HIPAA has led to sweeping changes to health care administration and information systems as health care organizations struggle to achieve cost-effective compliance by 2003. The US Congress enacted the Health Insurance Portability and Accountability Act or HIPAA in 1996. The act covered a wide array of issues surrounding the health insurance industry but in particular it required administration simplification, which addressed the issue of security and privacy of health information.

HIPAA is designed to standardize the way all health care organizations electronically exchange sensitive patient data and to protect patients from unauthorized disclosure of their medical records (whether paper or electronic). HIPAA outlined standards to improve the nation's health care system by incorporating electronic data exchange between health care providers. The idea of course was to allow various health providers to access the records of a particular patient. So, when a patient visits a new hospital, the covering doctor can access that patients past record and in so doing provide him with better care. However, as one could envisage, this raised a great number of apprehensions with respect to the privacy and confidentiality of people's medical records. So the legislature created a fundamental list of rules and regulations with which health care providers must comply. And the creation of these rules and regulations gave birth to the industry that is called HIPAA Compliance.

To ensure HIPAA compliance, there are certain key provisions, which need to be followed. For instance, individuals should be able to access their records and request correction of errors. Also, they should be informed about how their personal information will be used. The protected health information' (PHI) indicates that the information cannot be used for marketing purposes without the clear consent of the patients in question. People should be able to ask their covered entities (which maintain PHI about them), to ensure that their communications with the patient are confidential. It should be possible for people to file formal privacy-related complaints to the Department of Health and Human Services (HHS) Office for Civil Rights. Covered entities should document their privacy procedures, however, they have discretion on what to include in their privacy procedure. They are required to designate a privacy officer and train their employees.

Covered entities can use an individual's information without the individual's consent if the purpose is to provide treatment, obtain payment for services and to perform the non-treatment operational tasks of the provider's business. Some of the agencies, government bodies and individuals who can access the medical records of a person under HIPAA compliance rules are the insurance companies, employers, courts, hospitals, or individual physicians. This is also considered as a downside of the HIPAA Privacy rule because sponsors of a research study; makers of drugs for the particular study and the researchers involved in the study are included in this list.

However, the ultimate objective of HIPAA is to increase the efficiency and effectiveness of health information systems through improvements in electronic health care transactions as well as to maintain the security and privacy of individually identifiable health information.