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Red Flags Rule appeals court ruling a victory for physicians, AMA says

John Commins, for HealthLeaders Media

The American Medical Association Monday applauded a federal appeals court’s ruling that physicians who bill patients after providing services are not subject to the Federal Trade Commission Red Flags Rule that apply to creditors.

AMA President Cecil B. Wilson, MD, said the ruling Friday by the U.S. Court of Appeals in Washington, DC, validates the AMA’s long-standing argument with the Federal Trade Commission about the red flag rules’ application to physicians.

The appeals court, ruling on a lawsuit filed by the American Bar Association that challenged the application of the Red Flags Rule [1] to attorneys, said the FTC’s regulations were made invalid because Congress passed the Red Flag Program Clarification Act of 2010 in December to better define who is considered a creditor under the rule.

“The court’s decision reinforces the intent of a new law clarifying the scope of the red flag rule and helps eliminate any further confusion about the rule’s application to physicians,” Wilson said in a statement. “The AMA will remain vigilant that the FTC respects the meaning and intent of the Clarification Act.”

The AMA and other physicians’ groups objected to the FTC’s requirement [2] for physicians to verify the identity of their patients before agreeing to treat them if the patients are not paying in full at the time of the visit.

The intention of the requirement is to prevent potential cases of identity theft [3]. If a patient says he or she is someone else, the wrong person or entity would be billed for that individual’s care.  But doctors complained that requiring such proof of identity is time-consuming, awkward, and may delay care if the patient didn’t bring proper documents.

On Friday, the three-judge appeals panel wrote that “the Clarification Act makes it plain that the granting of a right to ‘purchase property or services and defer payment therefore’ is no longer enough to make a person or firm subject to the FTC’s red flags rule — there must now be an explicit advancement of funds. In other words, the FTC’s assertion that the term ‘creditor,’ as used in the red flags rule and the FACT Act, includes ‘all entities that regularly permit deferred payments for goods or services,’ including professionals ‘such as lawyers or health care providers, who bill their clients after services are rendered,’…is no longer viable.”

The appeals court ruling may be viewed here [4]. The Red Flag Program Clarification Act of 2010 may be viewed here [5].