164.314(a)(1) - A covered entity is not in compliance with the standards in 164.502(e) [the HIPAA Privacy Rule - Disclosures to Business Associates standard] and paragraph (a) of this section [the Business Associate Contracts or Other Arrangements standard] if the covered entity knew of a pattern of an activity or practice of the business associate that constituted a material breach or violation of the business associate’s obligation under the contract or other arrangement, unless the covered entity took reasonable steps to cure the breach or end the violation, as applicable, and, if such steps were unsuccessful – (A) Terminated the contract or arrangement, if feasible; or (B) If termination is not feasible, reported the problem to the Secretary.

In general, a business associate is a person or entity other than a member of the covered entity’s workforce that performs functions or activities on the covered entity’s behalf, or provides specified services to the covered entity, that involve the use or disclosure of protected health information. A business associate may also be a covered entity. For example, a health care clearinghouse may be a business associate and is also a covered entity under HIPAA. A software vendor may be a business associate as well; however, it is not, in that capacity, a covered entity. In both cases, the organizations could perform certain functions, activities or services on behalf of the covered entity and would therefore be business associates