AMA House of Delegates

The FTC agrees physicians should be exempt from red flag regulations on identity theft protections, says Chair Jon Leibowitz. The question is if FTC can change the rule without Congress first changing the legislation. Photo by Peter Wynn Thompson /

AMA meeting: Physicians should not fall under "red flags" rule, FTC chair says

Jon Leibowitz tells AMA delegates that although the agency is delaying enforcement of the security rule, it is Congress' responsibility to exempt physicians from it.

By Victoria Stagg Elliott — Posted June 28, 2010

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Physicians should not be required to follow the so-called red flags rule that requires anyone offering credit to develop and implement written identity theft prevention and detection programs. That's the word from the head of the Federal Trade Commission -- the organization that first declared physicians must submit to the rule.

"We feel your pain on red flags, and we want to fix it," Federal Trade Commission Chair Jon Leibowitz said at the American Medical Association Annual Meeting June 14. "We agree with you that the red flags rule reaches too far."

Leibowitz said the rule will not be enforced on members of the AMA, the American Osteopathic Assn., state medical societies and the Medical Society of the District of Columbia while one of at least two lawsuits on the red flags rule works its way through the court system.

The red flags rule is the result of the FTC's interpretation, issued Nov. 1, 2008, of the Fair and Accurate Credit Transactions Act of 2003. The legislation was intended to improve the security of financial data held by banks and credit card companies.

The agency interpreted the rule to include physicians and other service professionals who hold financial data on clients to bill for services after they are provided or to set up payment plans. Medical societies say complying is burdensome for many small practices that already are subject to regulations that ensure the safeguarding of patient information.

The AMA is opposed to the inclusion of physicians as "creditors" and praised the fact that the FTC now concurs. "We think that this was an incorrect interpretation. We appreciate the fact that the chairman [of the FTC] agrees with us, and that he is working to get this changed," said AMA President Cecil B. Wilson, MD.

A sticking point is whether the FTC can reinterpret the law and issue a new rule or if legislation is needed to prevent physicians from being affected. The FTC says it needs legislative action. The Senate's Committee on Banking, Housing, and Urban Affairs is considering a House-passed bill that would exempt certain small businesses, including medical practices, with 20 or fewer employees.

"We do not have the authority to exempt any categories or professions of businesses from the rule," wrote Leibowitz in an e-mail to American Medical News a few days after his AMA speech. "As required by Congress, the rule applies to 'creditors,' as defined under the Equal Credit Opportunity Act. This definition has an unusually broad scope and includes entities that regularly permit deferred payments for goods or services. ... Congress has also acknowledged that this is a problem that requires a legislative fix."

Medical society officials disagreed that legislation was necessary.

"Physicians were inappropriately included in that rule," Dr. Wilson said. "We believe that the FTC can change their rule."

Enforcement may hinge on lawsuits

But whatever the mechanism, it's becoming less likely that many physicians will be affected by the rule. The FTC announced May 28 that, in response to requests from several members of Congress, enforcement of the red flags rule would be delayed again until at least the end of the year.

If the issue isn't settled by Congress before Jan. 1, 2011, the FTC chair also said that the agency would not enforce the rule against members of several medical societies, including the AMA, until a case brought by the American Bar Assn. is resolved in the D.C. Circuit Court of Appeals. The ABA sued to prevent the rule from applying to attorneys. It won its case Dec. 1, 2009. The FTC is appealing.

A lawsuit was also filed in the U.S. District Court for the District of Columbia May 21 by the AMA through the Litigation Center of the American Medical Association and the State Medical Societies. The Association was joined by the American Osteopathic Assn. and the Medical Society of the District of Columbia. The suit seeks to prevent the red flags rule from applying to members of these groups.

Those who advise physicians on legal matters cautioned against assuming that exemption was a done deal.

"Until the law or the regulations are changed, you are stuck with what they are. ... We don't know if physicians will be fully exempt or partially exempt. It would be unwise to do nothing," said Peter McLaughlin, senior council with Foley & Lardner LLP in Boston.

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Meeting notes: Legislative actions

Issue: Pregnant prison inmates have been shackled -- including during labor -- to prevent their escape. This practice increases the discomfort of women during childbirth and could complicate deliveries.

Proposed action: Develop model state legislation, possibly based on a New Mexico law, that prohibits the use of shackles on pregnant women unless a substantial flight risk exists. [Adopted]

Issue: The federal government continues to require that health care be provided to foreign nationals and others in the U.S. who are not covered by national health programs, but it does not pay sufficiently for this coverage.

Proposed action: Request funding for federally mandated health care for nonresidents. [Adopted]

Issue: Background checks for job applicants at nursing homes and assisted living facilities sometimes fail to uncover felony convictions.

Proposed action: Support legislation to create a national criminal database and work with federal regulators to implement a system of background checks for long-term-care facility employees, as required by the federal health reform law. [Adopted]

Issue: The federal government has paid U.S. hospitals for the care they provided to medical evacuees from the Haitian earthquake, but physicians report going unpaid for their part in delivering care such as spinal-cord surgeries.

Proposed action: Ask the federal government and nongovernment organizations to "cover the entire cost of medical care provided by hospitals and physicians to foreign medical evacuees receiving care in the U.S., using funds separate from those designated for the care of U.S. residents." [Adopted]

Issue: A bill introduced in Massachusetts would require physicians to participate in the state's "Affordable Health Plan," a proposed low-cost health option for individuals and businesses, as a condition of state licensure. There is concern that similar efforts will move forward in other states as a result of health system reform.

Proposed action: Develop model legislation to ensure that medical licensure remains independent of participation in any health insurance program. Move the issue to the AMA's tier one lobbying level with the goal of passage of federal legislation. [Adopted]

Issue: Same-sex partners of military members will continue to be denied health benefits even if Congress repeals the "don't ask, don't tell" policy. This is because the Defense of Marriage Act, enacted in 1996, defines a marriage at the federal level as a legal union between one man and one woman.

Proposed action: Seek repeal of the Defense of Marriage Act to allow partners and children of military personnel in legal same-sex marriages, civil unions and domestic partnerships to have access to health benefits. [Referred]

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FTC workshop on clinical integration

The Federal Trade Commission plans to host a workshop that would clarify how physicians and others in the health care system can form accountable care organizations or joint ventures, or otherwise collaborate without running afoul of antitrust laws.

FTC Chair Jon Leibowitz made the announcement June 14 at the AMA Annual Meeting in Chicago. The FTC said the workshop would happen this fall; the specific date has not been established and remote-access plans have not yet been announced.

Clinical integration is encouraged under the health system reform law. This includes pilot programs to test formation of care networks aimed at improving quality and saving money. The law also eases some regulatory burdens that otherwise would prevent such integration.

While speaking at the AMA meeting, Leibowitz said physicians who work together to lower health care costs and raise quality would be "applauded" by the agency. Clinical integration that fixes prices, interferes with competition, and raises expenses would initiate FTC action, he said.

He urged physicians to ask the agency for guidance on the types of arrangements that would be considered unlikely to trigger FTC scrutiny.

AMA President Cecil B. Wilson, MD, said the Association is pleased that the FTC has heard physicians' concerns about clinical integration and antitrust, and is working to address them. The AMA recently developed its own member resource on these topics (link).

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