Facing continued investigation and litigation, LabMD decides to wind down its operations (Updated)

Claiming that the FTC’s lengthy investigation and lawsuit against them has already cost them hundreds of thousands of dollars and seriously damaged their business, the CEO of LabMD announced this week that the Atlanta laboratory is winding down its operations.

“The effects of this action will be felt throughout the medical community, from LabMD’s employees to the physicians and their patients who utilize the facility,” CEO Mike Daugherty wrote in a press release posted on his blog.  Daugherty continues to maintain that the FTC’s investigation and complaint exceed their authority and are abusive:

LabMD’s wind down is largely due to the FTC’s abuse of power. Following a four year investigation of LabMD, the FTC filed an administrative suit alleging LabMD’s patient information data security was an “unfair” trade practice. Absent any established or uniform data security standards; absent Congressional approval to regulate data security practices; absent a consumer victim from any alleged LabMD security breach; all without alleging that LabMD violated HIPAA privacy regulations, the FTC has spent untold taxpayer dollars investigating LabMD, destroying jobs and usurping power over patient information from the U.S. Department of Health and Human Services. That is why on November 15, 2013, Cause of Action, a government accountability group, sued the FTC on behalf of LabMD in an effort to put an end to the agency’s arbitrary and egregious use of authority in the administrative suit.

The announcement follows the FTC’s recent denial of LabMD’s motion to dismiss the complaint.

It is not clear what will happen now in terms of the litigation. There is also the fact that LabMD sued the FTC in federal court in November 2013, seeking declaratory judgement. Will LabMD drop that lawsuit or go forward with it? (UPDATE: Cause of Action informs me that LabMD’s lawsuit against the FTC will go forward).

Daugherty and LabMD must also still defend a defamation suit filed by Tiversa over statements suggesting that Tiversa turned over the “1718 File” to the FTC because LabMD declined to hire them to remediate the problem when they alerted the firm that the file had been leaked through P2P software.  That lawsuit is in federal court in the Western District of Pennsylvania. In their First Amended Complaint, Tiversa included what may be a new wrinkle: they allege that they found the “1718 File” on four different computers while conducting searches for various clients:

The File was not downloaded by Tiversa from a LabMD computer. Instead, the first time Tiversa downloaded the File was from a computer located in San Diego. Thereafter, as part of its services for various clients, Tiversa downloaded the File three additional times from computers located in Arizona, Costa Rica, and London.

Is the 1718 file still on servers around the world, available for download? If so, how might that factor in to the FTC’s investigation or litigation? And if that file is still available with thousands of patients’ Social Security numbers and dates of births, will they ever be notified individually of this old – and possibly ongoing – breach? Under pre-HITECH regulations, LabMD claimed it had no duty to notify patients if they did not believe there was a significant risk of harm. But if the data are still out there, there’s an ongoing risk of ID theft for the patients. So who is notifying them? Anyone? I reached out to Tiversa to ask them if they have recently found the file in the wild, but have received no response as yet.

Because FTC Commissioners are involved in the litigation, they could not comment on this newest development, but Jessica L. Rich, the Director of the Bureau of Consumer Protection for the FTC, issued the following statement to PHIprivacy.net:

“The FTC’s complaint against LabMD alleges that the company failed to provide reasonable and appropriate security for sensitive consumer information entrusted to the company – including names, Social Security numbers, dates of birth, health insurance provider information, and commonly-used medical codes. The goal in this case has always been to ensure that this sensitive information is appropriately protected. FTC attorneys litigating this matter will gather information about the reported changes to LabMD’s business operations and determine how best to protect the sensitive consumer data the company has collected.”

I’ve also reached out to Mike Daugherty with some questions about his recent announcement and hope to have more information when he gets back to me.

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