The Health Insurance Portability and Accountability Act was passed in 1996. Nowadays, HIPAA is the most significant healthcare regulation. Sections of the Act determine how healthcare organizations protect patient privacy and secure data. And the penalties for non-compliance with HIPAA rules are severe.

This article will explain the purpose of HIPAA and explore its role in the healthcare sector. We will learn why the Act matters to healthcare providers and patients. We will also briefly explain the consequences of HIPAA compliance violations.

What HIPAA seeks to achieve

In the 1990s, the healthcare industry was relatively inflexible. Insurers often made it hard for patients to switch providers. Health information did not always move with individuals as they changed jobs or relocated. And incidents of healthcare fraud were common.

HIPAA initially sought to make health insurance more customer-friendly. New rules forced insurers to administer claims efficiently. Regulations also targeted healthcare fraud and included new coding standards to make insurance policies more portable.

Since 1996, the scope of HIPAA has expanded. Congress passed additional measures to prevent waste and fraud in the health insurance sector. More importantly, legislators responded to the growth of electronic protected health information with a series of HIPAA add-ons.

The Department of Health and Human Services (HHS) published the Privacy Rule in 2002, followed by the HIPAA Security Rule in 2003. A separate Breach Notification Rule came into force in 2009. And the Omnibus Rule arrived in 2013, updating the Act’s privacy and security sections.

HIPAA is now a comprehensive collection of rules that guides healthcare organizations. But even though the legislation is complicated, its aims are relatively simple. The core goals of HIPAA include:

  • Guarding the privacy of health data
  • Securing digital patient records
  • Streamlining administration and ensuring insurance portability
  • Guiding healthcare providers in how to handle protected health information (PHI)

Why is HIPAA important?

Most importantly, HIPAA establishes robust guidelines about data security and privacy. Data security has become increasingly important in recent years. The amount of digital information about patients has grown exponentially. But at the same time, the capacity of criminals to access digital health information has exploded.

Thirty years ago, hackers would have been able to access very little patient data via the web. Now, the cloud and corporate networks host a diverse portfolio of information about every single patient. For instance, one individual alone could generate:

  • Financial data from insurance payments
  • Diagnostic documents
  • Consultation records
  • Laboratory results
  • Payments for medical devices and pharmaceuticals
  • Email conversations with healthcare professionals
  • Tracking data from health apps
  • Health information about spouses and children

HIPAA provides a framework that allows providers to secure health data. And it reassures patients that their medical records remain confidential. Confidentiality is a critically important function in the digital age. But that is not HIPAA's only role. The regulations are also important for many other reasons:


The Act brings together critical aspects of healthcare regulation. HIPAA and its sub-sections regulate data security, portability, transparency, privacy, and how providers work with third parties (or Business Associates). HIPAA regulations provide a single framework to inform compliance strategies across the healthcare industry.

HIPAA regulations also clearly define what constitutes protected health information and covered entities. Organizations can use that information to evaluate their HIPAA compliance obligations and make necessary changes.

Public opinion

Patient privacy protection is a major public and political priority. Patients expect their private health information to remain confidential. But guaranteeing confidentiality is difficult in a world of cyber-threats and criminals seeking to monetize patient information.

HIPAA reassures the public that the state can protect patients' health information. HHS also updates the legislation regularly to deal with privacy and security trends. The department responds to public concerns and recommends best practices to safeguard privacy and secure patient data.


Healthcare organizations often struggle to keep up with technological developments. HIPAA recommends minimum technical standards to ensure data integrity and manage patient privacy. For example, providers must put in place secure systems to handle Electronic Health Records (EHR) and manage digital billing.

Regulations provide a framework for every covered entity. This framework makes it easier to update systems and keep pace with competitors.


HIPAA provides a clear enforcement framework. The Office for Civil Rights (OCR) manages a transparent and easy-to-understand system of financial penalties. Regulated entities know how to avoid fines and criminal prosecutions. Strict enforcement of regulatory penalties also promotes higher standards across the health sector.

Why is HIPAA important for healthcare providers?

All healthcare providers need a deep understanding of HIPAA provisions. The Act influences almost everything healthcare companies do, from hiring employees to selling products to customers. Let’s quickly think about some specific ways that HIPAA affects healthcare operations:

HIPAA benefits for healthcare providers


HIPAA has made healthcare companies more efficient. The Act initially sought to make health insurers more responsive and flexible. The regulations make it easier to switch policies and hold insurers to account.

