On January 16, 2014, the Federal Trade Commission (FTC) unanimously ruled that it has authority to regulate a healthcare provider’s inadequate data security programs in order to protect consumers from business’ failure to protect consumers from identify theft or misuse of personal information under section 5 of the FTC Act, 15 U.S.C. § 45(a)(1).  The FTC’s decision clarifies that healthcare providers and other “covered entities” regulated under the Health Insurance Portability and Accountability Act (HIPAA) must ensure that their data security practices comply with both HIPAA and the FTC Act.

On August 28, 2013, the Commission issued an administrative complaint against LabMD, a clinical lab company that allegedly engaged in practices that “failed to provide reasonable and appropriate security for personal information on its computer networks.”  LabMD filed a motion to dismiss the Commission’s Complaint, and the recent ruling dismissed the lab’s motion.  In its ruling, the Commission analyzes why HIPAA and other statutes do not preempt the commission’s FTC Act authority because, among other things, “[n]othing in HIPAA, HITECH, or any of the other statutes . . . reflects a ‘clear and manifest’ intent of Congress to restrict the Commission’s authority over allegedly ‘unfair’ data and security practices.”

The FTC’s ruling will likely impact federal cases that challenge the FTC’s authority under the FTC Act over data security practices, including the following two cases:  LabMD, Inc. v. FTC, D.D.C., No. 1:13-cv-1787 (LabMD’s lawsuit against the FTC raising HIPAA preemption as a defense); and FTC v. Wyndham Worldwide Corp., D.N.J., No. 13-1887 (broadly challenging whether the FTC has authority to regulate data security practices under the FTC Act).  The FTC’s ruling is available here