How can my medical practice lower credit card and virtual card processing fees?

Ways to reduce processing expenses and ease patient payments.

Medical practices are taking cards now from insurers and patients alike. The combination of patient portals and existing cashless habits meant the trend was inevitable. It’s quicker than a check with no paper trail or postage fees and on the surface is often “free”. But of course it isn’t; eventually the fee and interest rates come due.

This article covers why payers and patients use cards to pay providers, what it can mean for your practice and its bottom line, and how you can process payments without it eating into your margins.

To get paid by insurers means submitting claims, prior authorizations, eligibility checks, appeals, and reconciliation in addition to compliance rules; all expenses that could be better utilized in caring for patients. You may feel like a doctor or health professional, but some days you’re still a billing clerk and a data-entry specialist. Who wouldn’t want a card that made all this easier? Unfortunately, easing the stress on practice staff can ultimately come at a high cost for some practices.

Virtual Credit Cards

Some payers are now paying doctors with virtual credit cards (VCC). A piece in Medical Economics explains the process. Essentially, when the payers want to send a virtual card instead of a check or a direct deposit, the front desk staff runs it through their own CC machine, just like a patient’s card.

Virtual credit cards come from the payer (or its vendor) as a single-use card number. It usually comes by fax with the EOB, and someone on the billing team has to take the time to key the number into the office terminal. A deposit is made a few days later for a batch of claims, minus three to five percent.

The American Medical Association published a PDF on health plan VCC payments and how they impact physician practices, and it’s not pretty. The list:

• The hidden fee (3 to 5%) that many physicians don’t even realize they’re paying. It cuts into the contract rate of the physician.
• The processing fee, of course, doesn’t buy doctors any benefit. Meanwhile health plans may get cash-back rebates from card companies (as high as 1.75%).
• Physicians have the right to demand an ACH EFT and an ERA instead of a VCC. You can decline VCCs, and if you think the payer ignored your demand, file a complaint with CMS.
• Processing rates are higher for a VCC, with no HIPAA risk reduction in return; another ding to physicians.

Ironically the ACH EFT, considered HIPAA compliant and still only 34 cents a charge on average, had banks charging a 1.5 to 2.0 percent fee before medical groups pressured HHS to place a cap on it. The Aug. 25, 2014, letter to HHS was signed by NACHA, the AMA, National Committee on Vital and Health Statistics, American Hospital Association and MGMA. New protections and guidelines now address the 34-cent cap. A flat fee of cents is much more cost effective on many claims.

You may have heard of the e-transaction operating rules, which were written by a group called the Coalition for Quality Affordable Healthcare. This group found that automatic posting saves an average of $4.74 a claim. The VCC doesn’t post automatically to the remittance. Another saving, lost.

Passing the Cost of the Card Fee

Another wrinkle with taking cards: surcharging. This means passing the cost of the card fee onto the patient. In healthcare, physicians rarely surcharge. Some states ban it, federally qualified health centers can’t surcharge at all and the rules change with states. As of February 2024, some states restricted or outright banned surcharging.

So, if in your state you can indeed add a surcharge, there are rules around when the practice can apply one to be aware of.

• First, in writing, notify credit card companies that you will surcharge.
• Let patients know, with a letter and a sign, or an invoice, that you add a surcharge to cover the cost of the card fee.
• The charge can’t be more than what the card fee costs, typically 3 percent, and your state may have another fee limit or restriction.
• Never surcharge a debit card, even if you run it as credit. Prepaid cards, HSAs and FSAs are exempt from surcharge as well.
• Surcharges have to show up on the invoice as its own separate, itemized line. It can’t be lumped in with anything else.

For good measure, stay compliant with the payment card industry (PCI) rules. PCI compliance helps prevent cards being compromised.

Is it worth it? If you’re a small practice, in a state where you legally can, it may make sense to help mitigate the bite of the card fee. For patients, some of the effects can cut both ways.

On the plus side for the patient, cards offer convenience, flexibility and speed, and all of that can add up to satisfaction.

Here are all the reasons your practice could love the card charge. It helps ensure you receive payment on high deductibles and copays. A surcharge offsets the card fee. Card companies absorb the risk of patients that don’t pay or pay late. Billing is simpler, collections are higher. Patients can pay on premises, by phone, and through the portal even before they have a visit.

But on the flip side, there are reasons a patient could hate the practice card charge. It adds to the patients’ bill, and not everyone is happy to share a credit card. Patients may not want to risk a security breach by handing over data to a practice. And some of them end up paying the patient bill, a card fee and card interest.

The downside of accepting the card fee is the percentage tends to keep rising; you’re responsible for storing the data (a security risk); PCI and the data protection law add liability to the practice for unauthorized charges and disclosure letters. Nobody really wants this risk and expense.

If you’re considering a surcharge, remember that before you add any new fee, it’s a good idea to poll patients. A short questionnaire, on paper or email, gives you some data to evaluate where you stand, and if adding 3 percent to some patients’ bills is worth the risk. A 3 percent fee could have patients switching practices.

Keep Card Fees Reasonable

Then again, let’s say you work at a group that bills many plans, and the convenience of being paid on the VCC outweighs adding the step of an EFT. Even so, there’s a way to keep card fees reasonable without risking the wrath of a surcharge fee. That means finding out what you’re spending on VCCs.

Here’s a tip: read those payer contracts. The current fee of three to five percent may be something the payer (or its vendor) charges with the contract’s permission. Next, convert the percent into dollars and see what those percentages mean for your practice’s bottom line. Also, be aware that the payers may raise the percentage later on the contract.

If you don’t want the VCC, you can opt out. Get an EFT before signing any contract. Renegotiate the current contracts that default to the VCC. Keep in mind that payers likely aren’t going to pay you during an opt-out period, so don’t expect to renegotiate the contracts to drop the VCC payments without a pinch. That can squeeze the cash flow in a small practice.

Patients pay your practice too: deductibles, copays, services insurance doesn’t cover. Here are a few ways to save on credit card processing fees.

• Call the card companies and negotiate rates.
• Choose direct deposit (money transfers) or debit cards over any form of credit cards whenever possible.
• A practice that collects at the time of service won’t have to spend the time sending statements and trying to collect after patients have seen the doctor. Plus, they can save the card information and charge automatically.
• Bill any secondary coverage. HSAs and FSAs, as well as pharmacy card benefits, and charities can all help.
• eChecks are another way to accept payments.
• Bundle as much as possible together. The best way to group charges for a practice is to take them on the day of service. For surgery, if pre-op, surgery and post-op are going to get paid together, demand one payment up front.
• Make patient health and satisfaction your business. Be upfront with them about paying, what you accept and what you charge.

American Medical Association, Oct. 20, 2023, e-transactions toolkits for administrative simplification.

American Medical Association, resource on the effect of VCC payments to physician practices, 2023.

American Medical Association, Oct. 5, 2017, protections for doctors against health plan card fees.

American Medical Association, 2014, guide on provider rights and making ACH EFTs work for a practice.

American Medical News, article on ways to cut a practice’s card fees.

Gabriela Jhean, LawPay, March 1, 2024, article on state credit card surcharge laws.

Medical Economics, piece on preventing losses with virtual credit cards, March 25, 2018.

Centers for Medicare and Medicaid Services, guidance on virtual credit cards, March 22, 2022.