plans, providers, and clearinghouses) to:

 Obtain new authorizations from consumers before using or 
        disclosing information, except for purposes of treatment, 
        payment, health care operations and other limited circumstances 
        (providers would be required to obtain consent even for 
        treatment, payment, and health care operations);
 Allow individuals to inspect, copy and amend much of their 
        medical information;
 Track all disclosures made other than for treatment, payment 
        and health care operations;
 Recontract with all business associates to require them to use 
        and disclose information according to the new privacy rules;
 Institute procedures to assure that only the ``minimum 
        necessary'' information is used or disclosed for a given 
        purpose;
 Designate a privacy official and train staff;
 Follow specific rules before using protected health 
        information for research; and
 Develop a host of new policies, procedures and notices.
    In understanding the full scope and implications of the regulation, 
it is important to be aware of the following:

 The Regulation is Not Limited to Electronic Records: The 
        privacy standards under HIPAA were intended to apply to 
        electronic transactions that are developed and maintained under 
        the law's Administrative Simplification provisions. While the 
        proposed rule's application to paper records was arguably 
        ambiguous, the final rule clearly applies not only to 
        electronic records, but also to any individually identifiable 
        information ``transmitted or maintained in any other form or 
        medium.''
 The Regulation Affects Internal Uses of Information as Well as 
        Disclosures: A common misconception regarding the regulation is 
        that it regulates only the disclosure of information to a third 
        party. In fact, the regulation has enormous implications for 
        the use of information internally within an organization. This 
        means that organizations will be required to comply with rules 
        for internal treatment purposes, claims processing, utilization 
        review and other routine health care purposes even though the 
        information never leaves the organization's possession.
 The Regulation Affects a Broad Array of Organizations and 
        Information: The definition of ``covered entity'' is broad in 
        scope--including not only doctors, hospitals and health 
        insurers, but also employer health plans (insured and self-
        funded, except for self-administered plans with fewer than 50 
        participants), laboratories, pharmacists and many others. All 
        organizations that service health care organizations that are 
        not included specifically as a ``covered entity'' are 
        indirectly subjected to the privacy rule through a provision 
        that requires covered entities to contract with their 
        ``business associates.'' For instance, lawyers, auditors, 
        consultants, computer support personnel, accountants and other 
        non-health oriented organizations would fall into this 
        category.
      In addition, the definition of ``protected health information'' 
        (PHI) is much broader than what most individuals consider their 
        health information. The definition goes beyond an individual's 
        medical records to include insurance records, oral information, 
        and demographic data.

B. Key Concerns with the Privacy Regulation
    Our overall concern with the final privacy regulation is that its 
intricate complexity will require a major reorganization of every 
doctor's office, hospital, pharmacy, laboratory, research facility, and 
health plan--as well as other organizations. We expect the final rule 
will lead to extremely costly infrastructure and procedural changes in 
each and every entity. For example, new sound-proof walls and offices 
may need to be built in health care facilities, new computer systems 
may need to be installed, and more lawyers and training personnel may 
need to be hired.
    Although BCBSA has a number of concerns with the final rule, we 
have highlighted the four most problematic regulatory provisions in 
this testimony:
1. Dual Federal and State Regulation
    The privacy regulation layers a new comprehensive set of federal 
rules on top of an already existing complex patchwork of state privacy 
laws. The regulation follows the HIPAA regulatory construct in that 
state laws are preempted only if they are contrary to the regulation 
and are less stringent. In addition, the regulation specifically 
``saves'' certain state statutes from preemption, such as those 
relating to health surveillance.
    We know our customers want a clear understanding of their privacy 
rights. However, we are concerned that the intersection between state 
and federal privacy laws under the complex construct of the HIPAA 
regulatory model will create more red tape and frustration for health 
care providers and consumers. It will be unclear whom to call for 
resolution on specific rules--HHS or the states-- and this lack of 
clarity will lead to more telephone calls, more steps, and more hassles 
for everyone.
    Doctors, health plans and other covered entities must determine, on 
a provision by provision basis, which parts of state law would be 
retained and which would be replaced by federal law. This is further 
complicated by the necessity for rapid transfer of information in 
today's health care industry because of the mobility of patients. For 
instance, an individual may live in the District of Columbia, work in 
Virginia, and visit a physician located in Maryland. Covered entities 
dealing with this individual will have to evaluate the interplay of 
three state statutes with the federal law. In addition, covered 
entities also must factor in the interplay of other federal laws 
relating to privacy. Even if each covered entity engaged an attorney to 
prepare a preemption analysis, different attorneys are likely to 
prepare conflicting interpretations--possibly leading to costly 
litigation with the states, the federal government and consumers.
    This regulatory construct will be problematic for our customers. 
Instead of facilitating a member's ability to know his or her privacy 
rights, this complex preemption process is sure to confound that 
individual. First, individuals will be hard pressed to determine which 
aspects of the state and federal privacy laws apply to them, so it will 
be extremely challenging for them to determine if in fact, they have 
been wronged. In addition, consumers will not know where to direct 
complaints if they do feel that their rights are violated--Maryland? 
Virginia? The District of Columbia? The Secretary of Health and Human 
Services? It is likely that consumers will be bounced from one 
jurisdiction to the next until the consumer locates the one which has 
the law that has been violated--or the consumer becomes frustrated and 
gives up.
    Our preference--and the clearest path for everyone in the system--
would be for federal privacy law to preempt state law. Having a clear 
federal law would provide consumers and doctors with a clear path when 
answers are needed. However, we recognize that a complete preemption of 
state law is outside the statutory authority of HHS. Therefore, in our 
comments on the proposed rule, we recommended that HHS prepare a 
detailed privacy guide for each state explaining how existing state 
laws intersect with the new federal rules. We asked that the guide also 
address whether a privacy provision is triggered by a consumer's 
residence, location of provider or other criteria and that HHS prepare 
the guide in collaboration with state government officials. We also 
asked HHS to assure the guide incorporates other federal privacy laws, 
such as the Federal Privacy Act and Gramm-Leach-Bliley Act. As part of 
this process, we recommended that each individual state should certify 
agreement with HHS' analysis so everyone has a clear understanding of 
the rules.
    We believe this legal guidebook needs to be prepared well in 
advance of implementing the final regulations. Doctors, health plans, 
and other covered entities will need this completed analysis before 
computer systems can be redesigned, forms and notices are changed, 
consumer brochures are modified and updated, and other procedures can 
be brought into compliance. Bringing plan and provider operations into 
compliance with these complex new regulations will consume a 
significant share of health care dollars. It is critical that these 
affected entities only have to modify systems and other items once.
    Unfortunately, HHS failed to provide for this legal guide in the 
final regulation. In the preamble to the final regulation, HHS said 
that ``many commenters'' requested a similar state by state analysis. 
However, HHS declined to perform the analysis for the same reason they 
decided against a formal advisory opinion process: First of all, they 
indicated that ``such an opinion would be advisory only . . . it would 
not bind the courts.'' In other words, they felt that even with HHS 
guidance, there was no guarantee regarding final decisions or outcomes.
    Second, HHS indicated that workload issues drove their decision 
against formal preemption guidance. The preamble says that ``the 
thousands of questions raised in the public comment about the 
interpretation, implications and consequences of all of the proposed 
regulatory provisions have led us to conclude that significant advice 
and technical assistance about all of the regulatory requirements will 
have to be provided on an ongoing basis . . . but we will be better 
able to prioritize our workload . . . if we do not provide for a formal 
advisory opinion process on preemption as proposed.''
    We urge HHS to reconsider this decision and issue a state-by-state 
analysis prior to implementation of the final rule.

2. Minimum Necessary Standard
    The regulation instructs doctors, health plans, and other covered 
entities to use or disclose only the minimum information necessary to 
accomplish a given purpose and discourages the exchange of the entire 
medical record. At first blush, this standard seems to be a perfectly 
reasonable, common sense provision.
    However, we are concerned about how we can best operationalize this 
concept without creating significant unintended consequences. It is 
important to recognize that this standard applies to the use of 
information as well as disclosure, and that the definition of 
disclosure includes broad terms such as ``provision of access to.''
    This standard may require a massive reorganization of workflow as 
well as possible redesign of physical office space, and could 
jeopardize the quality and timeliness of patient care, benefit 
determinations and other critical elements of the health care system.
    Many news accounts have inaccurately portrayed this provision as 
including an exemption for treatment purposes. HHS includes a very 
narrow exemption in the final rule--for ``disclosures to or requests by 
a health care provider for treatment.'' This exemption does not cover 
``use'' of the information, nor does it cover ``disclosures by'' 
providers. As a result, the minimum necessary rules may still place 
artificial limits on the ability of doctors to use and disclose health 
information for critical treatment situations--threatening the overall 
quality of care.
    A few examples of other potential problems with the minimum 
necessary rule include:

 As part of the description regarding the minimum necessary 
        standard, the regulation includes a strong discouragement 
        regarding the release of entire medical records of patients. 
        The complete exchange of medical information is absolutely 
        critical to assuring a patient receives the right treatment at 
        the right time. The recent Institute of Medicine report, ``To 
        Err is Human,'' highlighted the medical mistakes that are 
        common in our health care system today. The IOM report states 
        that errors are more likely to occur when providers do not have 
        timely access to complete patient information. Discouraging the 
        sharing of complete medical records would make it more 
        difficult to guard against these medical errors. One covered 
        entity may determine that a subscriber's prescription is not 
        relevant to be released. Further down the line, that lack of 
        information may impede clinicians' decisionmaking. It is 
        critical to use complete medical records for a variety of 
        important quality assurance functions, such as accreditation 
        and outcomes measurement.
 It is well documented that fraud and abuse is a costly element 
        of our health care system. The Medicare program as well as 
        private health plans have made combating fraud and abuse a 
        priority. However, the minimum necessary standard is likely to 
        impede fraud detection, because fraud and abuse units may be 
        accused of using more than the minimum information necessary. 
        Any impediment to fraud detection would increase the cost to 
        consumers. For instance, the sign-in sheets used in doctors' 
        offices are also used to verify that doctors are seeing the 
        volume of patients they report for payment purposes. It does 
        not appear that the privacy regulation would allow for these 
        sign-in sheets to continue to be used.
 Health plans and providers actually may be forced to redesign 
        their facilities to comply with the minimum necessary standard. 
        For instance, when visiting friends in maternity wards, there 
        generally is a white board describing all of the patients and 
        their medical needs. Any visitor may view the information on 
        the board--a likely violation of HIPAA. Another example of 
        potential renovation is an orthopedist's office, where the x-
        ray lightboard is centrally located outside of the patients' 
        rooms for easy access by the physician. Anyone in the office 
        could view these x-rays containing patient social security 
        numbers or names. Would the regulation require these providers 
        to renovate their facilities to comply with the regulation?
    These are a few examples of the types of activities that could fall 
awry of the privacy regulation. If implemented, this could impose 
incredible costs on consumers--not just in dollars and cents--but in 
lives as well.

3. Business Associates
    The business associate provisions of the regulation require that 
doctors, health plans and other covered entities use prescribed 
contract terms with all of their ``business associates'' to assure 
these associates follow the HHS privacy rules. Doctors, health plans 
and other covered entities could be subject to civil monetary penalties 
if they ``knew'' of privacy violations by their business associates.
    The contractual specifications included in the regulation compound 
the problems in the business associate framework. The rule requires 
business associates to use and disclose protected heath information in 
accordance with the notice and policies and procedures established by 
the covered entity with whom they contract. Many business associates 
will contract with multiple covered entities--each of whom have their 
own set of notices and their own uses of health information. This will 
create an exponential number of differing standards for business 
associates.
    The confusion is exacerbated because some organizations--like 
health insurers--are covered entities in some areas (e.g. a healthcare 
coverage provider) and business associates at other times (e.g. third 
party administrator). Keeping track of what kind of relationship and 
what contractual rules to follow with which organization will be very 
difficult, confusing and time-consuming.
    For example, Anthem Blue Cross and Blue Shield has many different 
relationships with other organizations. Anthem plays the role of 
licensed insurer and third party administrator (TPA) for medical and 
dental plans. Anthem is a pharmacy benefits manager (PBM) as well. In 
some cases, Anthem would be considered a covered entity; in other cases 
we would be considered a business partner. In fact, in some cases, like 
when we perform coordination of benefits (COB) with other insurers, 
both Anthem and the other insurer would be acting as covered entities, 
not as business associates of each other. We would not only have to 
follow rules as a covered entity but a host of other organization's 
rules and procedures as their business associate.
    The timeframe for re-negotiation of contracts with business 
associates is also a significant problem. Health plans and other 
covered entities will have two years to update contracts in conformance 
with the privacy rule. Considering the multitude of relationships that 
we have with other organizations, we are concerned that two years is 
insufficient time to inventory all business associate relationships and 
re-negotiate contracts. Moreover, if a contract lacks a unilateral 
agreement clause that allows the health plan to change the contract 
only with respect to the privacy rule's requirements, the entire 
contract could be opened up for re-negotiation--a time-consuming 
process possibly involving discussions over new payment rates and other 
contract clauses.
    And finally, we believe the business associate provisions are 
outside of the statutory authority of the Department of Health and 
Human Services. HIPAA clearly delineates the covered entities subject 
to HHS oversight: health plans, clearinghouses, and providers 
conducting standard transactions. By attempting to indirectly regulate 
other organizations, we believe HHS acted beyond its regulatory 
authority.

4. Consent and Individual Restrictions
    The final regulation requires health care providers to obtain 
consent before using or disclosing protected health information for 
treatment, payment or health care operations. In addition, it allows 
individuals to ask the provider to restrict the use or disclosure of 
certain health information.
    We remain concerned that a requirement to obtain consent for 
treatment, payment and health care operations could unintentionally 
delay and impede routine operations that are essential to providing 
quality care and timely payment.
    The regulation's transition rules allow providers to use and 
disclose information collected prior to the compliance date based on a 
patient's prior consent. However, if a provider has not obtained a new 
consent by the compliance date for treatment, payment or health care 
operations, he/she would be unable to use or disclose information 
collected after April 14, 2003 for that patient. The regulations 
anticipate that providers would simply obtain consents when patients 
arrived for treatment. The rule also states that consent forms obtained 
before the compliance date may meet the rule's requirements--however 
many providers may not have consents on record, and if they do they may 
not be for treatment, payment and health care operations--but only for 
one of these imperative functions.
    Imagine that a mother is calling her pediatrician on the phone for 
advice on her sick baby. Her last actual visit was well before the 
compliance date and there is no consent on record. Does that mean the 
pediatrician cannot look at the child's medical record while on the 
phone? What about an individual calling on behalf of an elderly 
relative for clarification about a particular medication but with no 
consent for that individual to access information? Or requesting 
additional payment information where the historical consent on file was 
only for treatment?
    If a provider obtains a new consent but it does not list 
``payment'' or ``health care operations'', there may be downstream 
impediments for some routine operations because providers could only 
disclose information for treatment purposes. For instance, claims may 
not be able to be paid, case management programs could suffer, and 
special pharmacy programs and other programs that benefit consumers 
also could be impaired because disclosures for these purposes depend on 
consent forms including treatment and health care operations.

C. Positive Aspects of the Privacy Regulation
    Clearly, we believe there are significant issues in the final 
privacy regulation. However, HHS did address many comments in the final 
regulation in their effort to balance operational impacts with the 
overall goal of privacy.
    A few of the most positive elements in the final regulation 
include:

 ``Statutory'' Consent for Treatment, Payment and Health Care 
        Operations for Health Plans: The regulation does not require a 
        new consent for treatment, payment, and health care operations 
        for health plans. We believe a ``statutory'' consent, meaning 
        that covered entities may use or disclose protected health 
        information without consent as a matter of law, is imperative.
      Requiring health plans to obtain a new consent from current 
        members would require numerous mailings and phone calls from 
        health plans--a process akin to a ``late bill'' collections 
        process--in order to obtain the new consents. In the interim, 
        members and providers would experience delays in payment and 
        other services.
 Improved Definition of Health Care Operations: The final 
        regulation includes a modified definition of what constitutes 
        ``health care operations'' that reflects many of the comments 
        received by HHS. The definition is critical since items 
        encompassed within it are exempt from new authorizations and 
        tracking of disclosure requirements that would create obstacles 
        to conducting essential health plan activities.
      We are pleased that HHS has incorporated many important and 
        routine health plan activities into the final rule's 
        definition. For example, we believe the definition may now 
        allow health plans to continue many of their beneficial disease 
        management and other quality improvement programs. The new 
        ``business management and general administrative activities'' 
        category will facilitate routine plan operations such as 
        security activities, data processing and general maintenance. 
        The ``business planning and development'' category will help 
        plans to continue to develop more cost-efficient services and 
        products.
 No Third Party Liability in Business Partner Contracts: The 
        final rule deletes the requirement that makes individuals third 
        party beneficiaries of business associate contracts. We support 
        deletion of this clause since HHS did not have the authority to 
        create a new private right of action. The third party liability 
        clause was not only beyond the scope of HHS' authority, but it 
        would have left health plans and other covered entities exposed 
        to substantial liability for breaches of privacy by business 
        associates.

