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“Congress needs to fix the unintended consequences of the legislation establishing the Red Flags Rule – and to fix this problem quickly.

The Rule was developed under the Fair and Accurate Credit Transactions Act, in which Congress directed the FTC and other agencies to develop regulations requiring “creditors” and “financial institutions” to address the risk of identity theft.

"Our research shows that the healthcare industry is struggling to protect sensitive medical information, putting patients at risk of medical identity fraud and costing hospitals and other healthcare services companies millions in annual breach-related costs," said Dr. Larry Ponemon, chairman and founder, Ponemon Institute.  "At this point one would hope to see that healthcare organizations have improved information security practices and come into compliance with HITECH, now that it's been more than one year since it was enacted.  Instead we found enormous vulnerabilities.  The protection of patient data should be at the forefront of their efforts."

ey findings of the research: Data breaches are costing the healthcare system billions.  The total economic burden created by data breaches on the healthcare industry is nearly $6 billion annually.  The impact of a data breach over a two-year period is approximately $2 million per organization and the lifetime value of a lost patient is $107,580.  The average organization had 2.4 data breach incidents over the past two years.  Major factors causing data breaches are unintentional employee action, lost or stolen computing devices and third-party error.Healthcare organizations are not protecting patient data.  Organizations have little or no confidence in their ability to appropriately secure patient records (58 percent).  Healthcare organizations have inadequate resources (71 percent) and insufficient policies and procedures in place (69 percent) to prevent and quickly detect patient data loss.Protecting patient data is not a priority.  Seventy percent of hospitals stated that protecting patient data is not a top priority.  Patient billing (35 percent) and medical records (26 percent) are the most susceptible to data loss or theft.  A majority of organizations have less than two staff dedicated to data protection management (67 percent).HITECH has exposed the healthcare industry's lax data protection practices rather than improved the safety of patient records.  The majority (71 percent) of respondents do not believe the HITECH Act regulations have significantly changed the management practices of patient records.  The findings indicate that there is a significant number of data breaches that go undetected, and therefore unreported.

"We talk with healthcare compliance people dealing with data breach risks every day and they just can't get their arms around the problem of data exposure," said Rick Kam, president and co-founder of ID Experts.  "Unfortunately, in healthcare organizations, patient revenue trumps risk management."

The Red Flags Rule is an anti-fraud regulation, requiring “creditors” and “financial institutions” with covered accounts to implement programs to identify, detect, and respond to the warning signs, or “red flags,” that could indicate identity theft. The financial regulatory agencies, including the FTC, developed the Rule, which was mandated by the Fair and Accurate Credit Transactions Act of 2003 (FACTA).

The FTC’s Red Flags Web site, www.ftc.gov/redflagsrule, offers resources to help entities determine if they are covered and, if they are, how to comply with the Rule. It includes an online compliance template that enables companies to design their own Identity Theft Prevention Program through an easy-to-do form, as well as articles directed to specific businesses and industries, guidance manuals, and Frequently Asked Questions to help companies navigate the Rule.

“The Commission urges Congress to act quickly to pass legislation that will resolve any questions as to which entities are covered by the Rule and obviate the need for further enforcement delays.  If Congress passes legislation limiting the scope of the Red Flags Rule with an effective date earlier than December 31, 2010, the Commission will begin enforcement as of that effective date.”

The issue regarding the delays in FTC enforcement relates to “scope of entities covered by the Rule,” as indicated in the FTC news release.  Congress is taking action[2]:

“House lawmakers in October [2009] passed H.R. 3763[3], which would exclude from the Red Flags guidelines meaning of ‘creditor’ any healthcare, accounting, or legal practice with 20 or fewer employees, as well as any other business which the FTC determines knows all its customers or clients individually; only performs services in or around the residences of its customers; or hasn’t experienced incidents of ID theft, and identity theft is rare for businesses of that type.  An identical bill, S.3416 was introduced in the Senate on May 25 [2010].” A lawsuit was filed in federal court on May 21, 2010, to accomplish a similar objective of narrowing scope of entities covered by the Rule. 

