United States: Cybersecurity And Potential Healthcare Bankruptcy: The Continuing Intersection Of Data And Disaster

Last Updated: June 7 2018
Article by Leslie Berkoff and Stephen Breidenbach

This article will identify the various means by which third parties can easily access data, what data theft can lead to, and how several organizations, including healthcare companies, have been adversely affected leading some to seek bankruptcy relief.

It almost seems that daily we receive news reports and/or warnings, about cyberattacks that have been perpetrated to steal personal and corporate data, effectively destroying any privacy barriers and wreaking havoc through "cyberspace." One thing is clear: cybersecurity attacks have increased around the globe on an extraordinary level.1 What is equally alarming is that many of these attacks have specifically targeted the healthcare industry.2 The reason for the focus on the healthcare industry is two-fold. Not only is the data and information that is available within the healthcare sector3 a digital treasure trove of sensitive and private information that can be exploited and marketed, but, unlike other industries, the healthcare industry generally lags behind the times and expends far less than it should on staying ahead, let alone even current, with the state of technological safeguards.

By way of a non-exhaustive list, healthcare organizations possess information on their patients (and at times, their patient's family and/or friends), their employees, and medical technology, which are all worth money to the right parties.5 These categories of information include such sensitive and private data as social security numbers, addresses, dates of birth, health insurance information, credit card information, drivers' licenses, and financial records.6 Addition- ally, these organizations also maintain valuable intellectual property such as clinical research on drug trials, medical devices and therapies, and statistical analyses.7 What a goldmine for someone who could obtain these assets and information. The question is can someone get access to and steal these assets? The answer is yes. The second question: How easy is this? Very. This article will identify the various means by which third parties can easily access this data, what data theft can lead to, and how several organizations, both within the healthcare sector and without, have been adversely affected leading some to seek bankruptcy relief.


As a general matter, healthcare organizations have an affirmative obligation to take reasonable care to protect private customer information.8 Failure to implement appropriate safeguards can lead to fines of up to $50,000 per violation.9 It is the responsibility of the officers and directors to focus on these issues.10 Yet, healthcare organizations simply do not have the cybersecurity protections in place to effectively safeguard this information. While healthcare organizations are universally switching over to electronic data, the security of this information has not matched its growth.11 Companies in the financial services industry devote in excess of 10 percent of their annual IT budgets to cybersecurity while healthcare organization devote less than five (5%) percent of their annual budget in contrast.12 Given that healthcare organizations often have outdated information technology ("IT") systems and a wealth of confidential patient data, hospitals present a particularly tempting target.13 Further, as healthcare budgets shrink,14 healthcare organizations must focus on preparing and protecting against further attacks. As indicated below, the risk of bankruptcy filings as a result of potential claims arising from the failure to safeguard sensitive information far outweighs the cost of implementing the safeguards.

To view the full article please click here.

* Leslie A. Berkoff is the chair of the Bankruptcy Department at Moritt Hock & Hamroff LLP and a member of the Board of Editors of Pratt's Journal of Bankruptcy Law. Stephen Breidenbach, CIPP/US, is an associate in the firm's Cybersecurity Department. The authors may be reached at lberkoff@moritthock.com and Department. The authors may be reached at lberkoff@moritthock.com and sbreidenbach@moritthock.com, respectively. Additional research support was provided by Krista Kulp an associate in the Bankruptcy Department and Caitlyn Ryan an associate in the Corporate Department.


1 Tara Seals, Cyber-attack Volume Doubled in First Half of 2017, INFO SECURITY (Aug. 11, 2017), https://www.infosecurity-magazine.com/news/cyberattack-volume-doubled-2017/; Ransomware Attacks Rise 250 Percent in 2017, Hitting U.S. Hardest, NEWSWEEK (May 23, 2017, 1:37 PM), http://www.newsweek.com/ransomware-attacks-rise-250-2017-us-wannacry-614034.

2 Heather Landi, Report: Ransomware Attacks Against Health Care Orgs Increased 89 Percent in 2017, HEALTHCARE INFORMATICS (Jan. 8, 2018), https://www.healthcare-informatics.com/news-item/cybersecurity/report-ransomware-attacks-against-healthcare-orgs-increased-89-percent-2017.

3 Healthcare entities are defined under 45 CFR 160.103 and include health care providers who transmit any health information in electronic form, such as hospitals, health insurance companies, HMOs, doctors, clinics, psychologists, dentists, chiropractors, nursing homes, and pharmacies.

