AMA Welcomes Court Decision Supporting New Law Clarifying Red Flags Rule

March 7, 2011

Washington - A federal appeals court issued a decision last Friday that further validates the American Medical Association's long-standing argument to the Federal Trade Commission (FTC) 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 in light of 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. The court issued the judgment in a lawsuit filed by the American Bar Association challenging the application of the red flags rule to attorneys.

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 health care providers, who bill their clients after services are rendered,' 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 AMA has worked closely with FTC officials and Congress and is currently engaged in a lawsuit with other physician groups to challenge the FTC's efforts to extend the red flags rule to all physicians. The lawsuit filed by the Litigation Center of the AMA and the State Medical Societies, the American Osteopathic Association and the Medical Society of the District of Columbia, and joined by 26 national medical specialty societies, will now formally end.