Understanding the Critical Role of Third-Party Compliance in the Healthcare Industry

Healthcare providers like hospitals, clinics, and medical networks work with many outside companies. These include billing services, IT support, equipment suppliers, cloud services, device makers, and telehealth firms. When these third parties access patient health information (PHI) or connect with healthcare systems, they increase the risk of data problems. If a third party has a security breach or fails in some way, it can harm patient privacy, break rules like HIPAA, and lead to expensive fines for the healthcare provider.

The Health Insurance Portability and Accountability Act (HIPAA) sets strict rules to protect PHI. It requires healthcare providers to make sure their business partners follow these rules too. Business Associate Agreements (BAAs) are legal contracts that say how third parties must protect PHI. They also explain how quickly a third party must report security problems. Roger Shindell, CEO of Carosh Compliance Solutions, says BAAs are important in making sure PHI is protected across healthcare.

Careful checking and ongoing watching of third parties help stop unauthorized access and data leaks. This is very important because if a third party does not follow the rules, it can put patients at risk and cause big fines, damage to reputation, and operational problems. For instance, HIPAA fines can be as high as $1.5 million yearly for each violation.

Third-party breaches have become common lately. Reports show up to 55% of healthcare data breaches come from third parties. The average cost of a healthcare data breach is almost $9.77 million. Because of this, healthcare leaders and IT staff need to work hard to manage third-party compliance risks.

Third-Party Compliance: Key Components and Practices

• Identification and Categorization of Third Parties:
  Healthcare organizations must list all third parties who can access PHI or systems. This includes direct vendors, subcontractors, consultants, cloud providers, and device makers. Knowing all of them helps make sure none are missed.
• Risk Assessment and Due Diligence:
  Before working with a third party, healthcare providers should check their risks. This includes looking at security steps like encryption, firewalls, staff training, past compliance, and how they handle problems. Risk checks should happen often, not just once.
• Business Associate Agreements (BAAs):
  BAAs explain how PHI should be protected and how breach reports must be sent. They detail the safety measures third parties must follow.
• Continuous Monitoring and Auditing:
  Healthcare providers need ways to regularly check if third parties are still following the rules. This can include audits, reports, or visits. Monitoring should check current practices and any changes that might affect safety.
• Training and Awareness:
  Giving HIPAA and privacy training to third-party staff helps keep security strong. Regular updates on rules and risks are important.
• Incident Response and Breach Notification:
  Plans should be ready that explain how third parties report breaches, help with investigations, fix problems, and notify patients as required by law.
• Contractual and Legal Oversight:
  Good contract management makes sure compliance rules are followed. It lowers risks and makes clear who is responsible for what.

Roger Shindell points out that healthcare providers share legal responsibility for their business partners. That makes careful checking and ongoing oversight very necessary.

Third-Party Risk vs. Vendor Management: Understanding the Difference

It is important to know the difference between third-party risk management (TPRM) and vendor management because they handle risks differently:

• Third-Party Risk Management (TPRM):
  TPRM looks at risks from all outside groups, including indirect ones. It focuses on things like cybersecurity, keeping operations going, following rules, and data privacy.
• Vendor Management:
  This focuses on direct contractual partners. It watches contract terms, service quality, prices, and rule compliance.

Both are needed in healthcare to protect patient data and avoid problems. Putting them together with shared tools helps healthcare providers watch risks better. Terry Grogan, CISO of Tower Health, said that after using an AI platform for risk management, his team shrank from five to two people and got more work done faster.

The Consequences of Neglecting Third-Party Compliance

Healthcare groups that do not watch third-party compliance closely face serious problems. The Change Healthcare hack in February 2024 is a recent example. In this ransomware attack, 6 terabytes of sensitive data were stolen. This data included social security numbers and medical records for almost 193 million people. The hack caused many service problems. About 77% of healthcare providers said their services were interrupted. Around 80% lost money because claims were not paid. Many had to cover costs themselves. UnitedHealth Group spent more than $2 billion to help affected providers. Total costs from the breach went over $2.4 billion.

The Office for Civil Rights started a HIPAA investigation into how Change Healthcare managed compliance. They looked closely at BAAs and how fast breach reports were sent. This incident showed weak spots in watching third parties and in planning for problems. Lawmakers asked for better cybersecurity rules and made bills that connect Medicare payments to cyber safety.

Besides costing money, breaches like this hurt patient trust. Trust is very important in healthcare. When PHI is exposed, patients risk identity theft and other privacy problems that can last a long time.

