In the cards: Getting paid with plastic

Most practices are comfortable accepting credit cards. But how about issuing them? Or how about accepting a debit card attached to a health savings account? These new approaches offer the promise of faster, easier and more certain payment. But you should think twice before pursuing them.

Mastercard of your own domain

Maybe you never thought of asking patients to sign up for credit cards to pay you. Now you can. A division of General Electric's finance arm is selling physicians on offering their own cards to patients. And another company suggests physicians take their patients' bad debt and use it as a springboard to a practice-centered credit card.

What both cards have in common is that, for a percentage fee, they offer physicians the promise of getting paid quicker, or at least reducing the need to send billing statements.

That was part of the appeal for one three-doctor group, Carolina Ear, Nose & Throat in Raleigh, N.C., to sign up with Anaheim, Calif.-based CareCredit, the division of GE Retail Sales Finance offering practice-based credit cards. The practice asks patients who have high deductibles, or procedures, treatments and other expenses not covered by insurance to consider applying for the card. Since March 2003, more than 20 out of 30 patients offered the card have taken it, said Gloria Bongiovanni, the practice's manager.

GE Retail Sales Finance, which owns CareCredit, declined to discuss its card in detail. The company did say that it is targeting high-dollar specialty practices instead of primary care practices.

But according to Bongiovanni and CareCredit's marketing materials, patients who qualify for the card can use it to pay any participating physician, dental and veterinary practice that accepts the card. CareCredit keeps 5% to 9% of the transaction as its fee and pays doctors the balance within two days, Bongiovanni said.

The cost to physicians is offset by what it would ordinarily cost the practice to collect payment from non- or late-paying patients, she said. "We don't have to send patients a bill and worry about collecting from them every month."

Patients who sign up for the card don't have to pay interest as long as they make a monthly minimum payment and pay what they owe within an agreed grace period, which ranges from three months to three years. If they fail to meet those terms, they incur a variable interest rate of at least 22.48%, according to CareCredit's Web site.

Steven Dennis, MD, an otolaryngologist at Carolina Ear, Nose & Throat, was concerned when he first heard about the card's concept. But he said he thought CareCredit was owned by a reputable company and that the card was a good deal.

"We just offer it to them as an option and give them plenty of time to think about it. If it appeals to them, fine. If it doesn't, fine," he said.

When patients want the card, the practice calls CareCredit. The company has rejected some patients' request for credit, Bongiovanni said. When that happens, the practice drops the matter unless patients ask it to call CareCredit to reconsider.

But some say physicians should think twice before offering credit cards.

"I don't think there's an absolute line where you can say that doing this with a credit card company is unethical from a medical standpoint. But it is clearly a further commercialization of the patient-physician relationship," said Matthew Wynia, MD, director of the Institute for Ethics at the American Medical Association. Once that relationship becomes a commercial exchange, patients would "have no reason not to expect us to have advertisements throughout our waiting areas and to send them spam e-mail advertising our newest service and all the other things that may actually come down the pike."

Another option being offered to physicians comes from PracticeXpert Inc., a provider of billing, collection and other practice management services. On April 1 it plans to launch a credit card reward program targeting patients with poor credit histories. The Los Angeles-based company would ask physicians for permission to market its offering to existing patients with delinquent accounts. PracticeXpert would work out a monthly payment plan with patients, who would pay interest on what they owe, said Jonathan Doctor, PracticeXpert's CEO. After patients pay what they owe their physician, they would receive a credit card that they can use to make any kind of purchase they want up to their credit limit, Doctor said.

PracticeXpert, which does not guarantee that physicians will collect all they are owed, will keep up to 20% of what patients pay their physician plus a percentage of interest rate charged by the bank issuing the card, Doctor said.

Dr. Wynia expressed strong reservation about PracticeXpert's program. "Although they may be in strict compliance with HIPAA -- I don't know -- the appearance is potentially one of banking interests having access to medical information."

Participating physicians could be drawn into a privacy lawsuit, but the biggest danger to them is how they will be perceived because patients could potentially land further into debt, Dr. Wynia said. "They are in essence endorsing the idea that impoverished patients who have the worst credit history should sign up for another credit card, which by the way will pay them off first," he said.

