The Real Cost of Credit Cards to Your Practice

Key Takeaways

• Combined rate fees vary by the card accepted and are processed through separate card readers typically associated with a bank or other service provider. You may be able to switch providers or negotiate a lower processor fee to save money.
• Percentage plus swipe fees which are often built into a practice management system, which can have rates that vary depending on whether the card is run in person or not. Different companies have a range of different rates.
• Processing fees can amount to much higher percentages for lower charge amounts under $ 100.
• Credit card processing fees are deducted from the transaction and the remainder is deposited into your bank account. The daily report from your practice management system for credit card payments will not match your bank deposit amounts because of the deducted fees.
• Be aware of “virtual credit cards” and determine whether the cost is worth accepting them versus requesting an alternative form of payment.

All practice management systems and any good practice consultant will tell you that a medical practice must accept credit cards as payment. The reasons given are patient preference, security, the ability to keep credit cards on file, and the option of paying in the office or via an electronic bill. In an era when many people no longer write checks or carry cash, this may be your only option for patient payments. However, this convenience comes at a cost: the fees that your credit card processor charges for each transaction. Credit card transaction fees are typically between 3% and 5% nationally, yet few if any processors offer a flat percentage. So, the question remains: what is the actual cost of accepting credit cards?

THE DILEMMA

Considering the fee structure for credit card processors, there are three options. The simplest and least common is a flat fee—perhaps 3%—which would not be available to a typical practice. The next option can be called a combined-rate fee, with three sub-fees that include interchange and association fees determined by the card company and a processor markup fee. Essentially, the fee will vary based on the type of credit card accepted. This is usually found with freestanding credit card terminals not associated with your practice management system but with a bank. The third option is most often associated with practice management systems, with the fee being a combination of a percentage plus a swipe fee. The exact percentage and swipe fee can vary depending on whether the card is used in your office, online, or as card on file.

Table 1 shows a representation of typical fees associated with some credit card processors.

My practice management system has built-in payment processing, which is based on Tebra. My yearly totals for credit card fees typically amount to at least 3.4% of my payments. At first glance, this may be surprising because most people when looking at the fee schedule in Table 1 simplify by calculating the cost based on $100, which would amount to 3.05%. However, Table 2 shows that, for the typical copay amounts we see in our office, the actual percentage of payment ranges from 5.75% to 3.13%.

Clearly, the cost of convenience can add up to a much higher percentage for payments in the lower copay ranges and only works in your favor for payments of at least $100. Unfortunately, most medical practices are collecting copay amounts in the sub-$100 ranges regularly and have the occasional deductible or coinsurance payment that may be above $100.

WHAT CAN YOU DO?

Businesses deal with these fee structures in many ways. If you have ever seen a merchant refuse to accept credit payments below a threshold amount of $10 or $20, it is because the percentage plus swipe fee amount is a higher percentage of the transaction than they are willing to accept and they are minimizing that loss. If a merchant refuses specific cards such as American Express or Discover, it is because the combined rate fee for those cards is substantially higher than for the ones they do accept. Some merchants may add surcharges to try to recoup the fees, which is an entirely separate discussion. Finally, most medical practices and hospital systems, and some businesses, swallow these fees as a cost of doing business.

So, what are the implications for your practice? First, find out what type of credit card processing fees you are paying and how they are calculated. If you have freestanding credit terminals, you may be able to switch banks or providers for a better rate or perhaps negotiate a lower processor markup fee. If you have a practice management system that is tied into a specific credit card processor, then at least know what the fee structure is and look at the breakdown of your payments. You may want to try to capture more payments in the office rather than through electronic statements or manual entry to take advantage of the lower cost structure. Trying to incentivize patients to pay in cash or check would avoid the processing fees entirely but require a trip to the bank to deposit cash or checks. If you are looking at your bank statements and practice management payment reports to reconcile them, remember that the credit card processors will take their fee first and deposit the remainder in your bank so there will always be a difference to account for between the reports. Finally, think about the increasing number of “virtual credit cards” that some insurance companies are pushing for practices to accept as payment. Do you really want to lose 3% to 5% of your insurance payments on top of patient payments to credit card processing fees? For a small practice, that could amount to the cost of a full-time medical assistant. Luckily, if you receive a “virtual credit card” payment, it is your right to decline that form of payment and ask for an alternative form such as a check or electronic funds transfer. 

James M. Ulery Jr, MD, FAAD

• Private Practitioner, Skincare Associates PC
  Monroe, MI