Risks from Third-Party Software and Medical Devices

Third-party software in medical devices is another area that needs good compliance and risk checks. Many medical devices depend on software parts made by many outside makers. These include operating systems, communication tools, and open-source code. Research from Forescout’s Vedere Labs found 80% of healthcare breaches come from cyber attacks on this software. Since 2017, problems in medical device software, like those using DICOM protocols for imaging, have gone up a lot.

The FDA now requires medical device makers to give a Software Bill of Materials (SBOM). SBOMs list all software parts and third-party code used in a device. This helps track software risks and lets healthcare providers act fast when new threats appear. SBOMs help move risk checks from yearly reviews to ongoing watching.

Dr. Daniel dos Santos from Vedere Labs said many device problems come from third-party parts like those in infusion pumps. Marc Frankel, CEO of Manifest Cyber, said medical devices should show their software details like food labels show ingredients. Hospitals that use SBOMs in buying devices respond faster to known software risks.

AI and Automation in Third-Party Compliance and Workflow Efficiency

Automation, especially with AI, is becoming more important in managing third-party compliance in healthcare. These tools help administrators, owners, and IT staff by doing repetitive compliance jobs, reducing errors, and giving real-time information.

AI platforms like Censinet RiskOps and Cynomi’s vCISO automate risk checks, contract management, document storage, and breach tracking. They save time, cut manual mistakes, and allow continuous monitoring to handle changing risks.

Automation can create customized compliance policies, align security rules with HIPAA and NIST, and display dashboards showing compliance for all third parties. This lets organizations find and fix problems fast without large teams.

Cynomi’s AI system, used by Managed Service Providers (MSPs), automates compliance for many clients. It helps healthcare groups follow complex state and federal rules. These tools let IT managers focus on high-risk third parties, enforce BAAs, and ensure breach reports are on time.

AI and automation also help manage incident responses. They coordinate communication between healthcare providers and third parties during cyber events. This coordination makes breach investigations, containment, and patient notifications quicker, which HIPAA requires.

Managing Legal Liability and Regulatory Compliance

In the U.S., healthcare providers are legally responsible for their third-party vendors’ compliance with rules like HIPAA and HITECH. This shared responsibility means healthcare groups must carefully check third parties before contracts and watch them continually after.

Failing to do this can lead to government fines, lawsuits, and damage to reputation.

Frameworks like HITRUST help healthcare organizations manage risks with a structured approach that covers regulations and security controls. Even with HITRUST certification, as shown by the Change Healthcare breach, gaps can still happen between certification and actual practice.

New federal rules proposed by the Cybersecurity and Infrastructure Security Agency (CISA) under the Cyber Incident Reporting for Critical Infrastructure Act (CIRCIA) require healthcare providers and their third parties to report cyber events quickly. Reports must come within 72 hours for breaches and 24 hours for ransomware payments. These rules add more regulation but also help providers respond to threats faster.

Healthcare providers must keep detailed records like contracts, risk assessments, audit reports, and training logs to show compliance during investigations and audits.

Collaborative Approaches to Effective Third-Party Compliance

Good third-party compliance needs many parts of a healthcare organization to work together. Compliance officers, IT workers, lawyers, human resources, and buying teams all have important roles. Including third-party vendors in education and risk programs helps build a workplace culture focused on data security and rule-following.

Some healthcare groups have started sharing platforms where they exchange vendor risk data and assessment results. This sharing reduces repeated work and helps everyone understand risks in common third parties better.

Using technology together with strong internal management helps healthcare organizations reduce the work needed to manage third-party risk. It also improves security and following rules.

Summary of Key Points for Medical Practices and Healthcare Organizations

• Third-party vendors and subcontractors with access to PHI or healthcare systems must follow HIPAA and other rules to protect patient data and avoid fines.
• Business Associate Agreements (BAAs) are legal contracts that explain third parties’ duties for data protection and reporting breaches.
• Continuous risk checks, monitoring, audits, and staff training are needed to keep up with changing rules.
• The 2024 Change Healthcare cyberattack shows how expensive and damaging poor third-party management can be.
• Using third-party software in medical devices raises risk. SBOMs and ongoing software monitoring are important.
• Adding AI and automation to compliance workflows improves work speed, cuts mistakes, and helps providers respond faster to risks.
• Healthcare groups have legal responsibility for their third parties’ actions, so they must watch them carefully and keep good records.
• Working well inside the organization and with vendors is key to strong compliance programs.
• Using structured frameworks like HITRUST and software tools like Cynomi and Censinet RiskOps helps handle risks continuously.

With more cyber threats, strict rules, and complex third-party relations, healthcare administrators and IT staff in the U.S. need to make third-party compliance a top priority to protect patient information and keep their organizations secure.