Much-welcome relief from red flags rule

Congress did the right thing in exempting physicians from a rule that was supposed to apply to financial institutions.

Posted Jan. 10, 2011.

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When the Federal Trade Commission in October 2008 said physicians had to conform to the so-called red flags rule, that raised red flags with organized medicine.

The red flags rule was intended to ensure that banks, credit card companies and certain retailers protected consumer financial information. However, out of nowhere, the FTC extended the rule to physicians. The Fair and Accurate Transactions Act of 2003, the law creating the rule, didn't mention doctors, nor did the FTC's own guidance in the months leading up to its decision to include them.

The American Medical Association and others in organized medicine pressed the FTC to reconsider, writing letters and backing a lawsuit filed by the Litigation Center of the American Medical Association and the State Medical Societies that sought to remove doctors from the red flags rule.

After all, physicians are not financial institutions. That doctors don't always collect payment at time of service -- not even a choice given the ethical and contractual boundaries they work in -- was stretched by the FTC to make physicians the credit-offering equals of banks and even used-car lots.

Moreover, physicians already operate under stringent requirements to protect patient data under the Health Insurance Portability and Accountability Act.

Eventually, Washington began getting organized medicine's message. In June 2010, during the AMA House of Delegates Annual Meeting, FTC Chair Jon Leibowitz said applying the red flags rule to physicians was an overly broad interpretation of the Fair and Accurate Transactions Act. However, Leibowitz said it was up to Congress to amend the language of the law to ensure physicians were not swept up in a FTC regulation that the organized medicine lawsuit called "arbitrary, capricious and contrary to the law."

On Dec. 21, 2010, with President Obama's signature on a bill, organized medicine got closure on the legislation for physicians it had sought.

The bipartisan legislation, which passed overwhelmingly in the House and Senate in the recent lame-duck session of Congress, excludes physicians and other professionals from the red flags rule by stating that only those entities that use consumer reports, furnish information to consumer reporting agencies or extend credit -- actual consumer credit, as opposed to not collecting a doctor's fee at time of service -- will be subject to the red flags rule.

Pressure from organized medicine already had resulted in five delays in the FTC's enforcing the rule on physicians. With the new law, organized medicine has come one very large step closer in ensuring that enforcement, which has never happened, will never happen.

There is one more step to go, however. The FTC, taking the law into account, needs to say officially it will no longer seek to hold physicians to the red flags rule. The FTC has not given a timetable on when it might do that.

However, soon after the vote, an FTC spokesman, while refusing to unequivocally say any profession is absolutely excluded from red flags, acknowledged that only those who engage in the narrow range of activities defined by the new legislation were likely to be subject to scrutiny. Whereas before any physician setting up a payment plan with a patient was subject to red flags, expert attorneys say that will no longer be the case unless a doctor, for example, runs a credit report on the patient.

Until there is an official word from the FTC, organizing medicine is not letting up on the pressure, even as it welcomes the new legislation. The lawsuit against the FTC is still active. Congress has done its part to ensure the administrative burden on physicians does not grow unnecessarily heavier. Now it's time for the FTC to acknowledge what legislators have done. A white flag from the commission is in order here, to officially mark the end of unwisely extending the red flags rule to physicians.

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