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Varnum LLP

HIPAA Stage IV: A New Wave of Regulations
Most of us have not yet recovered from our HIPAA fatigue, but we are now faced with a new wave of HIPAA regulations that apply to employer health care plans. Health care plans and other covered entities must comply with the HIPAA security rule. In summary, plans must protect the confidentiality, integrity, and availability (CIA) of electronic protected health information that they create, receive, maintain or transmit either internally or to external entities.

The good news is that the response required from a healthcare plan will be much less burdensome than the response to the privacy regulations. You have already learned the jargon. You will not have to generate many new documents as you did with the privacy regulation. But perhaps most important, you will not be required to send out any special communication to plan participants as you did when responding to the privacy regulation.

A brief summary of the various stages of HIPAA that affect employer health care plans will help in our understanding of the security rule:

I - Portability: Portability involves a series of rules addressing discrimination on the basis of health status, certificates of creditable coverage, and pre-existing condition limitations.

II - EDI: Electronic data interchange or "EDI" was the original driving force behind HIPAA. This series of rules obligates health care plans, health care providers and health care clearing houses ("covered entities") to use common computer codes to describe medical transactions and requires common computer language for recording and paying for health care encounters. The hope was that this would eliminate much of the inefficiency in the third party payer system.

III - Privacy: The privacy regulation was the response to the concern that if medical information was in a format that was easier to access and use, then covered entities must take additional steps to safeguard the information from inappropriate disclosure. Health care plans responded by

• adopting amendments,
• certifying the adoption of the amendment,
• adopting privacy policies,
• distributing notices of privacy practices to plan participants, and
• entering into business associate agreements with outside organizations used by a plan to assist with plan administration.

IV - Security: Under the security rule, plans must assure that administrative, physical and technical safeguards are in place with respect to electronic protected health information (ePHI). The plan must assure appropriate access by individuals administering the plan and retention of plan information. Plans must also avoid any inappropriate access, destruction or alteration of ePHI.

If the health care plan third party administrator (TPA) or insurance company handles most or all of the electronic information, then there is little that the plan or plan sponsor must do to respond to the security rule. However, insurance companies and plan sponsors frequently use e-mail. An e-mail discussion of the payment of a particular claim would be considered to be "ePHI" and the security rules must be addressed in this case.

The security rule contains an elaborate listing of standards of operation. Some of the standards are "required" and some are "addressable." Plans have little flexibility in the case of the required standards. However, the term "addressable" means that the standard must be evaluated in the context of each plan. Note that the word "addressable" does not mean simply "optional." The plan must make an assessment of the vulnerability, possible response cost and effectiveness of the response to determine whether any response to the addressable standard will be made and, if so, determine the most appropriate response. If a plan decides against implementing a standard, it must document the reason, and if appropriate under the circumstances, implement an alternative measure.

The assessment should consider the following issues:

• Risk analysis - What current and future circumstances leave the plan open to unauthorized access and disclosure of ePHI?
• Security measures - What security measures are already in place or could reasonably be put in place to counter those risks?
• Financial analysis - How much will implementation of the measures cost?

The standards fall into three broad categories, discussed below. Many of the specific standards are also listed:

Administrative Safeguards: These are the human issues. In this context, a plan must appoint a security official. Note that this could be the same individual who was appointed to serve as the privacy official. Because of the type of information that is protected (ePHI) and the nature of the systems holding the information (electronic) many plan sponsors and plans will want to consider appointing their information management officer to this position. These standards include the following:

Management Process: Plans must adopt a security management process to preserve appropriate access to information and to prevent and address security violations.

Information Access Restrictions: Access to ePHI must be restricted. Procedures assuring access by appropriate individuals involved in plan administration and prohibiting access by anyone else must be adopted.

Training: A plan must determine the level of security awareness and training appropriate for its workforce.

Responses to Breaches: A plan must adopt procedures to handle breaches of security.

Contingency Plan: Responses to power interruptions, weather interruptions or other emergencies must be adopted.

Evaluations: A plan must initially and periodically evaluate the plan's compliance.

Physical Safeguards: These are primarily the hardware issues. The plan must conduct an accurate and thorough assessment of the risks and vulnerabilities to the confidentiality, integrity and availability of ePHI.

Facility Access Controls: The plan must address the level of access necessary for authorized individuals under a variety of circumstances.

Workstations: The plan must identify proper use of workstations and the physical surroundings. The plan must also implement safeguards for workstations.

Device Controls: The plan must control the movement of hardware. News stories about the misplaced hard drives at the nuclear research facilities and misplaced personal computers containing sensitive data are examples of circumstances that must be avoided.

Technical Safeguards: These are software and procedural issues that must be addressed.

