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AMA Drops 'Red Flags' Lawsuit after Court Invalidates Application to Healthcare

March 9, 2011
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The American Medical Association (AMA) announced this week that it has dropped a lawsuit challenging the Federal Trade Commission’s efforts to extend its “red flags” rule to all physicians after a federal appeals court invalidated the regulation last Friday. The court issued its judgment during a lawsuit filed by the American Bar Association challenging the blanket application of the red flags rule to attorneys, much like physicians.

The AMA had long argued that physicians who bill after rendering services are not subject to the red flags rule as creditors. The United States Court of Appeals for the District of Columbia Circuit found the present regulations of the FTC invalid due to the Red Flag Program Clarification Act of 2010, passed by Congress last December “to shed much needed light on who is considered a creditor under the red flags rule,” AMA wrote in release.

According to the court's opinion, “…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 healthcare providers, who bill their clients after services are rendered,'…is no longer viable.”

“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,” said AMA President Cecil B. Wilson, MD. “The AMA will remain vigilant that the FTC respects the meaning and intent of the Clarification Act.”

The red flags rule was created as a consumer protection measure. Under the regulation, all entities considered creditors—which could have included healthcare providers—must create identity theft programs to protect sensitive consumer information and produce evidence that their programs are updated and effective.

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