The HIPAA Risk Assessment: Why Skipping This Step Could Cost Your Startup Everything
HIPAA requires a risk assessment. Most healthtech founders skip it, assuming their developers "built it securely" or that compliance can wait until after launching.
January 8, 2025 16 min read
HIPAA requires a risk assessment. Most healthtech founders skip it, assuming their developers "built it securely" or that compliance can wait until after launching.
Then a healthcare customer asks for your risk assessment documentation during legal review. You don't have it. The deal stalls. You scramble to create documentation retroactively, discovering security gaps that should have been addressed months ago.
Or worse: you have a data breach. OCR (Office for Civil Rights) investigates. The first thing they ask for is your risk assessment. You don't have one. OCR assumes you were negligent. Fines start at $50,000 and scale from there.
The HIPAA risk assessment isn't optional paperwork. It's the foundation of defensible compliance and a requirement for selling to healthcare organizations.
What a HIPAA Risk Assessment Actually Is
A risk assessment is a systematic process for identifying where protected health information (PHI) exists in your systems, what threats could compromise it, and what safeguards protect it.
The Official Definition
HIPAA Security Rule § 164.308(a)(1)(ii)(A) requires covered entities and business associates to "conduct an accurate and thorough assessment of the potential risks and vulnerabilities to the confidentiality, integrity, and availability of electronic protected health information."
That regulation translates to: document where PHI lives, what could go wrong, and what you're doing to prevent it.
What's Included in a Risk Assessment
A complete risk assessment covers:
Inventory of ePHI:
Where PHI is created, received, maintained, or transmitted
HIPAA doesn't prescribe specific security controls because healthcare organizations vary wildly. A solo psychiatrist's practice has different threats than a 500-bed hospital.
The risk assessment is how you determine which security controls your specific organization needs. It's the reasoning that justifies your security decisions to auditors and regulators.
When You Need a Risk Assessment
The regulation says you need one before handling PHI. Reality is more nuanced.
Before Signing Your First BAA
You should complete a risk assessment before signing a Business Associate Agreement with a healthcare organization.
Why timing matters:
BAAs obligate you to implement "appropriate safeguards" to protect PHI
You can't know what safeguards are appropriate without assessing risks
Signing a BAA without a risk assessment is promising compliance you can't demonstrate
Many founders sign BAAs during pilot programs before completing risk assessments. This creates liability. If a breach happens during the pilot, you're contractually liable for safeguards you never assessed or implemented.
Before Your SOC 2 Audit
SOC 2 Type 1 and Type 2 audits evaluate your security controls. Auditors will ask how you determined which controls to implement. The answer is your risk assessment.
Without a documented risk assessment:
Auditors question whether your controls are sufficient
You can't demonstrate systematic risk management
SOC 2 audit may fail or require remediation before certification
Most healthtech companies pursue SOC 2 to sell to enterprise customers. Complete your risk assessment before starting the SOC 2 process, not during it.
Before a Significant Architecture Change
Anytime you make major changes to systems handling PHI, reassess risk:
Triggers for reassessment:
Adding new third-party services that process PHI
Launching new features that create or store PHI differently
Migrating infrastructure (new hosting, new database, new regions)
Onboarding new types of users with different access needs
Changing encryption methods or key management approaches
Risk changes when architecture changes. Reassess before deploying significant updates, not after.
Annually at Minimum
HIPAA doesn't specify reassessment frequency, but annual reviews are industry standard. Systems change, threats evolve, and new vulnerabilities emerge.
Annual reassessment should:
Review previous year's security incidents and near-misses
Assess new threats (recent ransomware tactics, zero-day vulnerabilities)
Evaluate whether implemented controls are still effective
Update inventory of systems and vendors
Verify that remediation items from last assessment were completed
Set a calendar reminder for annual risk assessment reviews. Treat it like renewing SOC 2 or annual tax filing.
What Happens If You Skip It
The risk assessment isn't just documentation. Skipping it creates real consequences.
Failed Enterprise Sales
Enterprise healthcare customers ask for security documentation during procurement:
"Provide your most recent HIPAA risk assessment"
"How do you determine appropriate safeguards for PHI?"
"What is your process for identifying and mitigating security risks?"
If you can't answer with documented evidence, the deal stalls. Legal and compliance teams won't approve contracts without proof of systematic risk management.
We covered the length of healthcare sales cycles in another guide. Adding months to address missing compliance documentation kills deals.
OCR Penalties After a Breach
When a breach affecting 500+ individuals occurs, OCR investigates. The investigation focuses on whether you had "reasonable and appropriate" safeguards in place.
OCR's assessment framework:
Did you conduct a risk assessment?
Did the risk assessment identify this type of breach as possible?
Did you implement safeguards to address identified risks?
Did you document your risk management decisions?
If you never did a risk assessment, OCR views this as "willful neglect." The violation is not just the breach. It's the failure to assess and manage risk.
Penalty tiers for willful neglect:
Minimum fine: $50,000 per violation
Maximum fine: $1.5 million per violation category per year
Criminal penalties possible for knowing violations
"We didn't know" is not a defense. HIPAA explicitly requires risk assessments. Ignorance is willful neglect.
Insurance Claims Denied
Cyber insurance policies often require documented security practices as a condition of coverage. If you file a claim after a ransomware attack or data breach, insurers investigate your security posture.
Common policy exclusions:
Failure to implement security controls appropriate to the risk
Negligent security practices
Violations of regulatory requirements (like HIPAA)
If you never conducted a risk assessment and can't demonstrate appropriate safeguards, the insurer may deny the claim. You're paying premiums for coverage that won't activate when you need it.
