A Primer on the FTC Red Flags Rule
The “Red Flags” Rule, enforced by the Federal Trade Commission (“FTC”), requires many businesses and organizations to implement a written Identity Theft Prevention Program designed to detect the warning signs – or “red flags” – of identity theft in their day-to-day operations, take steps to prevent the crime, and mitigate the damage it inflicts.
The Red Flags Rule applies to financial institutions and creditors. The determination of whether your business or organization is covered by the Red Flags Rule is not based on your industry or sector, but rather on whether your activities fall within the relevant definitions.
The definition of “creditor” is broad and includes businesses or organizations that regularly defer payment for goods or services or provide goods or services and bill customers later. Health care providers are among the entities that may fall within this definition, depending on how and when they collect payment for their services.
For instance, health care providers become third party creditors, like credit card companies, when they extend their services (give value) to patients and then wait to receive payment from their patients’ health insurance carriers. While the health care provider is waiting to receive payment, he or she has “credited” the service to the patient with the expectation of reimbursement from the insurer at some future time.
Another example is health care providers who offer payment plans to their patients. This is often the case with very expensive, and frequently uninsured, dental work, where the health care provider offers the patient a payment plan that the patient pays off over the course of the treatment. Again, the health care provider credits the patient with the service and waits for full reimbursement from the patient.
On April 30, 2009, the FTC announced that it is postponing implementation of its Red Flags Rule until August 1, 2009. For more information of the Red Flags rule – and how it applied to your practice – please see the FTC’s guide on Fighting Fraud with the Red Flags Rule: A How-To Guide for Business (pdf).