Doctor responded that the card offering will comply with the HIPAA federal privacy law because PracticeXpert has business associate agreements with clients.

The card program will enhance rather than harm the patient-physician relationship because it gives doctors an alternative to collection agencies, Doctor maintains. "You're not creating an adversarial relationship with the patient. You're creating a more compassionate relationship, and that bonds the patient to want to come back and continue to seek services from you."

Instant pay, with no paperwork

Flexible spending accounts, often criticized as involving a lot of paperwork and hassle, may become more popular thanks to debit cards.

Starting this year, physicians' offices can expect to see more patients using debit cards tied to FSAs and other types of health spending accounts to pay for medical expenses not covered by insurance.

Physicians who choose to accept the cards will improve cash flow immediately because they will receive payment within two or three days of the time of service, eliminating the need to mail bills to and collect payments from patients, industry observers say.

"With a debit card, there is absolutely zero paperwork," said William Boyles, publisher of Washington, D.C.-based Consumer-Driven Market Report, an industry newsletter focusing on health spending accounts. "It is so superior to the current system that we're projecting that at least 50% of the covered lives in FSAs will be in debit cards, and that the use of debit cards in FSAs will stimulate the growth rate of FSAs overall."

In 2003, Boyles estimated that fewer than 500,000 Americans used debit cards to access FSAs, which allow employees to set aside money on a pretax basis to pay for out-of-pocket expenses, including co-payments, office visits and prescriptions. He estimated that the number of FSA debit card users jumped to 1.5 million as of the beginning of 2004 and will reach more than 12 million by the end of 2008.

Fueling the growth in the use of debit cards is a ruling from the Internal Revenue Service in May 2003 stating that the cards could be used legally to manage health spending accounts. Those include FSAs, which have been around for 20 years; health reimbursement arrangements, which are a feature of consumer-driven health plans that are less than four years old; and health savings accounts, which were created by the Medicare reform bill Congress approved last month.

"Up to that point, it just wasn't clear that debit cards were allowable, and though some employers were willing to be on the bleeding edge, more conservative employers just weren't willing to take the risk" of featuring their use with FSAs and HRAs, said Karen Frost, a consultant at Hewitt Associates, a benefits consulting firm in Lincolnshire, Ill., which began offering debit card administrative services to employers this year.

Now that the IRS has green-lighted the use of debit cards, employers are increasingly offering and promoting them to employees. FSAs help employers lower their payroll taxes, and employees also gain a tax benefit because their pretax contributions enable them to reduce federal income taxes.

Despite the tax savings of FSAs, however, only 20% to 25% of eligible employees sign up for them because of the way the programs are structured. But the biggest reason that has kept FSA enrollment low is the requirement that enrollees use the money they set aside by year's end or else lose it, said Bonnie White, COO of the Employers Council on Flexible Compensation, a Washington D.C.-based trade association that represents employers that offer flexible compensation plans.

With a debit card, patients can immediately access the funds in their FSA or HRA at the point of service in the physician's office, eliminating administrative hassles not only for themselves but also for physicians, White said.

The cards also make it easier for patients to use up their money because they receive account balance updates periodically throughout the year, proponents say.

To date, only a handful of insurers offer benefit debit cards to employers in conjunction with health spending accounts, including PacifiCare Health System Inc., Harvard Pilgrim Health Care and Humana. United Healthcare announced that it would offer the cards this year.

Like bank credit cards, debit cards generally are processed over the networks of MasterCard International and Visa International. That means that physicians will incur transaction fees similar to what they pay to process credit card transactions, said Mary Sellers, a spokeswoman for Humana Inc. On Jan. 1, the insurer started offering a debit card from MasterCard, which charges a fee of 1.8% of the transaction, she said.

"The standard payment processing fees for credit card payments will also apply to payments made with debit cards," said Tyler Mason, a spokesman for PacifiCare.

The insurer believes that debit card fees are much lower than what it would cost doctors to bill and collect payment from patients, he said.