Business Associates and HIPAA’s Privacy Rule

By law, the HIPAA Privacy Rule applies only to covered entities – health plans, health care clearinghouses, and certain health care providers. However, most health care providers and health plans do not carry out all of their health care activities and functions by themselves. Instead, they often use the services of a variety of other persons or businesses. The Privacy Rule allows covered providers and health plans to disclose protected health information to these “business associates” if the providers or plans obtain satisfactory assurances that the business associate will:

  • Use the information only for the purposes for which it was engaged by the covered entity;
  • Safeguard the information from misuse; and
  • Help the covered entity comply with some of the covered entity’s duties under the Privacy Rule.

Covered entities may disclose protected health information to an entity in its role as a business associate only to help the covered entity carry out its health care functions – not for the business associate’s independent use or purposes, except as needed for the proper management and administration of the business associate.

How the Rule Works  

General Rule

The Privacy Rule requires that a covered entity obtain satisfactory assurances from its business associate that the business associate will appropriately safeguard the protected health information it receives or creates on behalf of the covered entity. The satisfactory assurances must be in writing, whether in the form of a contract or other agreement between the covered entity and the business associate.

What Is a “Business Associate?”

 A “business associate” is generally a person or entity that performs functions or activities on behalf of, or certain services for, a covered entity that involves the use or disclosure of protected health information. A member of the covered entity’s workforce is not a business associate. A covered health care provider, health plan, or health care clearinghouse can be a business associate of another covered entity.

The following persons and entities are also considered “business associates” under the final omnibus rule:

  • Subcontractors that create, receive, maintain, or transmit protected health information on behalf of another business associate;
  • Health Information Organizations, E-prescribing gateways, or other persons that provide data transmission services with respect to protected health information to a covered entity and that require access on a routine basis to such protected health information;
  • Persons who offer a personal health record to one or more individuals on behalf of a covered entity.

The Privacy Rule lists some of the functions or activities, as well as the particular services, that make a person or entity a business associate, if the activity or service involves the use or disclosure of protected health information. The types of functions or activities that may make a person or entity a business associate include payment or health care operations activities, as well as other functions or activities regulated by the Administrative Simplification Rules.

Business associate functions and activities include: claims processing or administration; data analysis, processing or administration; utilization review; quality assurance; billing; benefit management; practice management; repricing; and patient safety activities. Business associate services are: legal; actuarial; accounting; consulting; data aggregation; management; administrative; accreditation; and financial.

Examples of Business Associates 


A third party administrator that assists a health plan with claims processing.

  • A CPA firm whose accounting services to a health care provider involve access to protected health information.
  • An attorney whose legal services to a health plan involve access to protected health information.
  • A consultant that performs utilization reviews for a hospital.
  • A health care clearinghouse that translates a claim from a non-standard format into a standard transaction on behalf of a health care provider and forwards the processed transaction to a payer.
  • An independent medical transcriptionist that provides transcription services to a physician.
  • A pharmacy benefits manager that manages a health plan’s pharmacist network.
  • A shredding company hired by a third party administrator to handle document and media shredding to securely dispose of paper and electronic protected health information.


Business Associate Contracts

 A covered entity’s contract or other written arrangement with its business associate must contain certain elements specified by law. For the convenience of health plans and other covered entities, the U.S. Department of Health and Human Services has created a Sample Business Associate Contract. Among other requirements, the contract must:

  • Describe the permitted and required uses of protected health information by the business associate;
  • Provide that the business associate will not use or further disclose the protected health information other than as permitted or required by the contract or as required by law; and
  • Require the business associate to use appropriate safeguards to prevent a use or disclosure of the protected health information other than as provided for by the contract.


Note: Business associate agreements that qualified for prior transition relief from the new documentation and contract requirements of the HIPAA final omnibus rule must be updated by September 22, 2014.


Obligation to Cure Breaches of a Business Associate

 Where a covered entity knows of a material breach or violation by the business associate of the contract or agreement, the covered entity is required to take reasonable steps to cure the breach or end the violation, and if such steps are unsuccessful, to terminate the contract or arrangement. If termination of the contract or agreement is not feasible, a covered entity is required to report the problem to the Department of Health and Human Services (HHS) Office for Civil Rights (OCR). The final omnibus rule makes business associates of covered entities directly liable for violations of the Privacy Rule for impermissible uses and disclosures pursuant to their business associate contracts.


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