D. Recommendations on the Privacy Regulation
    While we continue to analyze this complicated rule, our specific 
recommendations to date are:
    (1) Provide a Detailed Analysis on Preemption of State Law (A Road 
Map for Consumers): While we recommend a full preemption of state law 
in the privacy area, we understand that it is outside of the statutory 
authority for HHS. In the absence of full preemption, we recommend HHS, 
working with the states, prepare a detailed analysis of state and 
federal law to provide a clear guide on all provisions affecting the 
health care industry.
    It is critical that this guidance is available at least two years 
prior to the compliance date of the regulation. Bringing operations 
into compliance with these complex new regulations will be expensive, 
so it is critical that doctors, health plans, and other covered 
entities only have to modify systems and other items once.
    (2) Change the Minimum Necessary from Legal Standard to Guiding 
Principle: While we believe the minimum necessary standard is a 
laudable goal, we are concerned that it would be extremely difficult 
and expensive to implement this standard operationally and comply with 
it as a legal standard. Therefore, we recommend that HHS ask 
organizations to include the minimum necessary standard concept only as 
a guiding principle, not as a legal standard.
    (3) Remove Business Associate Provisions. The business associate 
provisions should be removed from the regulation because they are:

 Outside of the Secretary's statutory authority;
 Confusing and create unnecessarily expensive relationships 
        between doctors, health plans, and other covered entities; and
 Unnecessary since the vast majority of protected health 
        information is maintained by organizations that are covered by 
        the regulation.
    At a minimum, we feel the business associate provisions should be 
changed as follows:

 Covered entities should not be considered business associates 
        of each other; and
 Covered entities should be given at least three years to re-
        negotiate contracts and come into compliance with the business 
        associate provisions.
    (4) Provide a Statutory Consent for Health Care Providers: In the 
proposed rule, HHS recognized some of the operational problems of 
requiring authorization forms for treatment, payment and health care 
operations. We agreed with HHS' views, but recommended that covered 
entities be given the flexibility of requesting authorizations for 
treatment, payment and health care operations. The proposed rule would 
have actually prohibited it, unless required by State or other law.
    We are pleased that the final rule retains a statutory consent for 
treatment, payment and health care operations for health plans, with 
the flexibility to request a consent if desired. However, we have 
concerns that the final rule requires health care providers to get 
consent for these essential functions. We feel that required consent 
may lead not only to operational issues, but could also affect 
treatment activities and quality of care.
    (5) Include Additional Funding for Medicare Contractors and other 
Government Programs. We also urge congressional appropriators to factor 
the additional cost of privacy compliance into budget development 
regarding the Medicare fee-for-service contractors, Medicare+Choice 
plans, the Federal Employees Health Benefit Program, and other federal 
programs.

 II. ADMINISTRATIVE SIMPLIFICATION AND THE TRANSACTIONS AND CODE SETS 
                               REGULATION

    HHS' authority to promulgate privacy regulations specifically stems 
from Subtitle F of HIPAA--Administrative Simplification. Subtitle F was 
intended to facilitate the development of electronic data interchange 
(EDI) in the health care industry. In addition to the privacy 
regulations, this Subtitle directs HHS to establish national code sets, 
electronic standards for certain routine transactions, security rules, 
and standard identifiers for providers, health plans, employers and 
individuals.
    In August 2000, HHS finalized the first of a series of regulations 
implementing the administrative simplification provisions of HIPAA. 
This first final rule standardizes electronic transactions used by 
health plans and providers for several routine functions (e.g., claims 
submission, eligibility inquiries, remittance), and codes for services 
and procedures used by hospitals, physicians, drug stores, and other 
providers. The rule generally requires compliance by October 2002.
    Although Blue Cross and Blue Shield Plans and many others in the 
health care community have been working diligently to implement the 
transactions and code sets final rule, we have uncovered significant 
obstacles that make it unlikely that the health care community can 
complete implementation by 2002 without significant disruption and 
assumption of unnecessary costs. We urge HHS and the Congress to 
recognize the significant implementation problems that exist and to 
extend the implementation timeframe. Other organizations, such as the 
National Governors' Association and the American Medical Association 
also are calling for an extension.
    We believe the current compressed implementation timeframe is 
inadequate and will lead to significant cost issues which we discuss in 
the next section of testimony. In addition, the current time frame will 
prevent resolution of numerous unintended consequences and the fact 
that there is limited availability of technology resources.
Unintended Consequences
    The scope and complexity of the changes required by HIPAA will be 
difficult to implement during a two-year time frame, let alone test 
thoroughly. The two-year implementation timeframe simply does not allow 
time to test the massive system changes that are required. Without 
proper advance testing, system glitches will result in incorrect 
payments, complete payment breakdowns and other service problems that 
would hurt both consumers and doctors. The system breakdowns could also 
impede the answering of basic customer service questions, responding to 
provider eligibility inquiries, and other critical functions.
    Even more importantly, with less than 19 months of implementation 
timeframe remaining, numerous key issues remain unresolved. For 
example:

 There are several new mandatory code sets that the industry 
        has little or no experience using--such as the NDC drug codes. 
        The implications of changing from J codes to NDC drug codes 
        have not fully been realized or resolved to date--for instance, 
        how will these changes affect payment policies?
 Standardized national code sets preclude the use of local 
        codes for commercial use and this may have unidentified 
        repercussions. The use of locally developed non-standard codes 
        is particularly prevalent for home health services, long term 
        care services and certain mental health services. Not only do 
        the national code sets have to adopt new codes for these 
        areas--a traditionally time-intensive process--but the new 
        codes must be adopted and distributed in time for covered 
        entities to make extensive system changes, train their 
        personnel and evaluate any impact the new codes will have on 
        payment, different state and federal laws, and other issues. To 
        maximize efficiency and minimize costs--these codes should be 
        available at a date prior to when providers and health plans 
        begin their major system upgrades to implement the HIPAA 
        standard transactions. At this point, it is questionable as to 
        whether these codes will even be ready by the compliance date.
      In addition, today local codes are used to reimburse for new 
        technologies, to respond to state legislative mandates and to 
        comply with employer benefit administration requirements. It 
        remains to be seen how these new codes will be developed and 
        distributed in a timely basis after October 2002. A system to 
        address new code adoption on an accelerated basis should be 
        established--and tested for operationability--prior to HIPAA 
        implementation.
 A preliminary comparison of the new claims transaction and 
        paper claim formats have identified 60 differing data elements 
        to date. These data elements are included in the electronic 
        standard but are elements that providers do not currently have 
        to collect, store, or transmit as part of the current process. 
        In the future, all providers will need to be able to gather and 
        input these new data elements. This will change the way all 
        providers operate--including those that are paper-based only. 
        The implications of these data changes need to be understood 
        and communicated to covered entities before a successful HIPAA 
        implementation can occur.

Limited Availability of Technology Resources
    Hospitals, doctors, and health plans will be simultaneously 
revamping their systems to meet HIPAA compliance standards between now 
and October of 2002. This will generate an extraordinarily high demand 
for programmers, consultants, and other technical experts. Given the 
tight job market and shortage of technology professionals, it is 
unlikely that the technology community could meet this demand within 
the current implementation timeframe.
    Additionally, vendor readiness and availability will directly 
impact the ability of hospitals, doctors, and payers to even begin to 
assess HIPAA needs. According to a recent Gartner Group Survey, 74 
percent of healthcare organizations--payers and providers--expect to 
require assistance from consulting firms or systems integration firms 
to complete HIPAA assessment projects. Despite this great demand, only 
15 percent of those surveyed had begun to assess HIPAA needs.
    Finally, many providers and payers are dependent on vendor software 
to become compliant. Yet several major vendors have indicated that they 
will not have compliant applications available until the end of the 
first quarter of 2002. This further reduces the time the industry will 
have to implement and properly test systems. In addition, with less 
than 19 months left for implementation, Tillinghast-Towers-Perrin 
indicates that they are not aware of any provider clearinghouse or 
billing agency that is fully HIPAA compliant at this time.

 III. THE COST OF THE PRIVACY AND TRANSACTION AND CODE SET REGULATIONS

    As we discussed previously, BCBSA supports a basic set of privacy 
rules for the health care industry that assures consumers that their 
health information is kept private. We recognize that assuring consumer 
privacy involves additional resources. For us, the question is not 
whether privacy will generate costs, but whether the costs are more 
than they need to be. We believe a new final rule could be structured 
in a way to provide our customers with a better value.
    HHS estimated the proposed privacy regulation to cost $3.8 billion 
over five years. HHS updated its cost estimate in the final rule to be 
almost $18 billion over ten years--more than double its estimate for 
the proposed rule. However, we believe HHS' cost estimates continue to 
be understated.
    In response to the original proposed regulation, BCBSA commissioned 
Robert E. Nolan Management Consulting Company to provide an independent 
estimate of several key provisions of the proposed regulation. Nolan 
estimated more than $40 billion over five years in added costs for 
health plans, providers and other members of the health care community. 
A new, soon to be released, analysis by Nolan indicates most of these 
costs remain applicable to the final privacy regulation and that HHS 
continues to dramatically underestimate the potential costs of the 
privacy standards.
    For instance, HHS assumes that the privacy officer function will be 
assigned to a current employee and only will add 15 minutes of time per 
week for non-hospital providers on an ongoing basis, and only 1.5 hours 
for hospitals and health plans per week on an ongoing basis. Nolan 
believes that the breadth and weight of responsibilities of a privacy 
officer will consume significantly more time and many organizations 
will assign a full-time officer. This is just one example of a privacy 
standard for which we believe the HHS estimates are low.
    The final privacy regulation assumes that the privacy costs will be 
fully offset by savings from the implementation of the administrative 
simplification standards. We believe that the cost of administrative 
simplification implementation has been underestimated by HHS as well, 
and that smaller and rural providers will find it especially 
challenging to absorb these very significant costs. For instance:

 Code Standardization Triggers Costly Process: One of the most 
        significant changes required by the transactions and code set 
        August rule is the standardization of all codes. Providers will 
        now have to use the exact same codes for every procedure, 
        instead of a host of locally grown codes. This requires not 
        only major systems upgrades, but is extremely resource 
        intensive because codes are interwoven throughout every 
        function a provider performs (e.g., treatment, quality 
        assurance, fraud detection).
      Because of the August 2000 release date of this rule, many 
        hospitals were unable to include these costs in their 2001 
        budget cycle and have not allocated funds. Smaller providers 
        and rural providers will find it especially challenging to meet 
        these cost requirements.
 Staggered Rule Release Increases Costs: It is important to 
        recognize that the transaction and codes sets rule is one of 
        several rules composing HIPAA. The industry expected that it 
        could implement all the rules (i.e., security, privacy, 
        transaction/code sets, and identifiers) as part of one 
        comprehensive system upgrade. However, only privacy and the 
        transactions rule are in final form. The staggered nature of 
        the issuance of these rules will unnecessarily increase 
        compliance costs by requiring covered entities to continually 
        revisit system changes. Ultimately, these expenses will be 
        passed onto consumers and employers through the increased cost 
        of medical care.
 Current Timeframe Creates Unnecessarily High Costs: The 24 
        month timeframe (now fewer than 19 months) precludes covered 
        entities from making HIPAA changes as part of the normal 
        systems replacement, consolidation, and upgrade process. As a 
        result, many organizations will have to waste valuable 
        resources making older, existing systems compliant--even though 
        those systems already are slated for replacement. Additional 
        implementation time would allow the industry to spend resources 
        more efficiently by converting to a new HIPAA compliant system 
        from the outset--instead of upgrading and then eliminating old 
        systems.
 Timing Could Drive Providers Away from EDI: Many providers 
        will be unable to become HIPAA compliant within the 
        implementation timeframe remaining. Some of these providers 
        already submit claims electronically, but will revert to paper 
        claims once the HIPAA deadline is reached. This would run 
        counter to the goals of HIPAA, and would unnecessarily increase 
        costs as well. Rural providers and those with limited resources 
        will be the least likely to have the capacity to comply and 
        thus realize the benefits of standardized EDI.
    Because of our concerns regarding the cost impact of administrative 
simplification on providers, BCBSA asked Tillinghast-Towers-Perrin 
(TTP) to analyze the provider costs of the administrative 
simplification transactions and code sets rule released in August.
    The TTP study predicts implementation costs significantly higher 
than those estimated by HHS: it estimates that hospitals will incur 
costs between $775,000 and $6 million for the transactions and code 
sets alone. HHS had estimated costs of $100,000 to $250,000.
    The TTP report also indicates that physician's offices with 3 or 
fewer physicians are expected to incur between $3,000 and $10,000 of 
costs, while offices with upwards of 50 physicians could incur costs 
between $75,000 and $250,000. HHS had estimated physician costs of 
$1500 for three or fewer physicians and $4,000 for groups of three or 
more.
    In addition to estimating costs that were three to twenty-four 
times higher than HHS, TTP also reported that many hospitals may be 
underestimating the cost to migrating to standardized formats. A TTP 
survey of hospitals found that none of the survey respondents had 
completed comprehensive budgets to implement the electronic standards.
    In addition, only a few hospitals had completed even preliminary 
ROI analyses and those few analyses do not account for ongoing changes 
to standardized formats once they are implemented. For example, it is 
highly likely that the American National Standards Institute (ANSI) 
will recommend movement to the International Standard Format in the 
near future that the remainder of the business world already is 
adopting. Consequently, three years from now it is likely that the 
health care industry will be implementing the international standard, 
souring any ROI projections that have been adopted today.

C. Conclusion
    Once again, we appreciate the opportunity to testify before you on 
this critical issue.
    We would like to continue working with you, and the Department of 
Health and Human Services, on crafting privacy rules that meet our 
common goals of protecting consumers, improving quality, and minimizing 
costs. We also look forward to working with you to adopt a workable 
timeframe for the implementation of administrative simplification 
transactions and code sets.

    Mr. Bilirakis. All right. The bells again. There is a 
series of votes. It is more than one vote, so we are going to 
break long enough to give you an opportunity to grab a bite if 
you would like, and to give you some stability here in terms of 
a certain time. But I just wanted to give you something to 
think about during the break. I daresay there isn't a single 
one of you that does not want to do something from a privacy 
standpoint, and that something should be something substantial, 
that is real.
    As I understand it, the implementation would be effective 
April 14, this year. But the compliance would not really take 
effect until 2 years hence. Does that mean that the providers 
and the patients, do not have to do anything for 2 years, or 
does that mean that the rule is in effect, and they have to 
follow the regulations during that period of time, however, 
they can't be punished until the compliance period is met? Is 
that correct? It is something that we want to find out. I see 
Ms. Goldman shaking her head.
    I daresay probably at least half of you, if not all of you, 
know more about this than we do.
    I guess my point goes to the fact that we want privacy, and 
we want it as soon as we can have it. Every one of you has 
indicated that you want the regulations; however, you would 
like to see some changes made to those regulations. You feel 
that there are some weaknesses in certain areas that have you 
mentioned in your testimony, and that there are other areas.
    As I understand it, once the regulations go into effect, 
they can't be changed for 1 year, and any changes to those 
regulations, other than rate changes that directly affect 
compliance, or other areas that need to be cleared up, would 
have to go through the same process of comment period. So I 
think we are talking about quite a delay in any changes to 
these regulations if, in fact, they go into effect. Which they 
automatically would after the comment period is concerned.
    The point is that we want this done right. We want it to be 
done as soon as possible. But I am not sure that we are going 
to get it done right if we have the regulations go into effect 
immediately after the comment period, which is up at the end of 
this month. So we don't have much time.
    We have 6 minutes, so we are going to have to run. Just 
think about it, Ms. Goldman. If you have responses or answers 
to it, which I trust you do. Thanks. So we are going to break 
until 12:45.
    [Brief recess.]
    Mr. Bilirakis. The hearing will come to order. Again, the 
Chair apologizes to the witnesses and to the audience, but this 
is commonplace up here, unfortunately.
    I would, with unanimous consent, place into the record a 
letter dated March 13 from Helen Ellis Memorial Hospital, 
Tarpon Springs, Florida, to Secretary Thompson; and a letter 
dated March 16 from Eckerd Corporation to me.
    Without objection, those will be made a part of the record.
    [The letters referred to follow:]

                              Helen Ellis Memorial Hospital
                                                     March 13, 2001
Tommy Thompson, Secretary
U.S. Department of Health and Human Services
Attn: Privacy I, Room 801
Hubert H. Humphrey Building
200 Independence Avenue, S.W.
Washington, D.C. 20201

RE: Standards for Privacy of Individually Identifiable Health 
Information

    Dear Secretary Thompson: On behalf of Helen Ellis Memorial Hospital 
in Tarpon Springs, Florida, I am writing to comment on the Department 
of Health and Human Services' final rule implementing the medical 
Privacy standards under the Health Insurance Portability and 
Accountability Act of 1996 (HIPAA).
    Helen Ellis, and all hospitals, are committed to Protecting the 
Privacy of their patients' information. We believe that patients have 
the right to every consideration of Privacy, including the right to 
review and understand medical records. However, in their current form, 
the rules are so complex and prescriptive that they are both unworkable 
and excessively costly.
    Therefore, we strongly urge HHS to suspend the April 14, 2001 
effective date and to fix the rules and get them right. Hospitals 
should not be asked to begin implementing a rule that needs to be 
fixed.
    We have many concerns about the final rule. Here are the most 
pressing:

 Consent (Sec. 164.506)--Reform the rule and grant hospitals 
        sole discretion to determine whether and how to obtain consent 
        from patients for information used or disclosed for purposes of 
        payment, treatment and health care operations.
 Minimum Necessary (Sec. 164.514)--Reform the rule and 
        eliminate applicability of minimum necessary requirements--the 
        single most costly requirement under the rules to uses of 
        information for treatment, and substantially revise them for 
        other uses.
 Oral communications (Sec. 164.501)--Reform the rule and 
        eliminate its applicability to oral communications. HHS clearly 
        exceeded its statutory authority in extending the rule's 
        prohibitions to oral communications and, unless reformed, this 
        requirement could stifle doctor-patient communications.
 Business Associates (Sec. 164.502)--Reform the rule, including 
        eliminating restrictions that would prevent third parties from 
        sharing medical information among hospitals organizations that 
        provided the information in the first place--for important 
        quality improvement and assurance purposes.
 Implementation Date (Sec. 164.534)--Reform the rule and delay 
        the implementation date to a workable, more realistic time 
        frame beyond the current two years.
    By suspending the rules and fixing them according to these 
recommendations, the result will be an improved, more effective privacy 
regulation.
    Thank you for considering this request.
            Sincerely,
                                   Joseph N . Kiefer, FACHE
                                                      President/CEO
cc: U.S. Congressman Michael Bilirakis
   U.S. Senator Bob Graham
   U.S. Senator Bill Nelson
                                 ______
                                 
                                         Eckerd Corporation
                                                     March 16, 2001
The Honorable Michael Bilirakis
U.S. House of Representatives
Washington, D.C. 20510
    Dear Representative Bilirakis: I am writing to request your help 
with revising certain portions of the recent federal regulations 
relating to medical records privacy. As currently written, these 
regulations would have an enormously negative impact on community 
pharmacy operations, threatening the convenience and quality of care 
that consumers have come to rely upon from their local pharmacists.
    While we support strong protections for patient medical records, 
certain parts of the rule are simply unworkable and impractical. 
Specifically, the final regulation requires a patient to provide a 
signed, written consent to the pharmacy before they can obtain 
prescriptions and other health care services.
    What this means is that a pharmacist could not recommend over-the-
counter products and treatment without written patient consent. A 
parent with a sick child could not pick up prescriptions phoned in by a 
physician until a written consent is provided. Prescription refills 
called in after the regulation's compliance date could not be filled 
and ready for pick up until a consent is on file at the pharmacy. 
Moreover, after the compliance date, a pharmacy could not even remind 
patients to refill their prescriptions for chronic use medications.
    Given that pharmacies expect to provide over 4 billion 
prescriptions in 2004 it is clear that these regulations would disrupt 
the lives of thousands of patients. The additional burdens, time, and 
cost imposed on patients and pharmacies by requiring this signed 
written consent far outweigh any additional privacy protections that 
would result from this approach.
    Therefore, I am asking you to write Health and Human Services 
Secretary Tommy Thompson to urge him to remove the requirement that 
pharmacies obtain prior written consent from patients before they may 
use patient information for treatment, payment or health care 
operations. Please write Secretary Thompson with this request by March 
30, 2001, the deadline for public comments on this regulations.
    Please respond as soon as possible, so I may inform my colleagues 
of your actions on behalf of the community pharmacy industry. Thank you 
for your assistance.
            Sincerely,
                                   Jimmy Jackson, R.Ph.    
                              Vice President Pharmacy Relations    
                                                 Eckerd Corporation

