More practices refusing to accept credit cards from patients

Even as patients increasingly are paying for care out of their own pockets, more practices are stopping them from doing so with one of the most-used items in their wallets: credit cards.

A third of physician practices did not accept credit cards as of April, up 5 points from 28% last year, according to SK&A Information Services. The company, which aggregates data on physician practices for pharmaceutical and device manufacturing companies, did a telephone survey of 202,650 physician offices nationwide at the behest of an undisclosed credit-card company client.

SK&A said a specialty's interest in accepting credit cards seems to be linked with its reliance on patient self-pay and the age of its patient base. The highest acceptance rate was in plastic surgery, with 91% of practices open to plastic payments. Pathology, at 21%, had the lowest acceptance rate. Family physicians had a credit card acceptance rate of 71.9%; internists, 53.1%; and geriatricians, 32%, according to SK&A.

SK&A said its survey didn't ask practices why they were refusing to accept credit cards. But a company spokesman, echoing what practice management experts and practices themselves are saying, citing ever-increasing fees for card transactions. Credit-card companies and the firms that service transactions take a collective 3% to 4% off the top of every payment. Many practices feel that is too much.

For three years, the doctors and office staff at Family Medicine Associates of Paducah, Ky., have considered taking credit cards because of patient demand. But the worry about having their low margins cut even further by transaction fees has kept them from following that path.

The practice "didn't like paying a percentage," said office manager Sally Morrow. One particular doctor holdout said he "didn't feel like it was cost effective."

Practice management consultants said a trend toward more practices refusing credit cards was counterintuitive. They said any money lost through transaction fees is more than made up by the ability to collect more money at the time of service and spend less time and money with billing.

Ethan Bechtel, director of strategy for MBA HealthGroup in South Burlington, Vt., said one client went from collecting 15% of co-pays on the spot in 2007 to 40% in 2008 after agreeing to accept credit cards -- more than enough to make up the transaction fees and the $500 cost of installing a machine.

In 2003, credit cards passed paper checks as the most common payment method, according to a paper produced for the Federal Reserve Bank of Minneapolis. Morrow said her practice's newer patients, in particular, look shocked when they're told the practice doesn't take plastic.

"Shying away from credit cards -- I mean, you talk about contrary to profitability. It would be lethal to the practices I work with," said accountant Jim Stroud, who works in the health care consulting group of the Birmingham, Ala., firm Warren, Averett, Kimbrough & Marino.

But physicians wouldn't be alone in feeling credit cards might not be worth the transaction fees.

Rising interchange fees

Businesses are speaking out about what they see as rising fees that result from a lack of regulation and a lack of competition -- the five largest banks issue 80% of credit cards.

Many small businesses are impacted. "My auto mechanic is no longer taking cards because of rising transaction fees," said Jack Schember, marketing director for SK&A.

The focus of the rebellion has been on the largest portion (on average, 1.75%) of transaction fees -- interchange fees. Those are payments that a merchant's bank pays the customers' bank when a merchant accepts credit cards. The card-issuing bank will deduct the fee from the amount it pays the merchant's bank to cover the purchase, and in turn the merchant's bank then will deduct that fee, plus any other fees (such as processing or statement fees) from the merchant.

Visa and MasterCard post the interchange fees, which vary based on the type and volume of business, on their Web sites. These fees, which generated $36 billion in 2006 and grew to $48 billion last year, are generally not negotiable, except for mega-retailers such as Wal-Mart.

A class-action suit by merchants against credit-card companies has been in the courts for four years. In June, a bipartisan bill was introduced in the U.S. House that would waive antitrust laws to allow merchants to negotiate certain fees collectively with the banks, who retailers say collude to keep fees high.

The credit-card companies and banks deny those accusations and say the interchange fees are necessary to insure the risk involved in issuing cards. They said reductions in the fees would hurt consumers by putting fewer cards in circulation and raising their fees. They also say merchants would be hurt, because they would lose their access to timely electronic payment. The firms note the House legislation, unlike a similar bill introduced in 2008, does not require merchants to pass any savings in the interchange rate to the consumer.

Also, SK&A surmised that patients' own credit troubles made physicians feel like accepting cards is less critical. "Today, fewer patients are able to use their credit cards at doctor offices because of the worsening consumer credit situation," said Dave Escalante, SK&A's president and CEO.

Still, practice management consultants say the option of credit cards is well worth the cost of transaction fees, compared with issuing paper statements and dealing with the hassles and costs of bounced checks, which practices are reporting seeing with greater frequency.

For a practice "not having to chase down $15, $30, $45 co-pays -- that 4% is a small price to pay to not have to bird-dog that stuff," Stroud said.

In fact, Morrow said her family practice is slowly reaching that same conclusion. She said that with the last doctor holdout relenting, it is pretty well assured that by year's end the practice will begin accepting credit cards.