System Login Controls: The plan must limit the login to the system to authorized individuals only.

Audit Controls: Audit controls that record or examine activity in information systems must be adopted.

Integrity: The integrity of the computer system and adoption of procedures to prevent loss or alteration of information must be addressed. Authentication protocols must be adopted to make sure that unauthorized persons do not use the computer system.

Transmission Security: The plan must guard against unauthorized access to ePHI as a result of the transmission of information. Consider issues such as authentication and encryption.

The words and phrases discussed above should have a familiar ring to them. They are similar to the jargon used in the privacy rule. But while the privacy rules contained general requirements for maintaining the security of all PHI, the security rule specifically applies to the transmission and maintenance of electronic PHI.

As with the privacy rules, it is not sufficient to merely think about these issues, but plans must maintain written records of their evaluation of needs and responses. This will include a written record of the examination and evaluation and a written summary of the response. The written summary can be a separate policy, it can be a simple addendum to the privacy policy or a conclusion that the security rule is adequately addressed in the existing privacy policy.

The deadline for compliance with the security rule depends on the size of the plan. For plans with more than $5 million in claims or premiums, the deadline was April 20, 2005. Plans with $5 million or less in claims or premiums must comply by April 20, 2006.

We will be presenting a brief seminar on HIPAA security rule issues as well as an update on HIPAA privacy. Tim Clements, a lawyer and Network Administrator for Varnum, Riddering, Schmidt & Howlett LLP, will be a co-presenter at this seminar, set for 8:00 A.M. March 2, 2006 in our Grand Rapids office and 8:00 A.M. March 3, 2006 in our Kalamazoo office.

If you have questions regarding the security rule or need assistance in responding to the security rule, contact any member of the employee benefits practice group.

01-13-2006

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Varnum LLP

NATIONAL PANDEMIC INFLUENZA CHECKLIST RELEASED
In response to a potential outbreak of the "bird flu virus" throughout the United States, President Bush recently announced a National Strategy for Pandemic Influenza. The strategy is geared toward preparing employers throughout the United States for the possibility of an influenza pandemic. In order to ensure maximum preparedness, employers have been asked to develop specific plans, or methods that will allow them to protect their employees and maintain operations during a pandemic.

In order to facilitate preparations, the Department of Health and Human Services and the Centers for Disease Control and Prevention have developed a checklist that employers may utilize. The checklist, which can be found at www.pandemicflu.gov/plan/checklists.html identifies many important action steps that employers can undertake now that will allow them to effectively respond to a future pandemic, and minimize any potential effects on its business and customers. The checklist also contains recommendations on establishing workplace policies that may be implemented during a pandemic, and how to communicate with and educate employees about the pandemic.

Presently, the checklist applies mostly to private sector employers. However, the federal government is currently working on developing a strategic plan for educational institutions. In the interim, it is suggested that educational institutions:

• Keep sick students, faculty, and workers away from the educational institution while they are infectious;

• Promote respiratory hygiene/cough etiquette and hand hygiene as for any respiratory infection; and

• Ensure that materials for respiratory hygiene/cough etiquette (i.e., tissues and receptacles for their disposal) and hand hygiene are available.

For more information on this topic contact attorney Kurt Graham at (616) 336-6720.

01-13-2006

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Varnum LLP

Flexible Benefits: Part One of a Four Part Series
I. Introduction
The term "flexible benefits plan" means different things to different people. Generally, the term describes any arrangement where an employee has some choice (i.e. flexibility) in determining his or her benefits. Often, the terms "flexible benefits plan", "cafeteria plan" and "Section 125 plan" are used interchangeably.

Cafeteria plans (also known as Section 125 plans after the IRS Code Section that deals with them) are actually a special type of flexible benefit plan. A Section 125 cafeteria plan is a plan which allows an employee to make a choice between receiving non-taxable benefits or taxable benefits such as cash. Cafeteria plans can be funded by employer dollars, employee salary reduction dollars, or both.

II. Reasons for Flexible Benefits
Many employers are looking at flexible benefits today because traditional benefits plans are not as effective at meeting the needs of employees. The emergence of the two-income family as the standard instead of the exception (often leading to duplicate coverage), the continuing escalation of benefit costs, and the changing needs of an increasingly diverse work force (including child care needs) have caused employers to review their benefits program options.

III. Plan Objectives
A flexible benefits plan generally is intended to meet one or more important objectives. They may include:


1. Meeting diverse employee needs on an equitable basis;
2. Controlling rising costs;
3. Gaining maximum tax advantages for both employer and employee;
4. Increasing employee understanding and appreciation of benefits; and
5. Attracting and retaining valuable employees.