    Mr. Bilirakis. I have many questions for Mr. Ortiz, Dr. 
Clough, and Ms. Goldman; and we can go on and on regarding 
specifics, the effect on the neighborhood pharmacists for 
instance, on the current regulation and things of that nature. 
I also have a question for Dr. Appelbaum. I expect that we will 
have more members coming in as we talk here, and other 
questions will probably be raised. We will also ask that you 
respond to us in writing to questions that we will send to you 
in writing after the hearing.
    But what I asked is kind of the bottom-line, and that is, 
do we put these regulations is to effect immediately, knowing 
that there are refinements that must be made? When could those 
refinements be made part of the regulations if we put these 
into effect at this point in time? It is my understanding that 
depending on the interpretation of what the refinement is, 
whether it is just a technical change, or whether it is a 
policy change will determine that.
    So having gone into that and asked you all to think about 
it during the break, Dr. Clough, we can start with you, and 
hopefully you all can get your viewpoints in during my short 
period of time.
    Mr. Clough. We recommended delay. And although we agree 
with the importance of getting some regulations in place and 
making sure that people feel comfortable about privacy, we 
think that there is a downside, a serious downside, to 
beginning to implement something which is wrong. And I would 
say that at our place if these--if this regulation does go into 
effect, we will immediately start spending money to make sure 
that we can meet them as they stand at that date.
    It is sort of analogous in some ways to the Y2K issue. When 
the time approaches, you had better be ready. And you have 
spent the time and money to get ready. That cost us a lot of 
money, and I think it cost everybody a lot of money; and to 
some extent the outcome was ho-hum. But I think it was ho-hum 
because that money was----
    Mr. Bilirakis. You are saying that if these changes can be 
made now before they become a part of the law, then fine. But 
if they can't be, you would want to see delays until they are 
done right.
    Mr. Clough. Not indefinitely, but for some period of time.
    Mr. Bilirakis. Ms. Foley.
    Ms. Foley. Our association would support that the 
regulations commence on the time that they have been identified 
to commence. And certainly if there are areas of interpretation 
for the Secretary for clarification because of some of the 
misunderstanding or interpretations, that would be very 
appropriate. But we think--in the public advocacy role, we 
support the sooner the better.
    Mr. Bilirakis. But how about some of these areas that these 
good people have brought up, which are certainly beyond the 
realm of interpretation or clarification?
    Ms. Foley. They are not my area of great expertise. I would 
be sensitive to them if they were barriers of the regulation. I 
think the regulation is well intended. Clarification is 
required.
    Mr. Bilirakis. Comments were made previously by many 
members of this subcommittee that the Congress did not do the 
job, that we asked the administration to do it. They spent time 
doing so, and we appreciate that. You are right about that. It 
is just that some of these real practical matters are not 
included.
    I am going to take the prerogative and say we have 10 
minutes since my time is already up. Each one of us will have 
10 minutes and no second round.
    Continue on, Dr. Melski.
    Mr. Melski. Yeah, the main issue is one of planning. When 
we fund large information systems projects out of our own 
budget, it often takes 3 to 5 years to implement them. You can 
always accelerate these timetables by spending more money and 
doing it more quickly, but to have uncertainty over a long 
period of time about exactly what is going to be changed 
creates havoc for us. Two-and-a-half percent of our revenue in 
your operations is to support clinic information systems in 
fiscal year 2001. That is $22,000 per each of our 600 
physicians.
    We are in capital equipment planning right now for the next 
fiscal year, which for us starts in October; and if we do not 
know how to plan, we have a lot of problems.
    Our estimate of the direct personnel costs for getting 
consent from the 350,000 unique patients that we see each 
year--we can't wait until the final date. We have to start 
tooling up now, because if it took a half-hour to explain the 
notification in order to get valid consent, that is 175,000 
hours; and it would take 103 full-time employees at 1,700 hours 
each, and $25,000 per employee or $2,575,000.
    Now, you can't say, well, start planning, do your capital 
budgets, do your operational budgets, and then maybe in a year 
all the things that you plan for now are pulled out. What that 
does is, it hurts health care. In other words, we have projects 
that we are scrambling to do to decrease errors in medications, 
for example, we will have to put them at a lower priority so we 
can be in compliance with these applications.
    Mr. Bilirakis. Doctor, forgive me. I want to get through.
    Dr. Appelbaum.
    Mr. Appelbaum. Mr. Chairman, we understand these 
regulations will not go into effect, that is, compliance will 
not be required for 2 years after their formal adoption. We 
also understand that the Secretary has the authority within the 
first 12 months after formalization of the regulations to make 
whatever changes may be necessary.
    Mr. Bilirakis. After the first 12 months, as I understand 
it.
    Mr. Appelbaum. During the first 12 months.
    The Secretary--I have the language in front of me, Mr. 
Chairman, in section 160.
    Mr. Bilirakis. Only to affect compliance, staff tells me.
    Mr. Appelbaum. Necessary to permit compliance with the 
standard or implementation specifications. And I think we would 
interpret some of the comments that were made here today as 
falling well within that standard. For example, no one ever 
intended these regulations to interfere with the ability of a 
family member to pick up a prescription at the neighborhood 
pharmacy, and clarification of that by the Secretary would be 
well within his authority under this standard.
    Mr. Bilirakis. I know Ms. Goldman agrees with that. But she 
will speak for herself.
    Mr. Ortiz.
    Mr. Ortiz. We believe they should be delayed. We are not 
sure that they can be fixed unless you go out with a new 
proposed rule. For example, the concept of statutory 
authorization which was in the original proposed rule and was 
deleted in the final rule, which would have allowed the 
pharmacies to accept the prescription as an implied consent to 
fill out that prescription is something that should be put back 
into the final rule. And I don't know that that can be done 
with simply delaying.
    Additionally there are other components of this which we 
are waiting for before you can even begin to implement some of 
the necessary changes. For example, the security regulations 
are not finalized. I don't know how we can move forward in 
doing some of the software changes, et cetera.
    Mr. Bilirakis. I don't want to get into details, Mr. Ortiz, 
because of time element, but thank you for that.
    Ms. Goldman.
    Ms. Goldman. Mr. Chairman, I think there are two areas 
here, and if we could divide them up, this might make the 
conversation a little easier.
    There are a number of policy differences that have been 
identified on this panel today, disagreements over whether 
there should be a consent requirement or not a consent 
requirement. Those things--I think if the Secretary is going to 
make changes in those, he can probably make changes in those 
before the effective date.
    Mr. Bilirakis. Before the end of the month?
    Ms. Goldman. Or before the April 14 date.
    We do not support doing that. I don't want to signal that 
we do support doing that, but he certainly could do that.
    The second area is the area where there are things that 
were not intended--as the title of this hearing suggests, 
things that were not intended by the legislation, glitches that 
might be in there, clarifications that are needed, guidance 
that the administration can issue or modifications, where 
necessary, to permit compliance as Dr. Appelbaum just cited, 
within the first 12 months of the regulation being effective. 
But that authority, the legal authority the Secretary would 
have to make those modifications, is not triggered until that 
April 14 effective date. Then within those first 12 months he 
could make those changes and we would support him doing that, 
so people do have the certainty they need to move forward.
    Mr. Bilirakis. Thank you.
    Mr. Heird.
    Mr. Heird. April 14 is a shotgun start and we have 24 
months to begin. If the rules change, as was pointed out by a 
couple of answers a moment ago, how much of that work is going 
to be thrown away while we restart? So that is a very serious 
concern of ours.
    Also it seems that for the last 30 days the industry, all 
parties, are giving the Secretary comments. I don't understand 
how they could go through the comments they are going to 
receive in less than 2 weeks, make changes, and understand the 
impact of change A to change B to change C. So I think it is 
almost disingenuous not to think about change.
    Mr. Bilirakis. I believe they have already received many of 
these comments. Some maybe they haven't.
    Mr. Heird. But that is problematic.
    Mr. Bilirakis. My time has expired.
    Mr. Stupak, may I yield to the full committee chairman? Is 
it all right with you?
    Chairman Tauzin. Either way.
    Mr. Stupak. Thank you.
    Dr. Melski, I am looking at your testimony and I see your 
cost estimate for the new rule. Could you describe the details 
that are assumed in your calculations that it is going to take 
30 additional minutes for each patient? In all seriousness, I 
don't think there is anyone on this panel that has ever spent 
30 minutes with the doctor, now you are telling us that you are 
going to spend 30 minutes explaining an informed consent.
    Mr. Melski. You haven't met my mother.
    Mr. Stupak. Is she a physician?
    Mr. Melski. No, but she is an example of an elderly patient 
who would be frightened by signing something she doesn't 
understand.
    And you also have to understand that we are talking about 
children who are transitioning into adult life, where there are 
ambiguities about whose consent you actually need and the whole 
concept of an emancipated minor and whether we get consent from 
them or their parents.
    All of this has to be worked out. Not only does it have to 
be worked out, we have to track it.
    Mr. Stupak. Don't you really--in all seriousness, if you 
are going to do the mother or young child, don't you perform 
complicated procedures on them and don't you have to explain to 
them the complicated procedures that are going to follow? How 
can that be more complicated than explaining an informed 
consent?
    Mr. Melski. I don't think it is, but why do you want to 
double the work?
    Mr. Stupak. If it doesn't take 30 minutes to explain a 
complicated medical procedure, why would it take 30 minutes to 
explain an informed consent? I think most people have an idea 
about privacy, and they do not want their name and personal 
information used outside of our procedure.
    Mr. Melski. Your point is very well taken and so well taken 
that I am concerned, in practice, what will happen if people 
don't understand the notification. They will be coerced into 
signing; and I think that is a bad thing to do; I think people 
should not sign something they don't understand.
    Mr. Stupak. Before you do a medical procedure, let's say 
outpatient surgery, the patients sign a form allowing you to do 
that.
    Have you ever asked any of your patients after they did 
that, did they understand what they just signed?
    Mr. Melski. I understand very well the exact dilemma that 
you were talking about, and that is exactly why I am concerned 
about complicating it by adding another process that has the 
same problems of what is consent, what does it mean, and what 
value does it add? That is the real issue.
    We have much common ground here. We really want to take 
care of people. We want to do the right thing. And I know it is 
dramatic to make it a good guy-bad guy kind of scenario, but we 
are all trying to do the right thing. But I genuinely believe 
that adding a consent with whatever time it takes, or if it 
takes very little time or it is meaningless because people are 
not really looking at it--see, I think the emphasis should be 
on the public disclosure. People should know what your privacy 
policies are.
    We hope at Marshfield Clinic to set an example that other 
clinics in the Nation can follow. We have many of these 
things--we have been doing this for a long time. And we have 
very strong language to protect patients.
    Mr. Stupak. If you have been doing it for such a long time, 
how then does the Secretary's proposed rule differ from what 
you have been doing for a long time? Why should this be more 
complicated, that it is going to cost you over $2.5 million a 
year in direct cost?
    Mr. Melski. The problem is that there are all kinds of 
costs that are not there. So if it is not a half-hour, it is 15 
minutes.
    Mr. Stupak. I am basing it on your half-hour, 103 full-time 
employees, $25,000 per employee, that is 2.575 in direct 
personnel cost, to gather consents in the first year.
    Realistically, look, you go in there, here is the 
operation, here is the consent. You will see maybe an 
anesthesiologist. I never see them the morning they put you 
under, but you sign for them. You don't know who it is. The 
doctor may say I am going to use the Green Bay 
Anesthesiologists, and you sign for that. And here is your 
outpatient and here. Sign here so we can bill your insurance 
company.
    I don't know one patient that sits there and reads it and 
then is quizzed by the doctor afterwards about what went on 
there.
    Realistically you can give the forms to the folks, there is 
the privacy. The people understand it. It can't be more 
complicated to the people that understand it.
    I take exception to 30 minutes, 103 full-time employees at 
the Marshfield Clinic.
    Mr. Melski. Well, the average consents that we have for 
complicated surgical procedures are seldom more than a page or 
two. These notifications that were sent out as a model are nine 
pages long, single-spaced.
    Mr. Stupak. So if you can do a very complicated procedure 
that is only a page long, you are telling me that you can't do 
a consent that is a page long.
    Mr. Melski. No, the consent is different than the 
notification. But the consent is required to refer to the 
notification, and unless people understand the notification, it 
is sort of like saying, sign here, but you have to go somewhere 
else to understand what you really signed.
    That seems to me that that is not the kind of, it is just--
--
    Mr. Stupak. If they sign your consent form, why do they 
have to go somewhere else to understand it?
    Mr. Melski. Because what they signed is saying you agree to 
something that is nine pages long, single-spaced;that is what 
they are signing.
    Mr. Stupak. You are saying that people are not smart enough 
to figure out the nine pages?
    Mr. Melski. I think people are sick and they are sometimes 
ill and they are young and they are old and they have a lot of 
other problems; and so, yes, I am concerned that they don't 
know what they are signing.
    Mr. Stupak. Does anyone else share the concern that they do 
not know what they are signing?
    Ms. Foley--Goldman.
    Ms. Goldman. Can I just clarify something that Dr. Melski 
said?
    This nine-page notice that has been referred to a few times 
was not a notice that was put out by the administration. It is 
a notice developed by the American Hospital Association as kind 
of a worst-case scenario of what a notice might look like. As 
we saw--under the Financial Modernization Act, the notice that 
is required under there; I just got one in the mail the other 
day--it is a small brochure.
    The notice that is required under the regulation could be a 
one-page notice; it does not have to be nine, single-spaced, 
complicated, overwhelming. And the notice is a notice about the 
regulation, not about the consent. It is about your rights 
under the regulation, what you can do about your rights to get 
access to your own medical records.
    Their consent is not even a meaningful consent under the 
regulation. Yes, it is required, as consents are now required 
in health care generally today, but it is a consent that could 
be coerced. You can say, you must sign this--and it could be 
one paragraph--you must sign this in order to get care in this 
facility, you must sign this in order for us to get 
reimbursement for your care. And the notice that is to 
accompany that is a much broader--serves a lot of different 
purposes, and doesn't have to look like one the AHA wrote.
    Mr. Melski. I must say I am astonished by the phrase that 
the consent is not meaningful. I just heard you say you could 
have a consent that is not meaningful. How do we interpret 
that? How do we plan for that? What are you telling us?
    Ms. Goldman. Maybe what would be helpful is for you to try 
to explain what people currently do sign when they are 
admitted.
    Most people do sign--when I say it is not meaningful, they 
can't say, we don't want to sign something that allows you to 
use my information to treat me, yet you must still treat me. In 
that sense, from a strict privacy standpoint, it is not 
meaningful because it is not voluntary. And it is not--it is 
meaningful in the sense that there is their signature, and they 
say they have signed it and they authorize the information to 
be shared. But they cannot withhold that authorization under 
this regulation and continue to get care and continue to get 
payment if that facility chooses not to do that.
    Mr. Melski. The other area that complicates this is that 
there is preamble language that says, we could say that these 
consents are not revokable; but there is also strong language 
that says we should not do that. We are trying to do the right 
thing.
    If we have a consent that is not revokable, this creates an 
administrative catastrophe because then we have to segregate 
records based upon whether the consent has been revoked or not; 
or once again, we have to exercise the prerogative that we were 
told we should not do, that they hope we will not, and that is 
put into our consents that it is nonrevokable.
    Mr. Stupak. People revoke their services all the time. They 
pay their bill and they leave. Because I revoke my consent and 
I no longer want you using my information, should I not have 
that right?
    Mr. Melski. Let's get away from money. Let's take a child 
who has a broken arm by parental abuse and has it taken care of 
and revokes the consent for that to be revealed. You need to 
understand in child abuse it is the pattern of injuries over 
time that determines whether you have concern or not; and the 
parent could use the revoking of consent to hide from one 
provider to another a pattern of behavior.
    Mr. Stupak. But now we are talking about a criminal case, 
and in any child abuse case in any State, you as a physician 
have a right and a legal obligation to report it to the 
authorities.
    Mr. Melski. This is absolutely true. That is certainly true 
in Wisconsin. That is a very good point.
    I am trying to explain that my level of suspicion is based 
on a pattern, and the only way I can understand the pattern is 
to have access to the information of the care that was given 
previously. So when the consent is revoked, I have great 
difficulty doing that.
    Not only that, we have questions about how we can process 
bills, what we have to do with the record, how we have to 
extract it or segregate it electronically. The revocation 
sounds easy. It sounds superficial. But come talk with my 
programmers when we try and implement this.
    This has profound implications, because you have to track 
this very complex situation of whether the consent is in effect 
or not; or what you have to do is, as suggested, make a consent 
that is nonrevokable, again adding to the intimidation factor. 
When you say, here, sign this, you can't revoke it and you are 
sick and you need help, what does that do to the trust 
relationship? How does that help.
    Mr. Bilirakis. The gentleman's time, the 10 minutes, has 
long expired. I would appreciate it.
    Mr. Stupak. Thank you, Mr. Chairman.
    Mr. Bilirakis. The Chair yields to the chairman of the full 
committee.
    Chairman Tauzin. Thank you, Mr. Chairman, thank you for 
this hearing.
    In the opening statement I know was made a part of the 
record already, I quoted the Hippocratic Oath section, that 
says, ``Whatever in connection with my professional service or 
not in connection with it I see or hear in the life of men 
which ought not to be spoken of abroad I will not divulge as 
reckoning that all such should be kept secret.'' That is the 
current oath that doctors, physicians, and health care 
providers take.
    Mr. Appelbaum, I am holding in my hand a letter from the 
APA to the Secretary of Health and Human Services, I want to 
quote from it. It says that, and I quote, ``Patients will lose 
some existing privacy protections because the current practice 
of hospitals, doctors generally requiring patient consent, 
notice of full disclosure, will change as a result of the 
regulation. Patients' ability to decide when their medical 
information will be disclosed outside the health system will be 
reduced.''
    The letter goes on to cite one of those cases. It points 
out that under this regulation ``that attorneys can simply 
certify that the information requested concerns a litigant to 
the proceeding and the health condition of such litigant is at 
issue between,'' and the letter goes on to say, ``These 
procedures provide no check on the attorney's behavior in 
requesting records of marginal relevance to a case or for the 
purpose of embarrassing and intimidating opposing parties.''
    That is a pretty strong statement. These regulations allow 
attorneys--in fact, require doctors to breach the Hippocratic 
Oath, and to give a patient's personal medical information to 
be used simply to embarrass without the court ever supervising 
the demand for this information.
    You go on in your statement to cite seven other cases where 
you find these regulations significantly deficient. On the 
first of these, you are concerned that the language is not 
broad enough to protect all forms of psychotherapy, and that 
these requirements require a second set of records which most 
psychiatrists will not do. This will increase time, difficulty 
and costs associated with recordkeeping.
    Third, you make the point that police officers, under these 
regulations, have the right, and I quote, ``to simply issue 
written demands to doctors, hospitals, and insurance companies 
to obtain patient records without meeting with a judge to 
review the assertions.''
    You cite a further exception that allows the release of 
medical record information anytime the police want to identify 
a suspect. That is pretty broad loophole.
    You mention that, additionally, administrative subpoenas or 
summonses are particularly troublesome because they do not have 
any judicial review, and doctors are consistently, under these 
regulations, required to compromise their oath and to turn over 
information to police, to lawyers, to administrative summons.
    You mention on the next page the overly broad physician 
liability, because a physician is liable with his business 
partners, and the physician may have to keep track of his 
business partners to make sure that none of them violate the 
guarantee he's made to a patient. And you question, for 
example, whether this overly broad liability is going to create 
lawsuits against physicians for what business partners may do.
    On the next page, you talk about the intelligence agencies 
and the State Department compromising private information under 
these regulations. You are particularly concerned about the 
requirement for broad access without a patient consent for 
disclosure of medical records of Foreign Service personnel and 
their families.
    You go on to talk about the fact that the APA believes that 
the cost associated with these regulations is significantly 
understated; that a psychiatrist will experience significantly 
higher costs and will have heavy administrative burdens 
following this extensive and broad regulation.
    And finally you ask, can a psychiatrist who does not have 
any staff and therefore is the privacy official, and if the 
privacy official makes a mistake, is he the only one liable or 
is the doctor liable too?
    You ask some pretty significant questions in your 
statement. I read your statement in the letter from your 
association to the department, and you have got massive 
concerns about these regulations that need to get addressed, 
yet you tell us today we should proceed with this.
    Can you reconcile what appears to be a very apparent 
conflict in those two statements?
    Mr. Appelbaum. I would be very happy to try to do that for 
you, Congressman.
    These regulations give us what is clearly half a loaf. 
There are many ways in which they were inadequate, and you have 
cited many of them here this afternoon. And we could focus on 
those inadequacies and should at some point in an effort to 
correct them.
    But there is the half a loaf that they do give us. They 
give us the first national standards for medical record privacy 
that provide some set of protections for patients which do not 
exist at the moment. They give us a requirement that entire 
pieces of medical records not be released when you can do with 
less. They give us protection for psychotherapy notes which may 
be the most sensitive information in those records. They give 
us the right to inspect and copy one's own health information 
and correct it if it is erroneous.
    Chairman Tauzin. They give you those protections unless a 
lawyer demands them.
    Mr. Appelbaum. They give you those protections unless many 
of the circumstances you cited occur.
    Chairman Tauzin. These regulations are desperately in need 
of repair. You are right. It is a good step. It is the right 
thing to do, to try to create medical privacy rights.
    But you pointed out a list of real dangerous problems, and 
your association actually makes a case for these reduced 
patient rights, rather than expand them, when it comes to some 
people's right to access private information, but a doctor 
swears an oath he won't give it to anybody.
    Mr. Appelbaum. And in many respects they do, but we live in 
the real world.
    Chairman Tauzin. The real world is the Secretary is 
reviewing them now. He is taking public comment. He will be 
before this committee, we expect, next month. We have his 
commitment to do that, to tell us what he thinks about it.
    But the real world is, we have a review process on. We have 
time to correct them and make them right. Don't you think we 
should do that?
    Mr. Appelbaum. I think we should correct them as best we 
can.
    Chairman Tauzin. Let me turn to the pharmacy issue, because 
it is a huge one.
    Gentlemen, imagine--Mr. Chairman, I can't imagine going 
home to town hall meetings to face a public that tells me they 
can't get their prescription filled, that they have to sign 
these consent forms after they have already authorized their 
doctor to issue the prescription for them; and they send a wife 
or child or friend to go to the pharmacy to pick it up, and 
they come back empty.
    I cannot imagine the first liability suit that will be 
filed because, as recently happened with one of my friends, he 
forgot his nitroglycerine and had to get some real quick and he 
shows up at a pharmacy--and I go to get it for him, and I can't 
bring it back for him, and something happens in the interim--
you know, bad.
    You make an awfully good case, Mr. Ortiz, that the patients 
have given their consent for the prescriptions. They go see the 
doctor. The doctor says I am writing out a prescription; go 
pick it up at the pharmacy. You have a problem. You can tell 
the doctor, I don't want you to have the pharmacy know I have 
this problem. I don't want that issued from that pharmacy. You 
can do it right there if you like.
    But the fact that you make no objection, the doctor says, I 
have issued a prescription; here is a copy; take it to the 
pharmacy. And you take it in your hand and you give it to your 
niece, your uncle, or your friend or wife to go pick it up, and 
they come back empty-handed because the government issued a 
regulation that will not let them pick up your prescription for 
you. I can't imagine going to a town hall meeting and facing 
the complaints of my constituents on that.
    I live in a rural area. There are not drug stores on every 
corner in the bayou, I promise you. And going to the drug store 
can be a difficult task for some people who are sick and 
infirm. They have to send somebody else to do the job for them.
    And it occurs to me, Mr. Chairman, that when regulations 
are written without common sense like this, they really cause 
me to step back and say, wait a minute. We had better examine 
every line, dot every I, cross every T that has to be crossed 
in these regulations before I have to go home and answer to 
constituents that can't understand why we have done this to 
them when it was not necessary to protect their privacy.
    Ms. Goldman. Mr. Chairman, would you allow me to respond to 
that?
    I could not agree with you more. I don't think there should 
be anything in these regulations that keeps a relative from 
picking up someone's prescription or keeps a pharmacy from 
being able to fill a prescription; and I actually do not 
believe there is anything in these regulations that prevents 
either of those activities.
    And if there is a concern about whether or not next of kin, 
as it is clearly defined in the regulations, should be able to 
pick up a prescription, if someone has not acted 
affirmatively----
    Chairman Tauzin. Can you imagine us writing a rule defining 
which next of kin qualifies and which does not?
    Ms. Goldman. Excuse me, Mr. Chairman.
    What I was trying to say is that in the regulation next of 
kin are able to receive information about individuals. Only if 
someone takes an affirmative step to limit a disclosure to next 
of kin will that occur. I cannot imagine that a pharmacist will 
not allow a relative or family member or even a friend to pick 
up a prescription, unless that individual said----
    Chairman Tauzin. Staff tells me that you are wrong, that is 
only true if they are under care, not if you are just picking 
up a prescription.
    Mr. Ortiz is testifying to that effect.
    Mr. Ortiz?
    Mr. Ortiz. First of all, in the preamble, which is not part 
of the----
    Mr. Bilirakis. Let's keep it brief.
    Mr. Ortiz. In the preamble it says that the next of kin 
could possibly pick it up. That is only if, in fact, there is a 
filled prescription waiting for them to pick up. I am saying 
there won't be a filled prescription waiting for that 
individual to pick up unless we have that written, prior 
consent.
    Chairman Tauzin. I think we have it on the record.
    Mr. Chairman, thank you. I want to say finally, we will 
have the Secretary here. I will assure the committee he 
committed to come and to brief us on what they are finding out.
    I want to thank you for having this hearing, for giving us 
a chance to shed some light on it, because frankly I hope he 
does a good job of reviewing this regulation before it becomes 
final, and we fix it so that it isn't half a loaf. It is a 
good, full loaf and it is simple and it makes sense and it is 
practical. And when I go home to a town hall meeting, I am not 
roasted alive because I let this happen in a way that doesn't 
make sense.
    Mr. Bilirakis. Thank you, Mr. Chairman.
    Ms. Capps.
    Mrs. Capps. Thank you. I would like to express my thanks to 
this large panel for your persistence and endurance through 
this testimony. It is really valuable to us; and I appreciate 
it and I hope Mr. Chairman you will allow me to confess that 
after Ms. Foley gave her statement, I uttered a ``Right on'' to 
myself; I didn't say it out loud. Because I do appreciate the 
voice of nurses being heard on many of our health issues.
    And I am thinking about this particularly with respect to 
the topic at hand. There are 2.2 million nurses across this 
country, and I daresay in the real world of today, where 
privacy is being both invaded and protected, as we speak, in a 
variety of health care settings that many of those consent 
forms are actually being corrected by nurses. And I want to 
give you a chance to talk about that. You are one of the most 
enthusiastic or optimistic about where we are right now.
    In this country, I would imagine we have a patchwork of 
privacy protections, and again, nurses are experiencing all of 
this in various settings. And yet you remain optimistic that 
this is something we can go forward with, given the 
circumstances with which it was reviewed.
    Can you summarize or describe the time and effort that you 
believe compliance with this regulation--what that will mean 
for providers of health care?
    Ms. Foley. Thank you, Congresswoman. I appreciate the 
opportunity to explain a little further why we are optimistic.
    While--on balance, many providers in this country are 
making their very best effort to meet this very standard; 
however, it is not uniform, and that is one of the reasons we 
were very supportive of it as a Federal regulation. In 
reality--and I appreciate the doctors' concern about informed 
consent, but in the normal course of nursing work, we are 
constantly informing and obtaining consent and verifying that 
the information is well understood and then thoroughly 
documented. That is very much a part of our role in the 
admitting and even in outpatient settings, all the way through 
each procedure and each test; and it is an ongoing process. And 
if it is time-consuming, it is time very well spent, so that 
people in our country understand the care they are receiving. 
And if the disclosure of information is part of that 
information that is shared, then well it should be.
    So we really continue to support the principle that this is 
the right way to approach the information and that it is doable 
within the context of the many other commitments that we have.
    I want to give an example, if I could, under the definition 
of the minimum necessary standards.
    Mrs. Capps. Yes. I was going to ask you about that very 
thing.
    Ms. Foley. I think that is an opportunity to give some of 
our real-world experience.
    In balance of the treatment and in reading the 
clarification of the regulations and the provision, 
coordination and management of care, certainly the judgment 
prevails that in exchanging information that is appropriate, 
that is required to give full treatment. Let me give a quick 
example of two reasons, two ways we can look at this, and these 
are policies that already exist--at least in acute care 
settings that I am familiar with.
    If I am the nurse and I have been asked to administer a 
unit of blood to a patient who needs blood, and I have a 
physician order to do so, and I have obtained the laboratory 
consent, the blood consent form from the patient, after 
informing them, verifying that they understand the physician's 
information that they need to receive a unit of blood--and 
again this is with somebody who is competent, and I understand 
the doctor identified the issues for guardianship and 
competency--I will take this chart--in order to provide better 
patient safety, I actually take the full chart down to the 
laboratory.
    And I, in my facility, was required to share with the 
laboratory technician the patient identification, the physician 
order and the blood consent form; and nothing else in that 
chart was to be shared with that lab technician nor would it 
have been appropriate for me to start flipping through the 
medication records, the surgical report or any other 
information. In other words, that minimum necessary for me to 
get a safe unit of blood for that patient specifically was 
indeed the standard, and it is common practice.
    The dietitian wants information about the patient--minimum 
necessary could be more expansive. For example, they want to 
know what medications the person is on because of drugs, 
medication, adverse events.
    I think the standard is quite interpretable, and in many 
cases, already well enforced by policy and practice in many of 
our institutions. And as employees of facilities--all of the 
employees, whatever category, licensed and unlicensed--are 
required to respect those policies and adhere to those 
confidentiality matters.
    And so, again, it is a standard that most people strive 
for. The uniformity of a Federal regulation can only help us do 
better.
    Mr. Melski. May I respond?
    Mrs. Capps. Yes.
    Mr. Melski. I agree. We basically--we have so much common 
ground here. That is why it is painful to cast it as a 
struggle. But what you just heard was a description of a person 
with a single role. We have a very complex organization where 
roles are constantly changing.
    Mrs. Capps. Could I interrupt just for a second?
    I believe the illustration was meant to lift out a single 
role in a very complex setting of health care.
    Mr. Melski. Right. That is exactly my point.
    That is, when we have nurses that need to cross-cover or 
change their roles from day to day, when we have to build 
electronic systems which track what role they are playing today 
and, therefore, the minimum necessary in their role this day is 
different than the minimum necessary in their role another day, 
this becomes exceedingly burdensome. I see you shaking your 
head.
    Mrs. Capps. Well, I want Ms. Foley to be able to respond to 
you.
    Mr. Melski. I hope you are right. But the problem is that 
the hopes and the opinions are not in the regulations, and that 
is where we are concerned.
    Ms. Foley. I actually think I described a couple of 
multidisciplinary interactions that give an example of the role 
of the entire treatment team. And it is the provision, 
coordination and management of health care, including 
consultations and referrals between health care providers. It 
does allow--I don't know how the doctor could say nurses change 
roles. We have a scope of practice and a license, so I am not 
sure what he is describing. I don't wish to argue that point. 
The very ability in which we all find our work settings does 
not mean it to be more restrictive. It is still very possible 
to meet the standards and protect the policy.
    Mr. Appelbaum. May I follow up on that? Because I think 
there is a helpful way of amplifying that.
    With regard to the minimum requirement, the regulations say 
specifically that ``minimum necessary'' does not apply to 
disclosures to or requests by a health care provider for 
treatment. So anything that is treatment-related, health care 
provider, nurse, physician, or anyone else directly involved in 
care, this minimum necessary requirement is simply out the 
window. It is not an obstacle to the transfer of information.
    If I can add----
    Mrs. Capps. Please.
    Mr. Appelbaum. The extent of opposition to the prospective 
consent requirement is in many respects staggering because it 
is a minimal requirement that was considerably scaled back from 
the status quo at the request of many of the entities in the 
health care industry that are now currently complaining about 
how extensive the requirement is.
    The status quo is that we get consent from all of our 
patients prior to any release of information--contemporaneous 
consent, not blanket advance consent. So it is truly a minimal 
requirement that was designed to minimize costs and burden and 
ought to be seen in that light. We were doing a little bit 
toward protecting patients privacy and by no means going 
overboard in that direction.
    Mr. Melski. What was said was correct for disclosure; what 
was said was not correct for use. In other words, the minimum 
necessary standard as it applies to the use of the information, 
we have the paradoxical situation where I can disclose the 
entire medical record to another health care organization, the 
entire record, and yet as I try and use it within my own 
organization, to use it the minimum necessary standards 
applies.
    Now that is a tremendous paradox, and in terms of the 
amount of time--I mean, I understand and respect the consents 
that are done every day for surgical procedures and so forth; 
but let me share with you that we also do a tremendous amount 
of research, and our research consents more closely resemble 
the notification, and that is, they are many pages long. And we 
have statistics based upon obtaining consent for research that 
do take 20 to 30 minutes.
    Mrs. Capps. Yes. I think we are describing a lot of 
different things. But if I could, Mr. Chairman, if you will 
allow me say--and I want Ms. Foley to respond.
    Mr. Bilirakis. Just in a few seconds, please----
    Mrs. Capps. I know.
    Mr. Bilirakis. [continuing] because we have another series 
of votes, and it would be great to finish up.
    Mrs. Capps. It strikes me how much education is required in 
all we are talking about, that whoever is consenting also needs 
to be apprised of in a setting not conducive to reading nine 
pages.
    But if you would like to give a response, very----
    Mr. Bilirakis. Very briefly, please.
    Ms. Foley. Absolutely, Congresswoman.
    It does require the exchange of good information, 
oftentimes done verbally in addition to the written because it 
does require interpretation and clarification of understanding. 
If someone is to receive an operative report, I would ask them 
questions about that procedure; and that is common practice to 
make sure they understood if because the written word, and 
oftentimes our medical jargon, does confuse.
    Mr. Bilirakis. Thank you.
    Mr. Buyer to inquire.
    Mr. Buyer. Thank you, Mr. Chairman.
    Mr. Heird, the comments that you have made in your 
statement, I want to let you know I agree with when you mention 
about the unintended consequences, about the scope and 
complexity of the changes required by HIPAA to implement this 
in a 2-year timeframe. I want to associate myself with your 
comments here.
    But I am also bothered by such stark differences in 
testimony about costs. First, HHS estimated that the proposed 
privacy regulation costs $3.8 billion, over 5 years. Then they 
update the cost estimate. They think the final rule will cost 
$18 billion.
    Then with regard to the administrative side of the house--
this implementation, the administrative simplification, and the 
transactions and code sets regulation--that somehow is not 
supposed to cost anything. That is going to save money as I 
read the testimony of Ms. Goldman. I don't believe that because 
there are going to be some costs here.
    So, Mr. Heird, you are a senior officer here in a very 
large health insurance company, talk about the costs and 
implementation here and then give some recommendations to the 
committee on what we should do as we try to implement this 
rule.
    Mr. Heird. Congressman, our views about the cost of the 
program square with yours. We believe that in our particular 
case--for instance, Health and Human Services suggested that a 
large health plan would spend about a million dollars to be 
compliant with HIPAA and all its dimensions; we are going to 
spend approximately a hundred times that number. About half of 
that will be for transactioning code sets.
    Mr. Buyer. A hundred million dollars?
    Mr. Heird. Yes. And about $50 million of that will be for 
transactioning codes.
    And I point out to you that about 70 percent of our claim 
transactions today are already automated. In other words, they 
come in in a paperless mode. So from our point of view we do 
not know where these alleged savings will occur.
    The remaining $50 million will be in privacy and security, 
and so from our standpoint, it is, as I pointed out in my oral 
testimony to you, pure cost to us. I don't want to say that 
privacy is an issue because it costs money, but clearly the 
value will be delivered.
    But as we also look at hospitals, we have issued a report, 
and I would like to suggest the committee see that report 
yesterday from Tillinghouse Towers Perry where they estimated 
what the cost would be for the provider industry. The initial 
estimates for hospitals for transactioning codes alone were 
between $100- and $300,000. The latest study would suggest that 
the cost would be $750,000 to over $3 million to implement just 
the transactioning codes.
    Our thought is that privacy for hospitals will be more 
expensive than the transaction and code set requirements, so we 
think that the cost estimates are woefully inadequate and there 
really will not be savings to offset the cost of desired 
privacy features.
    Mr. Buyer. Mr. Chairman, I would ask unanimous consent that 
the Tillinghouse-Towers Perry report, as referenced by Mr. 
Heird, be incorporated in the record.
    Mr. Bilirakis. Without objection.
    [The report follows:]
                 Blue Cross and Blue Shield Association
 Final Report: Provider Cost of Complying with Standardized Electronic 
                                Formats

                               MARCH 2001
                           EXECUTIVE SUMMARY

    While the move to standardized electronic transactions in the 
health care industry is long overdue, most hospitals and provider 
organizations are underestimating the magnitude of the challenge--both 
in terms of time and money. The standardization of transactions and 
code sets will generate significant financial issues for providers. The 
changes to provider information systems will affect nearly every aspect 
of business operation and will require significant coordination across 
the healthcare industry.
    All of this takes time, but time is running out. Under the current 
rule, wholesale change to the billing platform of the health care 
industry must be done by October of 2002. The unanswered question is: 
will the industry be ready to embrace this change without significant 
reductions in service and a short-term increase in costs as 
organizations seek and implement remedies?
Study Findings:
 Most provider organizations are underestimating both the 
        investment costs and the time required to comply with 
        standardized formats.
 The migration to standardized codes and loss of unique 
        identifiers and local codes may cause some providers to lose 
        special payment considerations that have been historically 
        negotiated.
 A November 2000 survey of hospitals found that none of the 
        surveyed organizations have completed a comprehensive budget to 
        implement the electronic standards. These results were 
        substantiated by follow-up calls in January 2001.
 Tillinghast-Towers Perrin estimates that it takes roughly five 
        years to generate payback and payback estimates are highly 
        dependent on achieving a significant reduction in accounts 
        receivable.
 These ROI calculations do not account for the potential of 
        significant changes to standardized formats and code sets that 
        may occur during the payback period.
Cost Estimates:
 In the final rule for standardized formats, HHS estimated 
        hospital costs to be $100,000 to $250,000, however Tillinghast-
        Towers Perrin estimates costs to a mid-sized hospital (200-300 
        beds) are $775,000 to $3.5 million.
 Costs to teaching hospitals and other integrated delivery 
        systems are $1.5 to more than $6 million per organization.
 Costs to individual physicians are approximately $3,000 to 
        $5,000.
 For a typical 50-physician practice costs could range from 
        $75,000 to $250,00 depending on age and characteristics of the 
        information systems.

 FINAL REPORT: PROVIDER COST OF COMPLYING WITH STANDARDIZED ELECTRONIC 
                                FORMATS

History
    The Secretary of HHS released final rules regarding electronic 
formats for the health care industry in August 2000. Developed under 
the auspices of the Administrative Simplification section of the Health 
Insurance Portability and Accountability Act of 1996, these 
standardized formats are one in a series of rules that are required by 
the Act. Under the regulations, covered entities (health plans, health 
care clearinghouses, and providers who transmit administrative data in 
electronic form) will have two years to comply--October 2002. The 
standard transactions required are:

 Health claims and equivalent encounter information
 Enrollment and disenrollment in a health plan
 Eligibility for a health plan
 Health care payment and remittance advice
 Health plan premium payments
 Health claim status
 Referral certification and authorization
 Coordination of Benefits
    Under the rule, if a covered entity conducts any of the above 
transactions with another covered entity (or between covered entities 
owned by the same parent) using electronic media, the covered entity 
must use the standard formats adopted by HHS.
    In addition to standardized formats, the regulation requires the 
use of specified national medical code and non-medical code data sets. 
A code set is any set of codes used for encoding data elements, such as 
diagnosis codes, and medical procedure codes. In general, the code sets 
adopted by the Secretary include:

 ICD-9 coding for diagnoses and inpatient services
 CPT-4 for professional services
 CDT-3 for dental services instead of HCPCS ``D'' codes
 NDC for drugs instead of HCPCS ``J'' codes
* All locally defined codes are eliminated
    Other aspects of HIPAA Administrative Simplification include:

  Privacy.................................  Final rule issued December
                                             28, 2000
  Security................................  Proposed rules
  Provider Identifier.....................  Proposed rules
  Employer Identifier.....................  No proposed rules issued to
                                             date
  Health Plan Identifier..................  Proposed rule
  Individual Identifier...................  No proposed rules issued to
                                             date

    Implementation of all aspects of this first Administrative 
Simplification regulation is to take place over the coming two years. 
For electronic formats, all sectors of the health industry wishing to 
do business electronically must implement the standardized formats and 
code sets required by HIPAA by October 2002. This timetable will 
require massive effort and significant investment by hospitals and 
other health care providers. The alternative is a disruption of 
existing electronic transactions and a return to the use of paper and 
telephone transactions.
    Hospitals and physicians will be required to make wholesale changes 
to their information systems that will affect nearly every business 
operation. And, unanswered questions remain regarding how electronic 
formats will be implemented. In many cases, business rules to guide how 
electronic formats will be used have not been developed. Answers to 
these business rules may have an impact on how providers are paid and 
the level of payment. The migration to standardized codes, loss of 
unique identifiers, and elimination of local codes may cause some 
providers to lose special payment considerations that have been 
historically negotiated.
    Finally, implementation of standardized formats will require 
significant coordination across the healthcare industry, requiring 
hospitals, doctors, other health care providers, insurers, HMOs, 
government and others to coordinate activities.
Hospital And Provider Considerations Regarding Electronic Formats
    Tillinghast-Towers Perrin has found that hospitals, physicians and 
other providers have been slow to recognize the magnitude of migration 
to standardized electronic formats. Our industry telephone survey of 
hospital executives conducted in late 2000 found that virtually no 
hospitals have carefully considered the implications of HIPAA. A 
typical comment is ``our core mission is patient care, not data 
communications''. Subsequent telephone interviews conducted in January, 
2001 reinforced this earlier finding and showed that many providers 
have still done little to prepare. This is consistent with a recent 
national survey conducted by the Gartner Group which found that ``less 
than 10 percent of respondents have completed or are currently involved 
in estimating their organizations' expected return on investment for 
implementing HIPAA-compliant electronic transactions.'' Many hospital 
executives have been focused on more immediate concerns such as Y2K, 
implementation of the outpatient prospective payment system, and 
reductions in Medicare reimbursement rates.
    Standardization of electronic formats will require significant 
business process change and investment in several components of the 
organization, including:

 Billing and accounting systems
 Electronic medical records
 Data warehouses
 Electronic data interchange (EDI) systems
 Data translators
 Other information technology
    In general, we found that hospital executives are looking to health 
plans to take the lead in implementing and coordinating the transition 
to standardized formats. Hence, there has been very little planning 
around identification of current processes, gaps compared to HIPAA 
requirements and strategies to address these gaps. In this regard, the 
timing of format releases and specific questions regarding data content 
of transaction formats remain open issues. While hospitals are looking 
to health plans to take the lead in release of formats, they do not 
feel that they must follow health plan timeframes prior to October 
2002.

Cost Estimates for Implementing Standard Electronic Formats
    Many consultants and government agencies have attempted to estimate 
the cost to hospitals and physicians of migrating to standardized 
electronic formats and code sets. Overall, we have found that most 
provider organizations are underestimating both the investment cost and 
the time required to comply with standardized formats.
    Costs to develop standardized transaction formats for any 
particular hospital or provider practice are highly dependent on 
several factors, including:

 Degree of electronic data interchange already in place and 
        level of current compliance
 Hardware configuration and age of system
 Software packages and degree of integration between business 
        platforms
 Data warehouse capacities
 Use of data translators or clearinghouse functions
 Use of billing agencies and ability of these organizations to 
        comply with standardization within current cost structures
 Other factors

HHS Estimate
    The electronic format final rules estimate that average costs to 
hospitals range from $100,000 to $250,000. Furthermore, HHS anticipates 
that billing agencies and clearinghouses will offer services that 
address standardization issues.
Zero-based Budget Estimate
    Many health plans and some hospitals are currently budgeting for 
remediating to standardized electronic formats. A representative budget 
for a mid-sized hospital (200-300 beds) that is presented below shows 
that the total technology cost to implement standardized transaction 
formats and code sets ranges from $775,000 to over $3 million.

      Representative Hospital Electronic Format Remediation Budget
------------------------------------------------------------------------
                 Area/Gap                          Estimated Cost
------------------------------------------------------------------------
Reprogramming billing systems.............  $100,000 to $1 million
Purchasing a HIPAA compliant data           $100,000 to $250,000
 translator (necessary investment for most
 hospitals).
Business office and provider training (new  $50,000
 codes, new formats, new identifiers,
 etc.).
Charge slip and charge master (changes in   $25,000
 how charge slips are designed and charge
 masters maintained).
EDI upgrade for eligibility and claim       $50,000 to $100,000
 status check (migration from non-
 compliant dial-up systems to new
 platforms).
Consulting (including estimate revenue      $100,000
 impact of standardized code sets).
Data mapping and data warehouse upgrade     $100,000 to $1 million
 (most hospitals must map current
 transactions to standard formats. Those
 that operate data warehouses for analytic
 purposes must revise layouts and map old
 fields to new).
MSO/PPO/PHO remediation (virtually all      $250,000 to $1 million
 hospitals now have affiliated
 organizations that bill on behalf of
 staff physicians and other organizations).
Estimated total:..........................  $775,000 to $3,525,000
------------------------------------------------------------------------

    Teaching hospitals and other integrated delivery systems that 
include both insurance functions, physician office administration, 
facilities and ancillary services will require significantly greater 
investment. Again, depending on the state of the current information 
systems, total costs would be roughly two to three times the averages 
noted above, or $1.5 million to over $6 million.
    Likewise, physicians must upgrade and change internal billing 
systems, referral authorization procedures and claims status checks. 
Depending on age and characteristics of the information system, costs 
could range from a low of $75,000 to a high of $250,000 to remediate 
for a typical 50-physician practice. For a typical solo physician 
practice, a retooled billing system would require a $3,000 to $5,000 
investment. The upper estimates assume that the current information 
platform cannot be sufficiently modified and a replacement must be 
purchased.
Clearinghouses and Billing Agencies
    Many organizations are turning to clearinghouses and billing 
agencies for assistance in meeting the new requirements. In the near 
term, this solution may seem to be a cost effective and efficient way 
to meet the October 2002 deadline. However, while these organizations 
often work on behalf of solo physicians, the introduction of a 
clearinghouse may not be preferable for high volume providers, 
hospitals and those providers that wish to maintain direct contact with 
payer organizations. Additionally, clearinghouses add another 
``middleman'' layer to the health care delivery system. They do not 
represent a long-term solution to enhanced administrative efficiency.
    Transaction costs for clearinghouses reportedly range from less 
than 5 cents per transaction to approximately 20 cents per transaction. 
Low cost options depend on very high volumes of transactions, not 
limited to claims. Other transactions include eligibility checks, 
referral authorizations, claims status checks and other EDI functions. 
Depending on the volume of transactions, even at relatively low per 
transaction costs, the total annual costs are significant.
    Finally, it is not clear that most billing agencies and claims 
clearinghouses are rapidly moving to comply with administrative 
simplification requirements. Compliance for these organizations 
requires significant capital investment and time to implement. With 
less than two years to go, TTP is not aware that any provider 
clearinghouse or billing agency is HIPAA fully compliant.
Return on Investment Analysis
    While the short-term costs are high, many hospital executives are 
positively disposed to implementation of electronic formats. Since many 
hospitals already bill electronically over 90 percent of claims, 
positive ROI is dependent on:

 Increased billing accuracy due to elimination of plan-specific 
        codes
 Reduction of errors due to plan-specific claims formats
 Front-end insurance eligibility verification through a 
        standardized interface with all health plans
    Some hospitals anticipate significant one-time revenue increases in 
the form of reduced accounts receivable due to electronic 
standardization. One organization anticipates a one-time reduction of 
at least 10 days in receivables. Others anticipate even greater 
savings. These reductions would result in a one-time increase in 
hospital revenues that would help offset standardization costs.
    Secondary benefits are also noted by selected hospital financial 
analysts. Administrative simplification is anticipated to generate a 
reduction in billing office administrative costs due to rejected claims 
and other manual processes. This assumes that the standardized 
electronic formats will reduce billing errors generated by the 
hospital. Overall, payback for developing the infrastructure to support 
electronic standardization is anticipated to be within five years.
    However, Tillinghast-Towers Perrin has found that many hospitals 
may be underestimating the cost of migrating to standardized formats. 
Interviews with hospitals nationwide that Tillinghast Towers Perrin 
conducted in November 2000 showed that none of the surveyed 
organizations have completed comprehensive budgets to implement the 
electronic standards. Among those few organizations that have conducted 
preliminary ROI analysis, it takes roughly five years to generate 
payback and payback estimates are highly dependent on achieving a 
significant reduction in accounts receivable.
    Finally, these informal ROI studies do not account for the required 
changes to standardized formats once they are implemented. In fact, 
once the mandated formats are fully implemented in two years, it is 
highly likely that American National Standards Institute will recommend 
movement to the International Standard Formats that the remainder of 
the business world is already adopting. The HHS mandated formats are 
based on a batch mode format standard. In the world of e-business, 
batch mode has been replace by real-time transmissions. In fact, those 
dot-com vendors that currently service the health care industry, to 
comply with mandates, must remediate their internet applications to the 
previous generation of EDI-batch mode transmissions. Three years from 
now, the health care industry will likely be adopting International 
Transaction format standards, souring positive ROI calculations.

Conclusions
    While the move to standardized transactions in the health care 
industry is long overdue, most hospitals and provider organizations are 
underestimating the magnitude of the challenge--both in terms of time 
and money. Additionally, standardization of procedure codes in some 
markets and for some organizations may generate significant financial 
issues. For instance, when all local codes are mapped to standard 
codes, the revenue associated with the standard code will likely be 
different--either higher or lower, than current payments. While health 
plans will seek, at a minimum, a revenue neutral solution, for any 
particular provider organization, payments will change. These 
unintended windfall gains and losses must be anticipated and mitigated, 
by both health plans and provider organizations.
    All this takes time. And, time is growing short. Wholesale change 
to the billing platform of the health care industry must be 
accomplished by October 2002. The unanswered question is: will the 
industry be ready to embrace this change without significant reductions 
in service and a short-term increase in costs as organizations seek and 
implement remedies?

    Mr. Buyer. I also ask unanimous consent that--the full 
committee chairman cited a letter by the President of the 
American Psychiatric Association, dated March 12, 2001, to the 
U.S. Department of Health and Human Services--that that letter 
also be placed in the record.
    Mr. Bilirakis. Without objection, that will be the case.
    [The letter referred to follows:]

                           American Psychiatric Association
                                                     March 12, 2001
U.S. Department of Health and Human Services
Attention: Privacy I
Room 801
Hubert H. Humphrey Building
200 Independence Avenue, SW
Washington, D.C. 20201

RE: American Psychiatric Association technical amendment to the final 
rule-Standards for Confidentiality of Individually Identifiable Health 
Information (Federal Register, February 28, 2001, PP12738-12739.)

    Dear Secretary Thompson: The American Psychiatric Association 
(APA), a medical specialty society representing more than 40,000 
psychiatric physicians nationwide, believes the final privacy 
regulation is an important first step toward protecting patient 
privacy. We recognize there is still work to be done to overcome 
implementation obstacles to achieve compliance if these regulations are 
to appropriately serve the needs of the American people. At the same 
time please know that any delay in the implementation date is contrary 
to the health needs of the American people.
    Regrettably, it is often overlooked that confidentiality is an 
essential element of high quality health care. Some patients refrain 
from seeking medical care or drop out of treatment in order to avoid 
any risk of disclosure of their records. And some patients simply will 
not provide the full information necessary for successful treatment. 
Patient privacy is particularly critical in ensuring high quality 
psychiatric care.
    Both the Surgeon General's Report on Mental Health and the U.S. 
Supreme Court's Jaffee v. Redmond decision conclude that privacy is an 
essential requisite for effective mental health care. The Surgeon 
General's Report concluded that ``people's willingness to seek help is 
contingent on their confidence that personal revelations of mental 
distress will not be disclosed without their consent.'' And in Jaffee, 
the Court held that ``Effective psychotherapy depends upon an 
atmosphere of confidence and trust . +. . For this reason the mere 
possibility of disclosure may impede the development of the 
confidential relationship necessary for successful treatment.'' 
Accordingly, the APA recommends at the close of the comment period you 
move forward with the publication of the regulations and not delay the 
implementation date but rather you use your regulatory authority to 
respond appropriately in the public interest to protect the privacy of 
the medical record to the comments received. And we suggest this 
notwithstanding our concerns hereinafter expressed that we believe 
changes in the provisions on mental health records are critically 
needed to ensure the delivery of effective mental health care, or other 
comments that may be submitted.
    The Administration's efforts seeking comments are commendable, and 
while the regulations need to take these additional steps, delayed 
implementation would be more harmful. When you have reviewed all the 
comments you can then bring the ``stakeholders'' together, and secure 
the necessary stronger protections to advance patient privacy which we 
as physicians believe that our patients and our families need.
    The APA urges the following revisions to the proposed regulations:

1) Section 164.506. Consent for uses and disclosures for treatment, 
        payment, or health care operations. Health care plans, 
        providers, and clearinghouses must be required to obtain an 
        individual's consent before their medical record can be 
        disclosed for treatment, payment, or other health care 
        operations. Patients should be able to choose who will see 
        their medical records.
    The APA is concerned about blanket consent at the time of entry 
into a health plan. This blanket consent means a patient is authorizing 
subsequent disclosures of personal information without knowing the type 
of information allowed to be disclosed, or who can receive this 
information. While the regulations allow the patient to revoke this 
consent, the regulations do not protect the patient from being 
dismissed from the plan for doing so. The patient should have the 
ability to revoke the consent at any time. The APA feels the rule does 
not adequately provide this patient protection.
    Excessive demands by payers for access to patients' medical 
information, which often amount to requests for entire patient records, 
should not be allowed. The demands routinely include information for 
which there is no legitimate need for payments purposes. Significantly 
narrower definitions of the information that may be released for 
payment purposes is needed to protect patient privacy. There needs to 
be an objective standard for the information that is needed not a 
subjective standard.
    Patients should have the right to consent to--or refuse-
participation in disease management programs. In addition, an 
individual's enrollment or costs should not be affected if he or she 
declines to participate in a plan's disease management program. We 
oppose any disclosures of health information for disease management 
activities without the coordination and cooperation of the individual's 
physician. Yet, there is no such requirement in the final rule. We 
believe this term needs to be defined narrowly, in order to prevent 
inappropriate use and disclosure (for example for marketing purposes) 
of health information without the patient's consent.

2) Section 164.512(e). Standard: Disclosure for judicial and 
        administrative proceedings. Patients will lose some existing 
        privacy protections because the current practice of hospitals 
        and doctors, generally requiring patient consent and/or notice 
        before disclosure, will change as a result of the regulation. 
        Patients' ability to decide when their medical record 
        information will be disclosed outside the health system will be 
        reduced.
    For example, currently when hospitals or doctors receive a request 
for a medical record from an attorney for civil and administrative 
purposes, they will generally not disclose medical records information 
without notice to the patient and/or the patient's consent. But the new 
regulation would allow providers to disclose medical records 
information to attorneys who write a letter ``certifying that the . . . 
information requested concerns a litigant to the proceeding and that 
the health condition of such litigant is at issue''. As long as 
reasonable efforts are made to give notice of the request to the 
patient and to secure a qualified protective order. These procedures 
provide no check on attorneys' behavior in requesting records of 
marginal relevance to a case or for the purpose of embarrassing or 
intimidating opposing parties. Once the information is disclosed, the 
damage is done; post hoc remedies cannot restore parties' privacy.

3) Section 164.514. Standard: Uses and disclosures of protected health 
        information for marketing and fundraising.
    The APA is very concerned about a marketing and fundraising 
loophole that exists in the regulation. A patient's authorization is 
not needed to make a marketing communication to a patient if: it occurs 
face-to-face; it concerns products or services of nominal value; and it 
concerns the health-related products and services of the covered entity 
or of a third party and meets marketing communication requirements. For 
example, a marketer could knock on the door of a pregnant woman and try 
to sell her a product or service. Under the fundraising loophole a 
covered entity may use or disclose patient's demographic information 
and dates of health care to a business associate or to an 
institutionally related foundation, without a patient's authorization. 
We are aware the covered entity must include in any fundraising 
materials it sends to a patient a description of how the patient may 
opt out of receiving any further fundraising communication. However, 
the APA maintains that the patient should be able to opt out before the 
fundraising communication is sent. For example, a commercial 
fundraising organization for a health facility could use confidential 
information about a Governor being a patient at that facility without 
the Governor's consent for use in their fundraising. The APA is 
particularly concerned about the need for sensitivity with psychiatric 
patient's names. Commercial fundraisers should not be allowed to take 
advantage of patients especially those with mental illness.
    We strongly believe that personal health information should never 
be shared for the purposes of marketing or fundraising without the 
patient's informed consent and are disappointed that the rule only 
permits such not to occur futuristically. Effectively, an ex post facto 
withdrawal of consent after the marketing and fundraising damage has 
occurred. There is an easy solution, merely require the fundraising 
endeavors to have a patient consent (opt in) before the activity 
occurred rather than the regulation's authorizing the patient to opt 
out of any further fundraising endeavors.

4) Section 164.508. Use and Disclosure for Treatment, Payment, and 
        Health Care Operations-exception for psychotherapy notes.
    Additional protections consistent with the Supreme Court's Jaffee 

v. Redmond decision for mental health and other particularly sensitive 
medical record information are essential. Without such additions the 
protections essential for effective mental health care will be lost.
    We believe that all medical records should enjoy a level of 
protection so that no additional protections are needed for psychiatric 
or other sensitive information. In fact, the U.S. Supreme Court 
recognized the special status of mental health information in its 1996 
Jaffee v. Redmond decision and ruled that additional protections are 
essential for the effective treatment of mental disorders.
    APA believes that the rule allows for the use and disclosure of far 
too much information without the patient's consent. We also believe 
that language needs to be added to clarify that the amendment's privacy 
protections cover treatment modalities broader than psychotherapy (and 
indeed virtually all psychiatric information) and also cover 
information that is part of the patient's medical record.
    The regulations change the current standard of practice relevant to 
the psychotherapy documentation. There is a new requirement for keeping 
a second set of records, which most psychiatrists do not now do, and 
which will result in increased time, difficulty, and cost associated 
with record keeping.

5) Section 160.203. Standard: Disclosure for law enforcement.We also 
        want all Americans to be free from unreasonable police access 
        to their most personal medical record information. The 
        Administration's proposal falls short in this area.
    Under these regulations law enforcement agents would simply issue 
written demands to doctors, hospitals and insurance companies to obtain 
patient records, without needing a judge to review the assertions. We 
are also very concerned by the separate provision that would allow for 
the release of medical record information anytime the police are trying 
to identify a suspect. This broad exception would allow computerized 
medical records to be sifted through by police to seek matches for 
blood, or other health traits. In addition, the provision that allows 
disclosure on the basis of an administrative subpoena or summons, 
without independent judicial review, is particularly troublesome.
    We believe that the same constitutional protections (a Fourth 
Amendment probable cause standard including independent judicial review 
for all requests) should apply to a person's medical history as applies 
to their household possessions.

6) Section 164.502. Business Associate Provisions. Section 164.300. 
        Compliance and Enforcement.
    The business associate provisions of the proposed regulation result 
in overly broad physician liability, and the regulations also need to 
be reconsidered in light of the need to limit the administrative burden 
on physicians who practice independently or in small practices.
    The rule identifies most health care related entities other than 
physicians, providers, health plans, and health data clearinghouses as 
``business partners'' of physicians, which could only be held to the 
confidentiality standards of the regulation through contracts with the 
covered entities, such as physicians. In essence this enormous 
regulatory framework will be achieved largely through the inappropriate 
liability placed upon physicians.
    A covered entity will have a new duty to mitigate any known harmful 
effects of a violation of the rule by a business associate. This duty 
may, in effect, compel covered entities to continue to monitor 
activities of business anyway. It is not clear if a psychiatrist, for 
example, could be held accountable for prohibited activity by its 
business associate, even if the psychiatrist should have known of the 
prohibition. For purposes of the rule, actions relating to protected 
health information of an individual undertaken by a business associate 
are considered to be actions of the covered entity. Therefore even 
though covered entities may avoid sanctions for violations by business 
associates if they discover the violation and take the required steps 
to address the wrongdoing, they may be vulnerable to a negligence 
action. APA believes these provisions present the potential for overly 
broad liability for physicians who, themselves, are complying with the 
regulation's requirements.
    It is not unreasonable to expect that some additional burdens will 
fall on physicians as part of efforts to increase patient privacy. 
However, the level of administrative burden currently contained in 
these regulations is not equitably distributed. Particularly important 
is expanding the concept of scalability so that the administrative 
burden on physicians in solo or small practices will be manageable, 
taking into consideration their limited resources and staffing.
    As noted above, the regulatory framework of this regulation relies 
too heavily on physician liability (via business associates). If indeed 
it is the framework by the Secretary that is enacted through regulation 
or through congressional action, we could not support providing 
individuals with a private right of action.

7) Section 164.512 (k). Standard: Uses and disclosures for specialized 
        government functions (Military, State Department and others).
    The special rules in this section are overly broad and do not 
provide adequate procedural protections for patients. Except in very 
narrow circumstances the consent of the individual should be the rule 
for the use and disclosure of governmental employees' medical records 
information. We also note that intelligence agencies and the State 
Department are not even required to publish a rule, subject to public 
comment, defining the scope and circumstances of their access to 
medical records. Particularly objectionable are the provisions allowing 
broad access without patient consent for use and disclosure of medical 
records of Foreign Service personnel and their families.

8) Volume 65 Federal Register page 82790. Costs: The APA believes the 
        estimated costs imposed on small psychiatrist's offices for the 
        first year of $3, 703 and consecutive years of $2,026 seem 
        unrealistically low.
    Psychiatrists will experience significantly higher costs and will 
have a heavy administrative burden, such as getting satisfactory 
assurances from a business associate through a written contract, 
keeping psychotherapy notes separate and locked from the rest of the 
psychiatric record, and providing written notice of their privacy 
practices to their patients. Similar to small health plans, small 
physician offices should be allowed to have 36 months for compliance to 
spread the cost over a longer period of time.

9) Section 164.530 Administrative requirements.
    A clarification is needed on the privacy official provision. For 
example, can a psychiatrist who does not have any staff serve as the 
privacy official? If a privacy official makes a mistake will only the 
privacy official be liable?

10) Section 160.104 Modifications.
    The APA believes implementation should not be delayed because the 
Secretary has discretion under section 160.104 to adopt a modification 
to a standard every twelve months and the provision expressly allows 
modification within the first twelve months after the effective date.
11) We welcome the many very positive provisions contained in the 
        regulation and urge that they be retained including:
 the general rule of non-preemption of more privacy protective 
        state laws (Section 160.203)
 a higher level authorization is required for any use or 
        disclosure of psychotherapy notes, and most importantly 
        psychotherapy notes may not be disclosed without the patient's 
        specific authorization (Section 164.508)
 the requirement that the entire medical record not be used in 
        cases where a portion of the record will suffice, i.e. the 
        ``minimum amount necessary'' requirement. Physicians can cite 
        this provision when dealing with unreasonable health plan 
        requests for information. (Section 164.502 (b))
 the requirement that an entity must notify enrollees no less 
        than once every three years about the availability of the 
        notice and how to obtain a copy of it (Section 164.520)
 extension, in many circumstances, of federal ``common rule'' 
        research protections to privately funded research (Section 
        164.512)
 the right to request restrictions on uses or disclosures of 
        health information (such as requesting that information not be 
        shared with a particular individual) (Section 164.522)
 the right to request that communications from the provider or 
        plan be made in a certain way (such as prohibiting phone calls 
        to individual's home) (Section 164.502)
 the right to inspect and copy one's own health information 
        with the exception of psychotherapy notes and when the access 
        is reasonably likely to endanger the life and physical safety 
        of the individual or another person (Section 164.524)
 the patient needs to be provided documentation on who has had 
        access to this information and the right to request amendment 
        to the record if it contains incorrect information (Section 
        164.528)
    In conclusion, we believe the privacy regulations are very much 
needed but at the same time (as above noted) believe some provisions 
are inadequate to protect our patients. Yet, our gravest concern is 
that certain parties which were disappointed at how protective these 
regulations are of patient privacy will in support of their own 
interests be arguing for surrendering many of the protections that 
patients have just gained. In order to insure interested stakeholders 
regulatory comments do not diminish medical record privacy protections 
we recommend that the Secretary not only receive all interested 
stakeholders (such as insurers, providers, health care clearinghouses, 
and consumer groups) comments, but also convene a meeting of the 
interested stakeholders as soon as possible after the conclusion of the 
regulatory comment period BUT before publication of the ``new'' final 
medical record privacy regulations.
    Secretary Thompson we agree with you to conclude April 14, 2001. We 
of course encourage the Administration to stand firm on these issues 
and support strong protection of medical record privacy.
    Thank you for considering our views, and we look forward to 
discussing them with you further. Please feel free to contact Jay 
Cutler, Special Counsel and Director Government Relations or Nancy 
Trenti, Associate Director, at (202) 682-6060.
            Sincerely,
                      Daniel B. Borenstein, M.D., President
                                   American Psychiatric Association
cc: Anne Phelps
   Mitchell Daniels
   Sally Canfield

