FTC Delays Enforcement of Red Flags Rule (Again)
While the issue of whether physicians and health care practices are “creditors” under the Federal Trade Commission’s proposed Red Flags Rule is subject to some debate, a definitive answer will not be needed for awhile. The Federal Trade Commission (FTC) has announced that it has delayed enforcement of the Red Flags Rule until June 01, 2010. This last minute extension was made in response to a request from Members of Congress.
Specifically, on October 20, 2009, the House of Representatives passed a bill that would exempt certain businesses with fewer than 20 employees from the Red Flags Rule. The businesses exempted would be health care practices, accounting practices and legal practices. Additionally, the bill would require the FTC to adopt regulations setting forth a procedure for businesses having a low risk of identity theft to apply for exemptions from the Red Flags Rule. The Senate has not yet voted on this legislation. Accordingly, it is not known whether this bill will become law.
The Red Flags Rules, which were originally slated to take effect November 1, 2009, have come under fire from groups such as the American Medical Association and American Bar Association which claim that the Rule should not apply to healthcare practices or legal practices. Essentially, the Rule requires that all financial institutions and other businesses defined as “creditors” must implement programs to combat identity theft against customers. The FTC’s definition of “creditors” includes all businesses that regularly permit deferred payments for goods and services. According to the FTC handout (“Fighting Fraud with the Red Flags Rule”, available at http://www.ftc.gov/redflagsrule) such “creditors” can include health care providers (and also legal services providers).
In response to criticisms from groups who claim that the Red Flag Rules should not apply to certain professional businesses, last month Rep. John H. Adler (D-NJ) introduced legislation that would exclude from the definition of a “creditor” any health care practice, accounting practice, or legal practice with 20 or fewer employees.
While Rep. Adler’s legislation, which was passed by the House on October 20 and referred to the Senate Committee on Banking, Housing and Urban Affairs, may be viewed as a step in the right direction, the actual result will be to divide arguably non-Red Flag Rules covered professions (such as health care practitioners, attorneys and accountants) into two camps. Given that the 20-and-under exclusion is based (at least partly) on the nature of the services provided, it therefore makes little sense to say that a solo GP need not comply with the Red Flags Rule because he is not a creditor, while the ambulatory surgical center up the street with 22 employees is. Both entities provide health care services to patients, and bill such patients or insurance companies later. Therefore, the justifications for not extending the Red Flag Rules to health care practitioners, attorneys and accountants are independent of the size of the a practice.
FHWN Attorney Sue Nolan contributed to this post.
