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
Chicago -- 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.