IV. Types of Plans
A flexible benefits plan can simply be a plan that offers some choice to employees on which benefits they receive. However, the special type of flexible benefits plan that is receiving an increasing amount of attention is the Section 125 cafeteria plan. A Section 125 cafeteria plan is one that allows an employee to choose between non-taxable benefits or cash. Employees can be given an incentive to waive benefits. This feature is useful where employees have benefits available to them through another source, such as a spouse's employer. Also, the plan is often designed to include a salary reduction feature, which allows the employee-paid portion of the benefits to be automatically deducted from an employee's pay check on a tax-free basis.

Section 125 cafeteria plans can be divided into three major categories:
1. Premium Only Plans;
2. Premium and "Flexible Spending Account" Plans; and
3. "Full Flex" Plans.

Each of these categories will be discussed, in turn, in future articles.

For more information on this topic contact attorney Darren Malek at (269) 553-3547.


01-13-2006

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Ulmer & Berne LLP

Ulmer & Berne LLP Announces Addition of Two New Associates
CLEVELAND (January 13, 2006) — Ulmer & Berne LLP, a major Ohio-based law firm with four offices throughout the Midwest, announced today that James K. Keller joined its Cincinnati office as an associate in the Corporate Finance, and Acquisition and Development Groups, and Patrick J. Egan joined its Cleveland office as an associate in the Employee Benefits Group.

01-13-2006

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Thacher Proffitt & Wood LLP

Corporate and Financial Institutions Bulletin: SEC Adopts Final Rules on Filing Deadlines for Periodic Reports
I. INTRODUCTION
On December 21, 2005, the Securities and
Exchange Commission adopted final rules
extending the filing deadlines for Form 10-K
annual reports1 and Form 10-Q quarterly
reports for many companies by amending the
definition of an “accelerated filer” and
creating a new category of filers, the “large
accelerated filer.”
The SEC adopted final rules largely as
proposed with two significant modifications:
• “large accelerated filers” have an
additional year before they are
required to comply with their new
annual filing deadline; and
• the exit requirements for more lenient
filer status have been relaxed.
II. FILING DEADLINES
The new amendments redefine the term
“accelerated filer” in Rule 12b-2 under the
Securities Exchange Act of 1934 to mean
companies that have at least $75 million but
1 Non-U.S. companies that satisfy the SEC
definition of a “foreign private issuer” are eligible
to file their annual reports on Form 20-F and are
not required to file quarterly reports on Form 10-
Q. The Form 20-F filing deadline has not changed
and generally remains at six months after fiscal
year-end. However if a “foreign private issuer”
voluntarily elects to file its periodic reports on
Forms 10-K or 10-Q, it too will be subject to the
new rules.
less than $700 million in public float2. The
rules add a new category of filers, “large
accelerated filers,” defined as companies that
have a public float of $700 million or more
and meet the other conditions that apply to
accelerated filers.3
The amendments maintain the current 75-
day Form 10-K annual report filing deadline
and 40-day Form 10-Q quarterly report filing
deadline for “accelerated filers,” rather than
shortening those deadlines as had been
scheduled.
Companies that fall within the new
definition of “large accelerated filers”
maintain the current 40-day Form 10-Q
quarterly report filing deadline, as opposed to
the accelerated deadline previously scheduled.
However, in a change from the proposed rule,
“large accelerated filers” will be subject to an
accelerated 60-day Form 10-K annual report
filing deadline only for fiscal years ending on
or after December 15, 2006. For fiscal years
ending before December 15, 2006, “large
accelerated filers” may maintain the current
75-day Form 10-K annual report filing
2 The SEC defines “public float” in this context as
the “aggregate worldwide market value of voting
and non-voting common equity held by nonaffiliates
of the issuer” as of the last business day of
the issuer’s most recently completed second fiscal
quarter.
3 In addition to the specified public float, the
company must be subject to Exchange Act
reporting requirements for 12 calendar months,
have filed at least one annual report on Form 10-K
and not be a small business issuer eligible to use
Forms 10-KSB or 10-QSB.
CORPORATE AND FINANCIAL INSTITUTIONS BULLETIN
JANUARY 2006
PAGE 2
deadline. Therefore, as a practical matter,
most calendar year large accelerated filers will
not be subject to the new accelerated filing
schedule until they file their 2006 Form 10-K
in early 2007.
Companies that are neither “accelerated
filers” nor “large accelerated filers” continue
to be subject to the traditional 90-day Form
10-K filing deadline and 45-day Form 10-Q
filing deadline. In addition, companies that
have recently completed an IPO would not
meet the definition of “accelerated filer” or
“large accelerated filer” until they have been
subject to Exchange Act reporting
requirements for 12 calendar months,
regardless of public float levels, and are thus
subject to the traditional filing deadlines for
the first year following their IPOs

