By: Rodger Hochman, Board Certified in Health Law
On November 30, 2012, the Federal Trade Commission (FTC) issued its interim final “Red Flags Rule” which narrowed the definition of “creditor” in such a way that essentially confirms that most health care service providers are not subject to its requirements.
The Red Flags Rule was originally promulgated in reaction to the perceived risk of identity theft in various transactions involving financial institutions and creditors, and it required them to develop and implement a written identify theft program to combat these risks, including internal processes for identifying “red flags” of identity theft. The application of the Red Flags Rule to health care service providers was controversial since it advanced a counterintuitive notion that a provider who engaged in ordinary course business activities, such as rendering health care services where insurance or other payment would be received later, was a “creditor” by definition, thus was equated with the business of financial institutions and subject to standards more applicable to the relationship between commercial creditors or lenders and their customers.
Under the original rule, any “creditor” was required to establish an identity theft program. The definition included “any person who regularly extends, renews, or continues credit…” The FTC interpreted this expansively to include physicians and other providers who accept insurance as payment or who permit payment plans, where payment in full was not received at the time of service. Thus, if a physician or hospital were to accept a patient’s insurance coverage or bill the balance not covered by insurance to the patient, that was viewed as an extension of credit to the patient which triggered regulatory compliance obligations by the provider. Although the FTC later clarified its position in saying that it applied only to creditors that regularly and in the ordinary course of business advance funds, there was still some ambiguity.
The interim final rule now makes clear that advancing funds does not include what is routine health care services billing and collection activities (such as deferring payment of fees in connection with providing services) and that most service providers are not subject to the rule. Nevertheless, while the interim final rule confirms that most providers are not subject to the Red Flags Rule, entities that collect consumer data should still carefully consider how they collect and use such data. To the extent that they use or provide patient information in connection with credit reporting services, the Red Flags Rule would apply. Further, health care providers remain subject to the HIPAA/HITECH privacy and security rules with respect to all patient identifying information regardless of whether they are subject to the Red Flags Rule.