    Mr. Buyer. I yield the balance of my time to Mr. Norwood.
    Mr. Norwood. I thank my colleague. I have a minute or 2 
here.
    I want to ask a question that is probably too late to ask, 
but I am curious. How many of you feel we should have a Federal 
standard to cover privacy? Just do like that so I can see.
    Everybody agrees we should not worry about the States and 
just have Federal coverage that is uniform?
    Mr. Appelbaum. No.
    Mr. Norwood. Well, respond, Dr. Appelbaum.
    Mr. Appelbaum. Dr. Norwood, the States have been historic 
regulators of health care in this country, and have, in that 
role, initiated many of the experiments that later evolved into 
national policies.
    State regulation is a day-to-day reality in health care. 
Physicians are licensed by their States, hospitals are licensed 
by their States. Medicaid is a State program, and the industry 
is used to operating within the confines of State legislation. 
That is the status quo.
    To the extent that States decide that for their citizens 
they would like to provide a higher level of privacy 
protection, and their citizens agree, we think they should----
    Mr. Norwood. Thank you. I understand.
    In other words, you want a Federal law that is the bottom 
line, and then you want the States to be able to add to it in 
whatever manner they see fit?
    Mr. Appelbaum. That is correct.
    Mr. Norwood. I have got reams of paper up here from a lot 
of people who object to this particular regulation on different 
grounds. People have different thoughts as to why it is not 
right.
    A lot of you have objected to this regulation too, and even 
those of you who want to see this rule effective have pointed 
out this is not efficient, it is not perfect. It has a lot of 
flaws, but let's go ahead with the rule, some of you say, and 
then we will worry about correcting it a little later.
    Now, that gives me some pause for thought. If you are 
trying to say to us, okay, in the next 23 days let's perfect 
this rule so it really does work and let's take care of the 
concerns that all of you have, that all of these people have, I 
would tell you that we can't do it within 23 days, I don't 
believe. Nothing up here moves very fast. And my suggestion to 
you is that we pass rules and regulations in this town all the 
time that have unintended consequences, that come back to bite 
us, that are way too expensive, that simply do the opposite of 
what the rules set out to do. Why in the world on something 
this important wouldn't we try to get this right before we have 
a rule?
    I understand there is 2 years to comply. I understand the 
Secretary--staff says different, but some of you say that the 
Secretary within a year could get in and fix it. Why in God's 
name put a rule in place we know is wrong? And you have all 
pointed out, I think, many areas where it is wrong.
    And, incidentally, Mr. Chairman, I have a simple letter 
with unanimous consent I would like to offer for the record. It 
is from the American Medical Association, and if we could, I 
would like to have that put into the record.
    Mr. Bilirakis. Can you identify it by date?
    Mr. Norwood. Yes, February 28, 2000, and it is from Dr. 
Andy Anderson, Jr., M.D.
    Mr. Bilirakis. Without objection, it will be made a part of 
the record.
    [The letter referred to follows:]

                               American Medical Association
                                                  February 28, 2001
The Honorable Tommy Thompson
Secretary
U.S. Department of Health and Human Services
200 Independence Avenue, SW
Washington, DC 20201
    Dear Secretary Thompson: The American Medical Association (AMA) 
appreciates your willingness to provide an opportunity for additional 
comments on the final privacy regulation recently issued by the Clinton 
Administration (65 Fed. Reg. 82472) as authorized by the Health 
Insurance Portability and Accountability Act of 1996 (HIPAA). Your 
decision properly reflects the complexity of the rule and the potential 
for unintended consequences that are now being identified. We believe 
that significant changes to the rule are necessary to adequately 
protect patients and to make certain portions of the regulation 
workable before it is implemented. We respectively request a limited 
extension of the effective date so that new comments can be evaluated 
and improvements to the rule can be effectuated before the compliance 
period commences.
    Patient privacy is fundamental to the physician-patient 
relationship and a right long advocated by the AMA. Physicians and 
other health care providers are the guardians standing between patients 
and the unrestricted use and access to patients' private medical 
records. We believe that preservation of patient trust and autonomy in 
an increasingly technological health care environment is imperative to 
continue high quality patient care that is expected in this country.
    We commend the Department of Health and Human Services for the 
tremendous work it took to write the final regulation. In fact, we were 
pleased to see certain improvements from the proposed regulation. 
However, many serious problems remain and others have surfaced from new 
requirements in the final rule.
    For example, although we are pleased with the new requirement for 
health care providers to obtain consent before a patient's protected 
health information can be used for routine matters, the final rule 
inappropriately exempts health plans from its requirement. Some aspects 
of the consent requirement also appear to be unworkable without certain 
modifications. In addition, law enforcement will have virtually 
unfettered access to protected health information without patient 
authorization and without a court order. There are also significant 
loopholes that allow the use and disclosure of protected health 
information for marketing purposes.

    Mr. Norwood. If any of you believe that we can correct this 
rule within the next 23 days to solve problems, almost every 
one of you pointed out, just give me--let the record show, 
nobody believes we can do that.
    Why don't we just step back here a little bit and try to 
get this right?
    Part of what, really, I am trying to understand is this 
rule puts so much on us, on the health care provider--Ms. Foley 
and Dr. Appelbaum and others. I am not aware that there is a 
privacy problem in this country with the physician, the nurse, 
the dentist, et cetera, et cetera. I just do not think that is 
where the privacy problem is. But we put all of this on their 
back.
    And, Ms. Goldman, you know, you are saying this consent 
form isn't but nine pages, and we may not use that anyway, but 
the Federal Government has never put out a form that was short 
and they are not going to start now. And if you don't believe 
me go to any agency and pick one. They are all burdensome at 
the very best.
    So why cannot all of us just simply agree--I know this has 
been worked on a long time. Let's step back, give this new 
Secretary some time, give us some time to address what I 
consider very legitimate problems. And at some point, perhaps 
this year, we can make this rule effective and then have the 2 
years for compliance and the year for the Secretary to go in 
and alter where we have made mistakes.
    But, Mr. Chairman, please, let's don't make a rule that we 
know has so many problems in it right now.
    And if there is anybody out there that can explain to me my 
problem with understanding--well, I have got 36 seconds. I 
would like to know if any of you believe the problem in privacy 
happens to be with the health care provider. Does anybody 
believe that is where the privacy problem is?
    Let the record show, nobody does. I will yield back.
    Mr. Bilirakis. The Chair now yields to Mr. Green.
    Mr. Green. Thank you, Mr. Chairman. I will be as quick as I 
can. It does seem like it is so much effort when really all we 
want our insurance carriers to do is pay it, but do not share 
that information. It seems so simple.
    Dr. Melski, your testimony, one of things that concerns me 
is, I have a district in Houston, Texas. We have a low 
immunization rate. We work with our immunization coalition. We 
do an Immunization Day every year. We use our hospital 
district. We use our city of Houston health department. We use 
our county health department, and they provide immunization in 
our district.
    Your testimony would say that it would limit it, but the 
way the practice is now, there is already information provided 
to parents; and in my area, it is bilingual--Spanish and 
English--to those parents. Why would it be so difficult to 
provide something else--and the CDC requires providers to keep 
records of those vaccines right now. Why would it be hard for 
them to keep records of that consent?
    Mr. Melski. Thank you for addressing that, because all 
these minor points are hard to cram into 5 minutes.
    There is currently an exemption for public health, but what 
we have found in Wisconsin with a project we initiated, an 
early childhood immunization network, is that the cooperation 
between the public and private sector is where you really raise 
the immunization rates, and you have to share information 
between public health and private.
    But in the private sector these consent forms would then 
have to be enforced. See, the public health has been exempted 
in them, but the practitioner has not. And so it is just 
paradoxical.
    Mr. Green. Maybe that is why we do not use private 
practitioners. We use public health agencies to provide that.
    Mr. Melski. Right. What happens is, if you really want to 
get the kids immunized, you have to get them when you have got 
them. When they come in for health care into our organization 
and we have records that we share with the public health 
nurses----
    Mr. Green. But you are required by law to share the 
immunization record, aren't you, with the State health 
department, because we have created a registry for so many of 
our States for immunizations?
    Mr. Melski. Right. But then the question would be--is 
whether--see, that is part of the problem with these 
regulations, that some people that are in favor of them sort of 
have this positive interpretation that, okay, in that area we 
don't have to have a consent.
    Mr. Green. That is the problem with any regulation, that 
is, somebody's way to interpret it. And hopefully, whether you 
are a provider or health care, insurance carrier or someone 
else----
    Mr. Melski. It is only the foot in the door. The real issue 
where we can really save lives is if we could share preventive 
information on mammograms, prostate exams, colon exams and so 
forth; and the ability to share that information among all 
providers would save lives.
    Mr. Green. Okay. With the permission of that person. I 
really don't want my colon scope to be sent out on a Christmas 
card unless it is with my written permission and greeting with 
it.
    Mr. Melski. It is true. The problem with immunizations and 
a lot of preventive health and research for that matter, is it 
is always good if everybody else agrees to do it except you. It 
is true for immunizations; it is certainly true for research.
    Mr. Green. Again, I understand that. But on immunization, 
like you said, public health has an exception, but for my own 
records, you still should have my permission to share that.
    Mr. Melski. And we do require that for immunization, but it 
is not nine pages, single-spaced. When you talk about consents 
for surgery that are two pages long, and now you have a nine-
page consent for a sore throat or a nine-page consent for 
immunization.
    Mr. Green. I haven't seen a nine-page consent, but having 
signed those consents for minor surgery, I think we could 
probably--and I am sure the Secretary, hopefully before this 
month is out, there would be an effort to reduce that to 
something and also in lay language. If it is nine pages, 
obviously ten lawyers drafted it.
    Mr. Melski. Right. And technically it is notification that 
has to be referred to in the consent. But still it is the whole 
implication of what is our obligation before we can carry out 
some of these very important tasks.
    Mr. Green. Again, that is what HHS is there for.
    Thank you, Mr. Chairman. I yield back.
    Mr. Bilirakis. I thank the gentleman.
    Mrs. Capps. Mr. Chairman, could I ask unanimous consent so 
that members of the committee may have a week to submit 
questions to these witnesses?
    Mr. Bilirakis. Yes, by all means. Of course, I have already 
mentioned that.
    I know that you are willing to respond to those questions. 
It has been quite a hearing and you have made it so. It is 
important that we have this knowledge. It is also important 
that HHS has this knowledge. Hopefully the right thing will be 
done. I know the bottom line is, we all want some sort of 
privacy protection.
    Thank you very much. The hearing is adjourned.
    [Whereupon, at 1:50 p.m., the subcommittee was adjourned.]
    [Additional material submitted for the record follows:]
        Prepared Statement of Robert C. Lower, Alston & Bird LLP
    Mr. Chairman and distinguished members of this Committee: My name 
is Robert C. Lower. I am a partner with the law firm Alston & Bird in 
Atlanta, Georgia, where I lead a group of lawyers who focus on health 
care law and health care privacy. I appreciate this opportunity to 
share with the Committee my personal observations regarding the impact 
of the HIPAA privacy regulations, as well as some thoughts on how those 
regulations could be improved.
    Let me start by saying that the health care community is committed 
to the confidentiality and security of personal health information. In 
almost 30 years of practice, I have observed countless instances where 
medical practitioners and the management of health care facilities have 
demonstrated their determination to protect the privacy of patients. I 
believe that the thousands of companies and millions of individuals who 
are part of the best health care system in the world are protecting, 
and will continue to protect, the confidentiality and security of 
Americans' personal health information under existing confidentiality 
laws.
    I also believe that the Department of Health and Human Services 
(HHS) should be commended for the hard work that went into the HIPAA 
regulations and for their good intentions in pursuit of the protection 
of medical records. However, as outlined below, I have a number of 
practical concerns about the HIPAA privacy regulations. I believe they 
are fundamentally flawed and must be revised.
Bureaucratic overload
    HHS created the HIPAA privacy regulations with virtually no 
legislative foundation and, unfortunately, the regulations are a 
textbook example of regulatory excess. From time to time, I advise 
clients in other industries, including e-business and financial 
services, on privacy matters and I am struck by the contrast between 
the HIPAA rules and, for example, the rules issued by the financial 
services regulatory agencies under the Gramm-Leach-Bliley Act. That law 
addresses the privacy of another type of highly sensitive information, 
namely, personal financial information. In comparing the two sets of 
regulations, it is interesting that the rules issued by HHS have an 
aura of suspicion about them, as if the writers distrusted the 
intentions of the entire health care industry. Why else would HHS 
create such detailed rules, and provisions like the ``minimum 
necessary'' requirement, that appears to be premised on the notion that 
health care professionals cannot be trusted to collect and use 
information appropriately in order to deliver first class health care?
    I am concerned that the HIPAA regulations will interfere with the 
convenient and flexible delivery of health care, curtail the free flow 
of information for medical research and health care quality management, 
and impose huge costs on the health care system without corresponding 
benefits to consumers. By micro-managing the collection and use of 
personal health information, HHS is substituting its bureaucratic 
judgment for the business judgment and the innovative creativity of the 
health care community.
Costs and administrative burden
    As just noted, the HIPAA regulations will impose enormous costs and 
administrative burdens on health care providers, health plans and 
health care clearinghouses. The requirements to obtain affirmative 
consents prior to rendering care, to respond to requests for individual 
restrictions on the disclosure or amendment of personal health 
information, and to provide a grievance procedure places major system 
burdens on the health care system.
    I am not an economist but, based on my experience, HHS greatly 
underestimated the cost of compliance. I know that in drafting HIPAA 
implementation plans for clients during the past three months, I have 
been dismayed by the enormous number of changes to systems, policies 
and procedures, training, patient communications, and compliance 
programs that these regulations impose on businesses large and small. 
These changes will cost a lot of money--far more than HHS estimated--
and will be passed on in some combination of higher health care costs 
or reduced benefits.
Minimum Necessary
    The HIPAA regulations require that when using or disclosing 
protected health information or when requesting protected health 
information from another covered entity, a covered entity must make 
reasonable efforts to request, collect, or use only the ``minimum 
necessary'' protected health information to accomplish the intended 
purpose. This requirement does not apply with respect to disclosures to 
or requests by a health care provider for treatment, for disclosures 
required by law and certain other disclosures.
    I find this provision troubling for several reasons. First, as 
noted above, it appears to reflect a suspicion that health care 
professionals collect and use personal health willy-nilly, for no valid 
reason. Moreover, the ``minimum necessary'' requirement is not even 
mentioned in the Act which raises the question of HHS's statutory 
authority to adopt this requirement. The cost of this requirement is 
also a major concern. By the HHS's own estimate, compliance with this 
will cost $5.8 billion--roughly one-third of the estimated cost of 
compliance for the entire privacy regulation.
    Finally, in my view, the ``minimum necessary'' requirement has the 
potential to be ``maximum dysfunctional'' by adding unnecessary 
administrative red tape to payment processing and health care 
operations. Even though the rule allows for routine uses to be defined 
and general protocols to be developed to facilitate the minimum 
necessary determination, it will be very difficult to define parameters 
for requests for information from health care insurers and other 
payers. Each patient encounter is different, and the information 
necessary to process a claim for payment will vary depending on the 
medical condition involved, the terms of the health insurance coverage, 
and the medical history of each patient. For non-routine uses or 
disclosures, a minimum necessary determination would be required for 
each use or disclosure. Likewise, health care operations will be 
impaired by the requirement. Activities involving patient care 
information, such as peer review, quality assurance, mortality and 
morbidity studies and medical education do not involve patient 
treatment directly and, therefore, will require that a minimum 
necessary determination be made for each use and disclosure of 
protected health information involved in those complicated processes.
    I also question the need for the minimum necessary requirement in 
the context of health care payments. Health insurers already are 
required by state insurance law to maintain the confidentiality of 
medical records and to utilize only the information that is 
``reasonably necessary'' for enrollment or payment purposes. In 
addition, the transactions standards under development by HHS will 
specify the items of information necessary to process health claims 
under the requirements applicable to health claims attachments. When 
the items of information are specified as part of the transactions 
standards, it will be unnecessary to impose a minimum necessary 
requirement on the parties involved in the claims process.
    With regard to health care operations, I am concerned that the 
minimum necessary requirement will unduly impair the delivery of 
healthcare. Patient care information is vital to carrying out peer 
review, quality assurance, statistical studies, and medical education 
activities. Confidentiality laws already protect medical records in 
every state. Imposing a minimum necessary requirement on those 
activities will affect the quality of care and is unnecessary. I 
recommend that with regard to health care operations, the standard be 
changed to permit the disclosure of information that is ``reasonably 
necessary'' for a particular purpose. Such a requirement would be far 
less burdensome, would be flexible to accommodate the wide variety of 
activities and would provide adequate protection for the privacy of 
protected health information.
Regulation of ``business associates''
    The HIPAA privacy regulations impose new requirements on thousands 
of companies and individuals that do business with covered entities. 
HHS's goal, namely, to complete the circle of protection for personal 
health information, is commendable but flawed. The requirements imposed 
on business associates--including writing policies and procedures, 
keeping records of disclosures, providing access to personal health 
information, and making amendments upon request--are unnecessarily 
burdensome.
    In addition, I question the appropriateness and the fairness of 
attributing the behavior of a business associate to a covered entity 
for purposes of determining compliance with the HIPAA regulations. I 
suggest that the regulations be clarified to ensure that a violation by 
a business associate cannot be used by the Secretary as a basis for an 
enforcement action against a covered entity.
Consent before treatment
    The requirement that health care providers obtain consent before 
treating an individual is unnecessary and will interfere with the 
efficient and convenient delivery of health care. For example, under 
the final regulation a pharmacist could not permit a relative or friend 
to pick up medication for a sick person unless the patient had 
consented in advance.
    State medical record confidentiality laws and professional ethical 
principles have protected the privacy of personal health information in 
the treatment setting for many years. The new regulation will be very 
costly to implement and will not significantly increase the protection 
of personal health information.
    Thank you, Mr. Chairman and members of the Subcommittee, for 
providing this opportunity to share my views.
                                 ______
                                 
