Increase in Class Action Lawsuits Following Healthcare Data Incidents

Linda D. Garrow

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The law firm BakerHostetler has published its 8th Annual Data Security Incident Response (DSIR) Report, which provides insights based on 1,270 data security incidents managed by the firm in 2021. 23% of those incidents involved data security incidents at healthcare organizations, which was the most targeted sector.

Ransomware Attacks Increased in 2021

Ransomware attacks have continued to occur at elevated levels, with them accounting for 37% of all data security incidents handled by the firm in 2021, compared to 27% in 2020 and there are no signs that attacks will decrease in 2022. Attacks on healthcare organizations increased considerably year over year. 35% of healthcare security incidents handled by BakerHostetler in 2021 involved ransomware, up from 20% in 2022.

Ransom demands and payments decreased in 2021. In healthcare, the average initial ransom demand was $8,329,520 (median $1,043,480) and the average ransom paid was $875,784 (median $500,846) which is around two-thirds of the amount paid in 2020. Restoration of files took an average of 6.1 days following payment of the ransom, and in 97% of cases, data was successfully restored after paying the ransom.

Data exfiltration is now the norm in ransomware attacks. 82% of the ransomware attacks handled by BakerHostetler in 2021 included a claim that the attackers had exfiltrated data prior to encrypting files. In 73% of those incidents, evidence of data theft was uncovered, and 81% required notice to be provided to individuals. The average number of notifications was 81,679 and the median number of notifications was 1,002.

The threat of the exposure of stolen data prompted many organizations to pay the ransom. 33% of victims paid the ransom even though they were able to partially restore files from backups and 24% paid even though they had fully restored files from backups.

There was also an increase in business email compromise (BEC) attacks, where phishing and social engineering are used to access organizations’ email accounts, which are then used to trick organizations into making fraudulent payments. While there was an improvement in detection in time to recover transferred funds – 43% compared to 38% in 2020 – there was an increase in the number of organizations that had to provide notifications about the incident to individuals and regulators, jumping from 43% of incidents in 2020 to 60% in 2021.

Class Action Lawsuits are More Common, Even for Smaller Data Incidents

It is now more common for organizations to face class action lawsuits after data security incidents. While class action lawsuits tended to only be filed for large data incidents, it is now increasingly common for smaller data incidents to also result in lawsuits. In 2021, 23 disclosed data incidents resulted in lawsuits being filed, up from 20 in 2020. 11 of the lawsuits related to data incidents involving the data of fewer than 700,000 individuals, with 3 lawsuits filed in relation to incidents that affected fewer than 8,000 individuals.

BakerHostetler identified a trend in 2021 for multiple class action lawsuits to be filed following a data incident. More than 58 lawsuits were filed related to the 23 incidents, and 43 of those lawsuits were in response to data breaches at healthcare organizations.

“There was always a risk of multidistrict litigation following large data incidents. However, now we are seeing multiple lawsuits following an incident notification in the same federal forum. Or, in the alternative, we see a handful of cases in one federal forum and another handful of cases in a state venue,” explained BakerHostetler in the report. “This duplicative litigation trend is increasing the “race to the courthouse” filings and increasing the initial litigation defense costs and the ultimate cost of settlement, due to the number of plaintiffs’ attorneys involved.”

OCR is Requesting Evidence of “Recognized Security Practices”

2021 saw record numbers of data breaches reported by healthcare organizations. 714 incidents were reported to the HHS’ Office for Civil Rights in 2021 compared to 663 in 2020, and more data breaches were referred to the Department of Justice to investigate possible criminal violations than in previous years.

In 2021, there was an amendment made to the HITECH Act to include a HIPAA Safe Harbor for organizations that have adopted recognized security practices for at least 12 months prior to a data breach occurring. BakerHostetler said that out of the 40 OCR investigations of organizations that it worked with, OCR frequently asked about the recognized security practices that had been in place in the 12 months prior to the incident occurring. BakerHostetler strongly recommends organizations examine their security practices and ensure they match the definition of “recognized security practices” detailed in the HITECH amendment, and to consider further investments in cybersecurity to meet that definition if their security practices fall short of what is required.

Increase in Class Action Lawsuits Following Healthcare Data Incidents

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