Investor Due Diligence Failures
During fundraising, investors conducting due diligence ask about compliance and security. For healthtech companies, they specifically ask:
"Have you completed a HIPAA risk assessment?"
"What security gaps exist and how are you addressing them?"
"Are you compliant with HIPAA Security Rule requirements?"
Investors view missing risk assessments as operational risk. If you haven't assessed risk systematically, what else have you missed? Due diligence can delay funding rounds or kill deals entirely.
How to Complete a Risk Assessment
You don't need a compliance firm to do this, especially at early stages. You can complete an initial risk assessment internally.
Step 1: Inventory Your PHI
List everywhere PHI exists in your systems.
Where to look:
Production database: Patient records, appointment data, clinical notes, prescriptions
File storage: Uploaded documents, images, insurance cards, consent forms
Email systems: Communications with patients containing health information
Third-party services: CRM tools, analytics platforms, customer support systems
Backups: Database backups, file backups, disaster recovery systems
Logs: Application logs, access logs, audit trails
Employee devices: Laptops, phones, or tablets with access to PHI
For each location, document:
What PHI is stored (patient names, diagnoses, treatment info, etc.)
Who has access (job roles or specific individuals)
How it's protected (encryption, access controls, etc.)
Step 2: Identify Threats
For each system or location containing PHI, list potential threats.
Common threat categories:
Unauthorized access:
Employees accessing PHI they don't need for their job
The risk assessment must be documented. Create a written report including:
Executive summary of overall risk posture
Inventory of systems and PHI
List of identified threats and vulnerabilities
Risk ratings and justifications
Remediation plan with timeline and responsibilities
Date assessment was completed
Who conducted the assessment
Store this documentation securely. You'll need to provide it during customer legal reviews, audits, and regulatory inquiries.
Common Mistakes in Risk Assessments
Many first-time risk assessments miss critical elements. Avoid these errors.
Only Assessing Production Systems
PHI doesn't just live in production databases. It exists in:
Development and staging environments (often with weaker security)
Employee laptops and devices
Email and support ticket systems
Analytics and monitoring tools
Backup systems and archived data
Assess all systems, not just the obvious ones. Breaches often happen through forgotten staging servers or unsecured backups.
Ignoring Third-Party Risks
Every vendor that touches PHI represents risk. Common oversights:
Assuming cloud providers are "automatically HIPAA compliant"
Not tracking which vendors have signed BAAs
Not assessing vendors' own security practices
Not having processes to review vendor changes
Your risk assessment must include vendor risk. If a vendor causes a breach, you're still liable.
Treating It as One-Time Paperwork
Risk changes constantly. New vulnerabilities emerge, systems change, and vendors update their services.
Risk assessments are living documents requiring regular updates:
Annual full reassessments at minimum
Interim updates when major changes occur
Reviews after security incidents or near-misses
Don't complete one risk assessment in 2025 and never update it. OCR will notice when they ask for your "most recent" assessment and it's three years old.
Only Addressing Technical Risks
HIPAA requires physical and administrative safeguards, not just technical ones.
Physical risks:
Office security and access controls
Disposal of devices or paper records containing PHI
Theft or loss of laptops, phones, or storage media
Administrative risks:
Employee training on HIPAA and security
Background checks for employees with PHI access
Termination procedures for revoking access
Workforce accountability and sanctions for violations
Address all three categories: technical, physical, and administrative.
Copying Templates Without Customization
Many founders download HIPAA risk assessment templates and fill in generic answers without actually assessing their specific systems.
OCR and auditors recognize templated assessments. They ask follow-up questions that reveal you don't actually understand your own risk profile.
Use templates as frameworks, but customize every section to reflect your actual architecture, threats, and safeguards.
When to Hire External Help
You can complete an initial risk assessment internally, but external expertise helps in specific situations.
Hire a Compliance Consultant If
You're selling to enterprise healthcare customers: They expect professional risk assessments conducted by qualified third parties, not internal self-assessments.
You're preparing for SOC 2 audit: Auditors give more weight to risk assessments conducted by independent compliance professionals.
You've identified gaps you don't know how to fix: Compliance consultants can recommend specific controls and help prioritize remediation.
You need defensible documentation for OCR: After a breach, professionally conducted risk assessments demonstrate good faith compliance efforts.
What External Assessments Cost
HIPAA risk assessment pricing:
Small startups (1-10 employees, simple architecture): $5,000-10,000
After security incidents or near-misses, update your risk assessment:
What threat materialized or almost materialized?
What vulnerability allowed it?
What new controls will prevent recurrence?
Should we adjust other risk ratings based on what we learned?
Treat incidents as learning opportunities that improve your risk understanding.
Key Takeaways
HIPAA requires risk assessments before handling PHI. Skipping them creates enterprise sales obstacles, regulatory penalties, and insurance coverage gaps.
Complete a risk assessment before:
Signing your first Business Associate Agreement
Starting SOC 2 audit process
Making major architecture changes
Annually at minimum
Risk assessment process:
Inventory where PHI exists in all systems
Identify threats and vulnerabilities for each system
Rate likelihood and impact to determine risk levels
Document remediation plans for high and critical risks
Update annually or when major changes occur
Avoid common mistakes:
Only assessing production systems (assess development, backups, and vendor systems too)
Treating it as one-time paperwork (it's a living document)
Copying templates without customization
Ignoring administrative and physical safeguards
When to hire external help:
Selling to enterprise customers requiring professional assessments
Preparing for SOC 2 audit
Need defensible documentation for regulators or insurers
The risk assessment is not optional paperwork. It's the foundation of defensible HIPAA compliance and required for enterprise sales.
This is not legal or compliance advice. HIPAA regulations are complex and vary by situation. Consult qualified legal and compliance professionals for your specific risk assessment requirements.
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