4 Heather Landi, Only 27 Percent of Healthcare Security Execs Confident About Safeguarding Patient Data, HEALTHCARE INFORMATICS (Nov. 20, 2017), https://www.healthcare-informatics.com/news-item/cybersecurity/only-27-percent-healthcare-security-execs-confident-about-safeguarding .

5 William Maruca, Hacked Health Records Prized for Their Black Market Value, FOX ROTHSCHILD LLP (Mar. 16, 2015), https://hipaahealthlaw.foxrothschild.com/2015/03/articles/articles/hacked-health-records-prized-for-their-black-market-value/.

6 See id.

7 Gordon Rees Scully Mansukhani, The Five Ws of Intellectual Property Assets in Healthcare Business Transactions, LEXOLOGY (Jan. 24, 2018), https://www.lexology.com/library/detail.aspx?g=2a654917-4ace-4dd4-9a28-dbb415190136; Intangible Assets, HEALTH CARE APPRAISERS, https:// www.healthcareappraisers.com/insights/intangible-assets-in-healthcare (last visitedMar. 26, 2018).

8 See Office for Civil Rights, Summary of the HIPAA Security Rule, U.S. DEP'T OF HEALTH & HUM. SERVS., https://www.hhs.gov/hipaa/for-professionals/security/laws-regulations/index.html (last updated July 26, 2013).

9 45 C.F.R. § 160.404 (2018). Civil money penalties for HIPAA violations are determined based upon a tiered structure. The Secretary of Department of Health and Human Services ("HHS") has discretion to determine the amount of the penalty based upon the nature and extent of the violation and the resulting harm from the same. For example, the penalties can range from $100 per violation for an unknowing violation to $50,000 per violation for willful neglect which is not corrected within the required time period. In addition, violations of HIPAA can also result in criminal penalties for example for individuals who knowingly obtain or disclose individually identifiable health information. See American Medical Association, "HIPAA Violations and Enforcement," AMA-ASSN.org, American Medical Association, "HIPAA Violations and Enforcement," AMA-ASSN.org, https://www.ama-assn.org/practice- management/hipaa-violations-enforcement (last accessed Mar. 26, 2018).

10 Michelle A. Reed et al., Federal Judge Dismisses Target Directors from Data Breached Related Derivative Suit After Special Litigation Committee Recommends Not Pursuing Claims, AKIN GUMP STRAUSS HAUER & FELD LLP (July 11, 2016), https://www.akingump.com/en/experience/practices/corporate/ag-deal-diary/federal-judge-dismisses-target-directors-from-data-breached.html; see generally Lawrence J. Trautman & Peter C. Ormerod, Corporate Directors' and Officers' Cybersecurity Standard of Care: The Yahoo Data Breach, 66 AM. U. L. REV. 1231 (2017) (discussing duties of directors and officers in the context of cybersecurity).

11 See Switching to EHRs Becoming Norm in Healthcare,MODERNMEDICINE NETWORK (Oct. 25, 2017), http://medicaleconomics.modernmedicine.com/medical-economics/news/switching-ehrs-becoming-norm-healthcare; Frank Gluck, 21st Century Oncology Data Breach Prompts Multiple Lawsuits, NEWS-PRESS (July 22, 2016, 10:35 AM), https://www.news-press.com/story/news/2016/07/22/21st-century-oncology-data-breach-prompts-multiple-lawsuits/87386068/.

12 Cybersecurity in Healthcare: Why it's Not Enough, Why it Can't Wait, SYMANTEC (Feb. 18, 2016), https://www.symantec.com/content/dam/symantec/docs/infographics/symantec-healthcare- it-security-risk-management-study-en.pdf; Heather Landi, Survey: 71 Percent of Healthcare Organizations Allocate a Specific Budget to Cybersecurity, HEALTHCARE INFORMATICS (Aug. 9, 2017), https://www.healthcare-informatics.com/news-item/cybersecurity/survey-71-percent-healthcare-organizations-allocate-specific-budget.

13 Heather Landi, Report: 15 Percent of Healthcare Organizations Running Outdated Operating Systems, HEALTHCARE INFORMATICS (June 8, 2017), https://www.healthcare-informatics.com/news-item/cybersecurity/report-15-percent-healthcare-organizations-run-computers-outdated-operating.

14 Paul H. Keckley, 2018: A Make or Break Year for Hospitals, KECKLEY (Jan. 2, 2018), http://www.paulkeckley.com/report/2018/1/2/2018-a-make-or-break-year-for-hospitals.

Originally published in Pratt's Journal of Bankruptcy Law

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions