Taking advantage of a federal law passed last year, Connecticut’s Attorney General, Richard Blumenthal, announced yesterday a settlement with HMO Health Net that includes a corrective action plan, a $250,000 payment to the State of Connecticut (with an additional potential pot of $500,000), and increased credit monitoring and ID theft insurance to potential victims.  According to Blumenthal’s original lawsuit, Health Net lost or had stolen a disk drive last year containing sensitive information from 1.5 million persons – including 446,000 Connecticut residents.  The drive contained names, addresses, social security numbers, HIPAA-protected health information and financial information. 

The underlying federal statute relied upon by Blumenthal when bringing suit against Health Net is Title XIII of the American Recovery and Reinvestment Act of 2009, also known as the Health Information Technology for Economic and Clinical Health Act (the HITECH Act).  The HITECH Act not only offers financial incentives to prod the use of electronic health records (EHR) but also greatly expands the protections afforded such information.  For example, it creates the first federal breach notification law.   Covered Entities and Business Associates that “access, maintain, retain, modify, record, store, destroy or otherwise hold, use or disclose” unsecured personal health information must disclose to the owner notice of a breach.  See Sections 13402(a) and (b) of the HITECH Act.    

In obtaining yesterday’s settlement, Blumenthal was the first Attorney General to take advantage of the HITECH Act’s grant of HIPAA compliance jurisdiction to state Attorney Generals.   It is entirely likely that other states will now jump on this bandwagon – especially those with AGs seeking higher political office.   In fact, last month AG’s from across the country were scheduled to receive training on HIPAA compliance from Booz Allen Hamilton. 

As for the Health Net settlement, the amounts paid to Connecticut are small compared to what has been spent to date dealing with the breach.  According to the settlement agreement, Health Net allegedly has already spent more than $7 million to investigate what happened to the disk drive, notify members and provide credit monitoring and identity-theft insurance to those potentially impacted.   It is incidents like these that showcase the value of requiring strong indemnification language backed by an equally strong requirement of data breach insurance coverage for those firms managing or holding your patients’ or members’ sensitive medical information.