01-13-2006

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Sutherland Asbill & Brennan LLP

Sutherland Asbill & Brennan Elects Eight New Partners
Atlanta & Washington (Jan. 13, 2006) – Sutherland Asbill & Brennan LLP is pleased to announce the election of eight new partners. The following attorneys are partners effective January 1, 2006:
In the Atlanta Office:
Patricia A. Gorham, Cheryl L. Haas-Goldstein and Avital Stadler have been elected partner.
Ms. Gorham practices in the Litigation group focusing on complex commercial litigation, primarily in the areas of accountants' liability, securities fraud, and class actions. Ms. Haas-Goldstein practices in the Litigation group concentrating in the areas of securities enforcement, securities fraud, federal and state RICO cases, and other complex commercial litigation. Mr. Stadler practices in the Litigation group focusing on securities litigation and enforcement.
In the Washington Office:
Robert S. Chase II,Daniel E. Frank and Gail L. Westover have been elected partner.
Mr. Chase practices in the Tax group focusing on the taxation of financial products and international tax planning. Mr. Frank practices in the Energy group concentrating in regulatory proceedings at the federal and state levels, and in commercial transactions and contracts. Ms. Westover practices in the Litigation group focusing in several substantive areas, including construction, employment, insurance, reinsurance, energy and other complex commercial disputes.
In the New York Office:
Robert E. Copps and Eric L. Sidman have been elected partner.
Mr. Copps practices in the Corporate group concentrating in private equity, mergers and acquisitions, finance and securities matters and general corporate representation. Mr. Sidman practices in the Real Estate group focusing in the area of commercial real estate, with an emphasis on retail and office development and leasing.
“Each of these attorneys has been a very strong contributor to the life of the firm,” said Mark D. Wasserman, Sutherland’s firm wide Managing Partner. “I am confident that each new partner will continue to use his or her talents to work for our future success.”
Sutherland has also promoted the following attorneys to counsel.
In the Atlanta Office:
Candice C. Decaire, Intellectual Property;
Kevin W. King, Intellectual Property; and
Robert J. Neis, Tax.
In the Washington Office:
Elisabeth M. Bentzinger, Financial Services;
Sheila R. Novak, Real Estate; and
Patrice M. Pitts, Financial Services.
Sutherland Asbill & Brennan LLP is a national law firm known for solving challenging business problems and resolving unique legal issues for many of the nation’s largest companies. Founded in 1924, the firm has grown to more than 425 lawyers with offices in Atlanta, Austin, Houston, New York, Tallahassee and Washington. For further information about the firm, please visit www.sablaw.com.

01-13-2006

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Smith, Gambrell & Russell, LLP

THREE SGR ATTORNEYS ELECTED TO PARTNERSHIP
Smith, Gambrell & Russell, LLP announces that three of its attorneys have been elected to partnership as of January 1. Den Webb, James Connelly and Scott Woldow have become recent additions to the 87 partners currently practicing.
Webb is a member of the Zoning, Planning and Land Use Practice at Smith, Gambrell & Russell, LLP. He has extensive experience in real estate and construction law, having represented private owners, developers, general contractors, subcontractors and surety companies in litigation over all types of major projects. He has also represented property owners in zoning, variance and other administrative hearings and in the related litigation. Mr. Webb received his B.A. from Vanderbilt University and his J.D. degree from Mercer University.
Connelly is a member of the Litigation Practice at Smith, Gambrell & Russell, LLP. His practice is devoted to the defense of domestic and foreign corporations and individuals in securities class actions and other shareholder-related litigation, as well as in other complex business disputes. He has experience in defending accounting firms in securities matters as well as in accounting malpractice actions. His practice includes representation of individuals in enforcement proceedings conducted by the United States Securities and Exchange Commission as well as in federal law enforcement and grand jury investigations and criminal prosecutions. Mr. Connelly received both his B.A. and J.D. degrees from the University of Virginia.
Woldow is a member of the Intellectual Property Practice of Smith, Gambrell & Russell, LLP, working from the firm’s Washington, D.C. office. He specializes in counseling U.S.-based and International clients with regard to intellectual property matters, prosecuting applications to register trademarks and service marks worldwide, maintenance of existing trademark and service mark registrations worldwide, trademark clearance opinions, advice concerning infringement, opposition and cancellation issues, representation of clients before the Trademark Trial and Appeal Board, consent agreements, settlement agreements and intellectual property litigation. Mr. Woldow earned his B.A. from Hofstra University and an M.B.A. and J.D. degree from American University.

01-13-2006

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