     PREPARED STATEMENT OF THE AMERICAN ASSOCIATION OF HEALTH PLANS

    The American Association of Health Plans (AAHP) is the principle 
national organization representing HMOs, PPOs, and other network based 
health plans. Our member organizations arrange for health care services 
for approximately 140 million members nationwide. AAHP and its members 
have long been committed to protecting the confidentiality of personal 
health information. AAHP's members are ``covered entities'' for 
purposes of the HIPAA privacy regulation that has been issued by the 
Department of Health and Human Services (HHS). Consequently, AAHP's 
member plans are directly affected by the HHS regulation.
    AAHP continues to support uniform federal standards that encourage 
patients to communicate openly and honestly with their physicians, 
while at the same time ensuring that health information vital to 
helping patients get the care they need when they need it continues to 
flow freely among entities that are responsible for providing, 
coordinating, and paying for health care. AAHP believes that it is 
possible to meet the dual goals of maintaining the confidentiality of 
personal health information and permitting information to be used to 
perform essential functions. While the final regulation has been 
improved from its proposed form in many areas, AAHP believes further 
improvements are necessary to meet these dual goals. The concerns 
discussed here are among AAHP's most significant. We will be submitting 
formal comments to HHS highlighting more thoroughly our comments on the 
final regulation during the additional comment period recently provided 
by HHS.
Consent:
    AAHP fully supports the final regulation's provision that permits 
health plans to use and disclose protected health information for the 
essential, routine activities of treatment, payment, and health care 
operations without separate patient consent. The department recognizes 
plans' need for protected health information to perform their essential 
health care functions. However, AAHP is concerned that the final 
regulation requires providers to obtain consent for these same routine 
functions. This bifurcated consent approach is a complete reversal from 
the proposed regulation, which allowed both plans and providers to use 
protected health information for routine purposes without separate 
consent.
    Today, physicians and health plans work together to organize care 
for patients. As a practical matter, health plans depend on providers 
to supply health information about plan members which often times is 
not provided through claims data. The final regulation creates 
obstacles to patients getting preventive care by requiring physicians 
to have patients fill out paperwork (consents) that will let the 
providers share that information with health plans. The information is 
critical, for example, to making sure that a person with diabetes gets 
annual eye exams to prevent blindness. If the paperwork isn't done 
exactly right, is missing, or runs into some other problem, the patient 
may not get the care they need when they need it. This conflicts with a 
recent Institute of Medicine report that identifies the lack of 
coordination as one of the big problems in American medical care. These 
rules would make that problem worse, not better.
    AAHP is concerned that the new consent approach will have 
significant consequences on health plans' ability to obtain critical 
patient information needed to conduct certain health care operations 
activities. Again, unless the provider obtains adequate consent, plans 
may not have the necessary information at their disposal.
    If a health plan cannot obtain health information about its 
members, it cannot perform essential health care operations required by 
purchasers or private accreditors, such as reporting HEDIS measures and 
conducting quality assurance and utilization management activities, all 
of which are essential to ensuring quality care.

Preemption:
    AAHP recognizes that HHS has limited authority to change the 
statutory mandate of HIPAA with respect to the preemption of state 
privacy laws. However, we would like to take this opportunity to 
reiterate our support for confidentiality standards that recognize that 
increasingly, health information moves across state lines--whether from 
one physician to another for consultation or from a physician to a 
claims processor in a neighboring state. The dual state and federal 
regulation created under the final privacy regulation poses significant 
confusion for consumers and compliance issues for covered entities. The 
final regulation layers a new comprehensive set of federal rules on top 
of an already existing complex patchwork of state privacy laws.
    AAHP is concerned that the inconsistent demands of state and 
federal privacy laws under the complex construct of the HIPAA 
regulatory model will create more red tape and frustration for health 
care providers and consumers. Doctors, health plans and other covered 
entities must determine, on a provision by provision basis, which parts 
of state law would be retained and which would be replaced by federal 
law. Instead of facilitating health plan members knowledge of their 
privacy rights, this complex regulatory framework is sure to confound 
individuals.

Unanticipated Consequences for Consumers:
    In addition to being concerned about the bifurcated consent 
structure and preemption, AAHP is concerned about unintended 
consequences the final regulation creates that we are only beginning to 
identify and that will have a direct impact on care provided. For 
example, pharmacists are extremely concerned that they will not be able 
to fill or refill prescriptions for consumers, and prescriptions called 
in by physicians will not be filled, unless a written consent is on 
file at the pharmacy. This will create delays for patients, for parents 
with sick children, and others who will have to come to the pharmacy to 
sign consents before the pharmacist can fill or refill a prescription. 
Elderly and disabled individuals will have to obtain and sign a written 
consent form and somehow deliver it to the pharmacist before anyone can 
pick up their prescriptions for them. While the creation of such 
consequences were surely inadvertent and unintended when the final 
regulation was being developed, other similar examples will undoubtedly 
surface as covered entities begin to implement the final regulation and 
encounter other practical limitations.
    We need only look to the experience in the states to see how 
unintended consequences have arisen. In some of the states that have 
gone ahead and enacted comprehensive privacy laws, we've seen a number 
of unforeseen consequences that, in some cases, have caused states to 
repeal or amend their laws. In Maine, for example, florists were unable 
to deliver flowers to hospital patients. In Hawaii, the state's 
workers' compensation program had to be shut down for three months in 
order to collect patient authorizations. And, in Minnesota, researchers 
were unable to conduct meaningful medical records research because not 
enough patients were mailing back their permission forms. These are 
real examples of what occurs when the flow of information is restricted 
between and among covered entities who need information to conduct 
routine, quality enhancing activities for patients.
Treatment of Existing Protected Health Information:
    Another key issue is the application of the regulation to protected 
health information created or collected even before the compliance date 
of the regulation. As a result, providers will be unable to use 
information they already have unless they've obtained patient consents. 
In states where patient consent is not required for treatment purposes 
(for example in California), providers will have to go back to all of 
their patients and obtain consent to use the information they already 
have and have been using all along in order to be in compliance with 
the regulation. The task of obtaining consent forms from over 200 
million Americans within the two year compliance date is a staggering 
problem that could interfere with everything from refilling routine 
prescriptions as discussed above, to sending out reminder notices about 
appointments, medication compliance, etc.
    Moreover, given health plans' reliance on providers for patient 
information to conduct quality improvement and other activities, the 
impact of this issue will be felt throughout the health care system.
    These are just a few of AAHP's concerns with the final HIPAA 
privacy regulation. Further concerns will be expressed in our comment 
letter to HHS on the final regulation. We appreciate the opportunity to 
submit written testimony before the Subcommittee on this very important 
issue.
                                 ______
                                 
    American Association of Occupational Health Nurses Inc.
                                                     March 26, 2001
Honorable Michael Bilirakis
Chair, Energy and Commerce Health Subcommittee
The Committee on Energy and Commerce
2125 Rayburn House Office Building
Washington, DC 20515

Attention HHS Privacy Regulations Hearing March 22, 2001

    Dear Representative Bilirakis: On behalf of the American 
Association of Occupational Health Nurses Inc. (``AAOHN''), I would 
like to thank you for the opportunity to provide written comments to 
the March 22 hearing record on the Final Rulemaking released by the 
Office of Assistant Secretary for Planning and Evaluation, Department 
of Health and Human Services (``HHS''), regarding standards for privacy 
of individually identifiable health information.
    AAOHN, a 12,000-member professional association, is dedicated to 
advancing and maximizing the health, safety, and productivity of 
domestic and global workforces by providing education, research, public 
policy, and practice resources for occupational and environmental 
health nurses. These nurses are the largest group of health care 
providers serving the worksite. As health care providers, we are 
committed to ethical standards that place a high priority on 
maintaining the confidentiality of the individually identifiable health 
information contained in the medical records that we create and/or 
maintain as an integral part of our jobs.
    We know from first-hand experience that our members' clients--
employees across the country--are especially concerned about the 
confidentiality of the health information available to employers 
through their operation of employee health benefits plans and 
occupational health departments. Workers are afraid their companies 
will use health information inappropriately when decisions are made 
about hiring, job placement, promotion and firing.
    Unfortunately, we also know from first-hand experience that 
workers' fears are sometimes warranted. The HHS rule represents a 
significant first step toward health privacy in the workplace, 
particularly because of the protections it creates for health 
information heretofore available to employers through their sponsorship 
of employee health benefits plans. Still, the rule does not do enough 
to eliminate employees' risk of inappropriate health information 
disclosures to their employers because it does not adequately protect 
occupational health information. As a result, many employers will 
continue to have relatively free access to personal health information 
obtained through fitness-to-work examinations, occupational safety and 
health initiatives, and workers' compensation programs.
    The HIPAA statute itself limits the definition of ``covered 
entity'' to health care providers who engage in the statute's standard 
electronic transactions. Neither the statute nor the rules designed to 
implement it apply to the majority of occupational health care 
providers because they do not bill third-party payers for their work. 
Thus, the rule fails to support the professional responsibilities of 
occupational health professionals who are ethically bound to keep 
health information on employees confidential.
    AAOHN recognizes that employers do have legitimate needs to have 
access to certain health information for managing workers' compensation 
or other benefits, accommodating a disabled employee, or assessing an 
employee's physical capability to complete assigned tasks. However, 
this does not mean that an employer should have unfettered access to 
unrelated information--such as an employee's diagnosis or entire 
medical file.
    Additional legislation is needed to authorize the development of 
privacy rules that will draw the privacy lines appropriately for 
information collected and used in the work environment. Extending 
coverage to all health care providers would close the gap in 
protections for occupational health information in the work 
environment, preventing the possibility that it will be used in making 
determinations about hiring, firing or promotion. Without additional 
legislation, misuse of much personal health information in the work 
environment will remain unchallenged.
    Despite the statutorily required shortcomings of this rulemaking in 
protecting all occupational health records, it is imperative that the 
implementation of the rule not be delayed. AAOHN believes that you have 
the authority to make refinements to the final rulemaking without undue 
delay of these regulations. These new privacy regulations are a major 
step towards protecting the health and medical information of 
Americans. It is time to move forward and devote our energy, time, and 
resources toward implementing the Privacy Rule, rather than wasting 
precious resources debating whether the regulation should even take 
effect.
    Should you need additional information related to our comments, 
please feel free to contact me at 770-455-7757 ext. 104 or by email at 
[email protected]. Thank you in advance for your thoughtful consideration 
of these comments.
            Sincerely,
                                                 Kae Livsey
                                 Public Policy and Advocacy Manager
                      general comments on the rule
    Overall, the American Association of Occupational Health Nurses 
(AAOHN) believes that the final standards for the privacy of 
individually identifiable health information (``Privacy Rule''), 
published December 28, 2000, constitute a significant step towards 
restoring the public trust and confidence in our nation's health care 
system and should be implemented without delay.
Sec. 164.534
    AAOHN strongly supports maintaining the current effective date of 
the Privacy Rule. The Health Insurance Portability and Accountability 
Act of 1996 (HIPAA) mandated that regulations governing the privacy of 
health information be promulgated by February 2000. These privacy 
standards are long overdue, already have been thoroughly debated, and 
should be put into effect promptly.
    For well over a decade, policy makers have recognized that there is 
a need for a federal law protecting the privacy of health information. 
Federal protections for health information were included in every 
proposal on health care reform in the early 1990's.
    The rule-making procedure up to this point has been a lengthy and 
thorough, yet orderly, process. HHS employees spent almost a year 
reviewing, analyzing, and crafting responses to the comments that the 
agency received on this rule. The thoroughness with which HHS 
considered these comments is reflected by the fact that almost 200 
pages of the preamble to the final regulation are devoted to 
summarizing and responding to these comments.
    As to assertions that the Privacy Rule should be delayed because 
some of its provisions are ``ambiguous,'' AAOHN understands that there 
are always interpretative issues when any major rule is adopted. These 
issues properly are resolved by the agency's issuing guidance on the 
regulation after it has taken effect. The Privacy Rule is no exception 
to this general procedure. The purported ambiguity of isolated 
provisions does not Justify delaying the effective date of the entire 
Privacy Rule.
    To the extent there are legitimate implementation issues that 
cannot be remedied through the issuance of guidance, HIPAA expressly 
provides a mechanism for resolving these difficulties after the Privacy 
Rule becomes effective. Under Section 262 of HIPAA (adding Section 1174 
to the Social Security Act), the Secretary has the authority to modify 
the privacy standards during the first 12 months after the standard is 
adopted (i.e., becomes effective) when such modification ``is necessary 
in order to permit compliance with the standard.'' Thus, HIPAA 
anticipates and provides a statutory mechanism for resolving 
implementation problems after the regulation becomes effective.
Sec. 164.502 and Sec. 164.504
    We strongly support the requirement that covered entities receive 
satisfactory assurance that their business associates will properly 
safeguard protected health information before either disclosing this 
information or allowing a business associate to receive protected 
health information on their behalf Absent such a requirement, covered 
entities could easily circumvent the Privacy Rule merely by contracting 
out their business functions. Furthermore, these restrictions properly 
expand, albeit in an indirect fashion, the protections of the Privacy 
Rule.
    Ideally, a health privacy law or regulation would impose 
restrictions directly on all health care providers, regardless of their 
involvement in HIPAA standard transactions, and to those who receives 
protected health information, including the agents and contractors of 
health care providers and health plans. Unlike health care providers, 
these downstream users and processors often do not have an ethical 
obligation to maintain patient confidentiality. AAOHN recognizes, 
however, that the proposed regulations were unable to directly cover 
all health care providers and these organizations due to the 
Secretary's limited authority under HIPAA. Regulating the agents and 
contractors of covered entities indirectly, through the covered 
entities, makes sense in these circumstances. This is particularly true 
since many covered entities already enter some form of contract with 
their business partners.
    Other organizations have complained that business associate 
contracts would be complex and result in significant time and resource 
burdens, and would require the writing or rewriting of many new 
contracts. Having contracts in place specifying what agents are 
permitted to do with sensitive health information just makes good 
business sense. Additionally, the implementation specifications for 
business associate contracts are clear and straightforward and should 
not result in complex contracts. In order to reduce any administrative 
burden, covered entities are free to develop standard contracts or 
standard addenda to existing contracts.
Sec. 164.504
    Most people get their health insurance through employer-sponsored 
health plans governed by ERISA (the Employee Retirement Income Security 
Act). Many fear that employers know more than they should about 
employees' (and dependents') private medical information and may use 
that information inappropriately to make employment decisions. The 
final regulation goes as far as it can to protect workers and their 
dependents from inappropriate disclosures of information generated 
through health plan operations. However, a great deal of individually 
identifiable health information available through occupational health 
programs can still be accessed by employers and human resource 
departments and used to make decisions relating to hiring, firing and 
promotional opportunities.
    Statutory limitations inherent in HIPAA prevent this rulemaking 
from fully protecting all health records held by employers. It is 
imperative that both HHS and Congress recognize that a great deal of 
health information collected and maintained by employers does not flow 
from their operation of an employee health plan. Because these gaps in 
protection exist, employers will continue to have relatively free 
access to personal health information obtained through fitness-to-work 
examinations, occupational safety and health initiatives, and workers' 
compensation programs. The only remedy for this problem is additional 
federal legislation to cover all health care providers.
    For example, many health care providers who are in workplace 
settings are not considered ``covered entities'' under the new rules 
since they do not engage in any of the ``standard HIPAA transactions'' 
(submitting claims, billing or transmitting information). Therefore, 
the employee health information collected by them in the course of 
their duties is not protected under the final rule. Despite having 
ethical principles to maintain confidentiality, these providers can be 
forced to turn over personal health information to management and human 
resources personnel who have hiring, firing and promotion capacity.
    Additionally, information sent from an employee's primary care 
provider to a health care provider in a workplace setting may also be 
unprotected. If an employee is being treated by her primary care 
provider for breast cancer, a release and consent is legally required 
for her provider to send health information to the employer about the 
employee's ``return to work'' restrictions. Information released for 
payment of health claims for treatment or surgery would be protected 
under the HHS rules. However, once received by the health care provider 
responsible for the employer's productivity management and return to 
work programs, that information loses its protection if the receiving 
health care provider does not engage in ``standard HIPAA 
transactions.''
    Again, legislation establishing a comprehensive federal health 
information privacy law is necessary to be able to reach all medical 
records regardless of the medium in which they are created and/or 
maintained and regardless of who holds the records. AAOHN also believes 
the comprehensive health privacy legislation should provide protections 
against inappropriate uses and re-disclosures after an authorized 
release.
    In light of the limitations which flow from the narrow scope of the 
HIPAA statute, AAOHN very much supports provisions that require the 
erection of firewalls to separate the group health plan functions of 
the employer/plan sponsor from the rest of the employer/plan sponsor. 
Firewalls are essential whether employees of the plan sponsor perform 
only functions related to the administration of the group health plan 
or combine those responsibilities with other job functions. These 
safeguards are essential to protect privacy given HIPAA's failure to 
allow HHS to reach employers/plan sponsors directly and the genuine 
concerns of the public about access to personal health information by 
employers. AAOHN only wishes that Congress would expand the authorizing 
legislation to permit the creation of similar firewalls around records 
held in occupational health departments manned by health care providers 
who do not engage in HIPAA standard electronic transactions.
Sec. 164.512 and Sec. 164.514
    AAOHN believes there are a number of other weaknesses in the final 
regulation, most especially the regulation's treatment of law 
enforcement access and marketing and fundraising by covered entities, 
but even these serious weaknesses do not warrant further delay in the 
effective date. Nor, despite the importance of these issues to 
consumers, do we seek to reopen the rule-making process in the hope of 
achieving changes in these areas.
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