Should Dermatologists Have Credit Card Surcharges?

It is increasingly common to see credit card surcharge notices among online suppliers, auto dealerships, restaurants, and many other businesses, though notably less so in medical practices. This raises 2 key questions for medical practices: (1) Can surcharges be applied? and (2) Should surcharges be applied?

Regulatory Considerations

Regarding the first question, the answer is: it depends. A complex interaction exists among federal law, state law, and credit card network regulations. Federal law permits surcharges; however, they may not exceed the lesser of the actual processing cost or 4%. Surcharges are prohibited on debit and prepaid cards, even when processed as credit transactions. Additionally, surcharges must not generate profit beyond actual processing costs.

State laws vary considerably. Surcharges are prohibited in Connecticut, Maine, and Massachusetts. Other states impose restrictions; for example, Colorado limits surcharges to 2%, and California prohibits line-item surcharges while allowing dual pricing or all-inclusive pricing models. Approximately 35 states permit surcharging, although requirements vary and are subject to change.

Card networks also impose rules. Visa limits surcharges to the lesser of the merchant discount rate or 3%, while Mastercard, American Express, and Discover allow up to the lesser of cost or 4%. Visa, Mastercard, and Discover require written notification at least 30 days before implementing surcharges. All networks require clear disclosure to customers at entry points, points of sale, and online payment portals. “Level playing field” rules mandate equal surcharge rates across card types. Surcharges must also appear as a separate line item on receipts.

In an optimal scenario, practices in states that permit surcharging would still be constrained by card network limits (typically 3%).

Economic Impact and Risks

The more important question is whether practices should implement surcharges. This decision requires evaluating economic impact, risks, and alternatives.

Economically, surcharges may not fully offset processing costs. First, “level playing field” rules and Visa’s 3% cap may be lower than actual processing costs for other card brands. Second, many systems use a per-transaction fee plus a percentage, resulting in effective rates exceeding 3% for transactions under $100. Third, processing fees apply to the total transaction, including the surcharge. For example, a $100 charge with a 3% surcharge totals $103; at a 3% processing fee, the cost becomes $3.09, exceeding the surcharge collected. Fourth, “virtual credit cards” issued by insurers often prohibit surcharges. Finally, compliance costs, including legal review, system upgrades, and administrative processes, may be substantial.

Surcharges may be more economically viable in cosmetic practices, where transaction amounts typically exceed $100 and patients expect higher out-of-pocket costs.

The risks of noncompliance are significant. Violations like surcharging debit cards or miscalculating fees may result in fines (potentially exceeding $5000 per month), forced refunds, chargebacks, termination of processing agreements, and referral to state enforcement agencies.

Alternatives to Surcharging

Alternatives to surcharging include absorbing processing fees as a cost of doing business, increasing service fees, implementing convenience fees, or offering cash discounts.

Convenience fees are fixed charges applied to transactions when a nonstandard payment method is used. These are generally permitted for online, portal, or phone payments but are typically not allowed for in-person transactions unless conducted via kiosks or self-service terminals. While feasible for online payments, many practice management systems may not support automated implementation.

Cash discounts are more applicable to in-person transactions. Practices offer a higher standard price for card payments and a discounted rate for cash or check payments. This approach is often perceived more favorably by patients and may yield equal or greater revenue compared with surcharges, as card networks do not regulate discount pricing. However, this model is not suitable for copayments, deductibles, or installment plans.

Cash discounts may be most effective for cosmetic services, retail items, or discretionary services such as form completion or medical record copies. Practices should review state-specific requirements regarding signage and tax implications before implementation.

For most practices, cash discounting represents the simplest and most cost-effective alternative.

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Cash discounts may be most effective 
for cosmetic services, retail items,
 or discretionary services such as form 
completion or medical record copies.

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Alternatives to surcharging include absorbing processing fees as a cost of doing business, increasing service fees, implementing convenience fees, or offering cash discounts.

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