Additions to the Act promote more efficient data handling and storage. And they actively seek to drive technical improvements. When the OCR investigates complaints, it often provides technical support for covered entities. This technical support helps providers improve their operations and customer services.


HIPAA has encouraged the standardization of healthcare data across covered entities. The regulations include consistent recommendations about what constitutes individually identifiable health information. And they guide providers in how to code health data. This guidance has data security benefits while making it easier to move customers between insurers.

Reduced healthcare fraud

HIPAA has reduced healthcare fraud and imposed new reporting standards on providers. Organizations in the health industry must apply strict controls on coding and financial reporting. And they must provide accurate, unbiased information about the products they sell. Transparency has boosted trust in the health insurance industry and encouraged more professional accounting practices.

Penalty avoidance

A non-compliant covered entity faces financial penalties or criminal prosecution under HIPAA. The OCR has handled around 330,000 enforcement actions since 2003 and imposed total fines of over $135 million. Providers that want to minimize their regulatory risk exposure must implement robust compliance strategies to meet HIPAA Privacy Rule and Security requirements.

Why is HIPAA important for patients?

The Health Insurance and Portability Act has changed how patients interact with the healthcare industry. The legislation empowers customers, giving them new powers and protections.

HIPAA benefits for patients

Privacy protection

HIPAA provides legislative protection for patient privacy. The Act includes rules to guard Protected Health Information against data theft. HIPAA also prevents unauthorized disclosure by healthcare professionals or organizations. Privacy protection extends across all healthcare bodies, including clinics, healthcare clearinghouses, insurers, and business associates.

Companies must implement robust security controls to protect health data. Under HIPAA rules, covered entities must encrypt personal health information. They must prevent unauthorized access to medical records and regularly scan their networks for security vulnerabilities.

Right of access

The HIPAA Right of Access also makes the health industry more transparent. Patients can request copies of all data held about them by healthcare organizations. Covered entities failing to provide patient information are liable for financial penalties or criminal prosecution.

The Right of Access has another critical patient benefit. Patients can check their health information and request amendments. Checking patient records helps to remove inaccuracies in personal health information. It also helps maintain consistency. Patients moving between providers or geographical areas can consult their medical records. And they can correct any discrepancies.

Improved standards

In theory, HIPAA drives up professional standards. Regulations force healthcare organizations to be transparent and invest in the latest data security technology. Providers have an incentive to become more efficient and responsive to patient needs. Compliant organizations must communicate openly and provide the information patients demand.

HIPAA also makes it easier to switch insurers if patients are unhappy with their current health insurance coverage. The Act standardizes medical records and coding. And it imposes a strict transparency requirement on covered entities. Thanks to HIPAA, customers should be aware of the strengths and weaknesses of every provider.

Patient trust

Patients can also trust HIPAA-compliant providers. Healthcare data security and privacy rules reduce the risk of data breaches. Customers can communicate with companies or professionals without worrying about data sharing. HIPAA requires companies to seek consent before processing health data.

Simply put, HIPAA benefits patients by ensuring security and privacy. The Act empowers individuals and builds a culture of trust within the healthcare sector.

Consequences of not complying with HIPAA

Healthcare companies should avoid HIPAA violations wherever possible. The direct consequences of non-compliance include:

  • Regulatory fines. OCR can fine Covered Entities between $500 and $50,000 for single HIPAA violations. And financial penalties accumulate. So healthcare clearinghouses that expose the records of 100,000 people will sustain massive fines. The largest HIPAA fine is the $16 million levied on Anthem in 2018. Multi-million dollar penalties are common.
  • Criminal prosecution. Individuals knowingly breaching the HIPAA Privacy Rule can receive prison sentences of up to 10 years. This rule generally applies to healthcare employees who use their position to access personal health information illegally. But executives of healthcare providers can also face prosecution for deliberately compromising patient data or failing to allow patient access.

Non-compliance also has indirect consequences. For instance, healthcare providers that fail to meet HIPAA requirements could experience reputational damage. Customers will avoid healthcare providers that fail to secure data. If reputational damage lingers, data breaches can permanently damage the financial health of an organization.

Third parties also suffer from non-compliance. Under HIPAA rules, healthcare companies can only work with compliant Business Associates. As a result, they tend to avoid partners with poor compliance records. So app developers, device manufacturers, and healthcare cloud service providers should always be HIPAA-compliant.

Disclaimer: This article is for informational purposes only and not legal advice. Use it at your own risk and consider consulting a licensed professional for legal matters. Content may not be up-to-date or applicable to your jurisdiction and is subject to change without notice.