Why Is a European Privacy Law Raising U.S. Health-Care Costs?

It’s a fairly well-established principle that European laws don’t apply in the U.S., and vice versa, but a recent European privacy regulation is sending compliance shockwaves through the U.S. health-care sector.

The so-called General Data Protection Regulation took effect May 25 in the European Union, but can be applied to any company that processes the personal data of anyone physically located in the EU. U.S.-based drug and device manufacturers that have a global presence are scrambling to stay ahead of the GDPR’s strict penalties for noncompliance.

A major infringement of the GDPR could result in penalties of up to 20 million euros ($23 million) or 4 percent of annual revenue (whichever figure is greater), and penalties are imposed on a case-by-case basis.

Fortune magazine’s top 500 global companies, which include numerous U.S. health-care companies such as Pfizer and Gilead Sciences, are expected to spend a total of $7.8 billion over the next few years complying with the GDPR, according to a survey from consulting firm Ernst & Young and the International Association of Privacy Professionals.

The companies on average will hire five full-time employees dedicated to GDPR compliance, the survey said.

“Any health-care companies that collect and store data from EU residents or conduct clinical trials in Europe have a significant and enduring compliance burden,” Robert Silvers, a privacy attorney with Paul Hastings LLP based in Washington, told me. Silvers previously served as assistant secretary for cyber policy at the U.S. Department of Homeland Security under the Obama administration.

The GDPR requires organizations to take several steps to promote data privacy, including notifying individuals of the data breach within 72 hours of becoming aware of it, providing individuals with a free, electronic copy of their personal data on demand, and erasing or preventing the further release of personal data on request.

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