Behavioral Advertising Online behavioral advertising – the practice of tracking someone’s online activities to deliver targeted advertising – can raise potential privacy issues.  Do you disclose your practices to your customers and honor your promises? Children’s Online Privacy The Children’s Online Privacy Protection Act (COPPA) gives parents control over what information websites can collect from their kids. If you run a website designed for kids or have a website geared to a general audience but collect information from someone you know is under 13, you must comply with COPPA’s two main requirements. Credit Reports Does your business use credit reports to evaluate customers’ credit worthiness? Do you consult credit reports when considering evaluating applications for jobs, leases, and insurance? Here is information about your responsibilities when using, reporting, and disposing of information in those credit reports. Data Security Many companies keep sensitive personal information about customers or employees in their files. Having a sound security plan in place can help you meet your legal requirements to protect that sensitive information. Gramm-Leach-Bliley Act The Gramm-Leach-Bliley Act requires financial institutions – companies that offer consumers financial products or services like loans, financial or investment advice, or insurance – to explain their information-sharing practices to their customers and to safeguard sensitive data. Health Privacy If you offer or maintain personal health records online, you could be covered by the FTC’s Health Breach Notification Rule. Are you familiar with your legal obligations in case of a security mishap? Red Flags Rule The Red Flags Rule requires many businesses and organizations to implement a written Identity Theft Prevention Program designed to detect the warning signs  – or red flags – of identity theft in their day-to-day operations.

Between January and April of this year, Giang filled out 382 surveys before the company that was paying for them, StayWell, figured out what was going on. StayWell had been offering UC employees the gift vouchers as incentives to fill out health surveys, but it grew wise to the scam.

Giang only used part of the Social Security numbers of his co-workers while filling out the survey, his lawyer states in a sentencing memorandum. "Mr Giang never intended to steal their identity, and other than losing the opportunity to participate in StayWell's marketing surveys, the victims did not lose anything," says the Oct. 20 memorandum asking the judge for probation instead of jail time.

The regulations, which went into force in March, are intended to protect a consumer’s personal information from identity theft and other privacy breaches and to spell out steps that businesses must take to ensure data is secured. Some large companies — particularly those in the finance and health care industries that are already subject to data security laws like the Health Insurance Portability and Accountability Act (HIPAA) — had privacy measures in place, which helped get them ready for Massachusetts’ regulations. However, for many smaller and midsize companies that have not been subject to data security laws before, complying with the rules is a longer and often more painful process.

some businesses that are complying with privacy regulations for the first time and have limited in-house technology expertise “are running around with their hair on fire, trying to figure out what to do first,”

“We’ve seen a substantial uptick in activity in clients seeking guidance in how to comply,” said Carlos Perez-Albuerne, a partner at Choate Hall & Stewart LLP. “There’s a whole swath of businesses that never had to deal with anything like this before.”

Now, in a survey of more than 600 small business owners and executives, the Ponemon Institute has tried to put a number on the cost of credit card account fraud for those vulnerable targets, comparing the damage with the cost of physical theft by employees or burglars. The result: While identity theft takes less from businesses per incident than either robberies or crooked employees, it hits them often enough that it's an equally costly or even costlier problem. According to Ponemon's study, the median account fraud incident costs a business $5,136. That's much less than the $9,913 the respondents attributed to the median cost of a burglary or $17,517, the cost they attributed to an employee theft case. But take the frequency of those incidents into account, and the pain adds up. About 86% of businesses have suffered from account fraud, more than the 77% who have been robbed or the 63% whose employees have stolen from them. And among those victims, most businesses experience employee theft either once (32%) or zero times a year (41%). Robberies are less costly but more frequent: Most businesses report them either once (29%) or between two and five times a year (38%). Account fraud is far more frequent: 45% of businesses have been digitally defrauded two to five times in the last year, and 38% have been defrauded more than five times.

The Massachusetts law applies not only to businesses in the state but to any company that keeps personal data on the state's residents. George examines two parts of the law that are particularly notable because they require action to avoid breaches--not just notify victims after the fact.

Businesses are required to have a working information security program for protecting personally identifiable information, and they must submit a written information security program to the state. They also must encrypt data in motion and at rest, including information on portable devices such as USB drives, laptop computers and smartphones.

A second complicated--and evolving--area of compliance is e-discovery, which is the process of handing over electronically stored information requested during a lawsuit.

Consider what happened in March at EMC Corp.'s RSA security unit, the maker of computer login devices used by thousands of other companies. A hacker sent emails to two small groups of employees that looked innocent enough, including a spreadsheet titled "2011 Recruitment plan." The message was so convincing that one employee retrieved it from the "junk mail" folder and then opened the attachment. Doing so introduced a virus inside RSA's network that eventually gave the hacker access to sensitive company data and enabled later attacks against RSA's customers.

Employees have more opportunities than ever to compromise company information. We not only screw up by clicking on emails from hackers that download viruses, letting them bypass corporate firewalls. We also open a Pandora's Box of security problems by circumventing company tech-support rules and doing work with personal gadgets and consumer-grade online services like Web email and cloud storage services.

Here's a look at what employees are doing wrong and how companies are trying to fight our bad habits