A bill that exempts physicians and other healthcare providers from a federal identity theft prevention rule is headed to President Obama's desk.

The House of Representatives last week approved the Red Flag Program Clarification Act of 2010; the Senate passed the bill a week earlier. The legislation changes language in the Federal Trade Commission's "Red Flags Rule" to narrow the types of entities that can be considered "creditors" or "financial institutions" covered by the rule, which requires such entities to take proactive steps to protect consumer information and prevent identity theft.

Under the rule's current language, the definition of "creditor" is broad enough to include physicians and healthcare institutions. The rule has drawn sharp criticism from the American Medical Association and other groups who argue that enforcing additional identity theft prevention rules on top of HIPAA requirements would be redundant and burdensome for the healthcare industry. The AMA filed a federal lawsuit in May 2010 to prevent the FTC from enforcing the Red Flags Rule for physicians.

The FTC has delayed the rule's enforcement 7 times — it's currently scheduled to take effect Dec. 31, 2010 — to give Congress time to address these concerns.

The clarification bill passed last week, which now needs President Obama's signature to become law, redefines "creditor" to exclude an entity that "advances funds on behalf of a person for expenses incidental to a service provided by the creditor to that person." The language effectively exempts doctors, healthcare institutions and other types of businesses not traditionally considered creditors from the rule.

"The AMA is pleased that this legislation supports AMA's long-standing argument to the FTC that physicians are not creditors," said AMA President Cecil B. Wilson, MD, in a statement. FTC Chairman Jon Leibowitz said the agency is also "pleased Congress clarified its law, which was clearly overbroad. Now, we can go forward with less litigating and more protecting consumers from identity theft."

Irene Tsikitas

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