Doctors shortchanged by insurers’ shift to credit card payments

Payers issuing plastic and virtual cards to practices instead of depositing funds directly can cut physician pay by as much as 5% after transaction fees.

By Charles Fiegl amednews staff — Posted Aug. 26, 2013

Print  |   Email  |   Respond  |   Reprints  |   Like Facebook  |   Share Twitter  |   Tweet Linkedin

Physician practices that have been receiving consumer credit cards as payment for their services also have been receiving lower pay than the contracted amounts agreed to in fee schedules, and the American Medical Association wants that to stop.

The AMA commented on the growing trend of plastic and virtual credit cards being issued by payers, including the Dept. of Veterans Affairs, in an Aug. 14 letter to the Centers for Medicare & Medicaid Services. The use of the cards has increased as health plans abandon sending paper checks in favor of cards that offer payers cash-back incentives.

“It is our understanding that certain payers, including the VA, rely heavily on the use of credit cards to reimburse health care providers for services rendered,” stated the AMA letter, signed by Executive Vice President and CEO James L. Madara, MD. “Unfortunately, while credit cards may provide a convenient means for payers to reimburse physicians, there are significant financial and administrative burdens associated with this payment method that should be considered.”

A chief complaint is that fees are associated with the cards. Physicians may pay as much as 5% per transaction when office staff enters a card number in a credit card reader machine. The fees are not always transparent, and they result in physicians getting less than the negotiated prices for services.

The AMA is urging CMS, which regulates electronic billing transactions, to prohibit insurers from paying physicians less than contracted rates when using electronic payment methods. The agency also should encourage payers to adopt new electronic funds transfer standards that promote the White House’s administrative simplification efforts before a Jan. 1, 2014, deadline, the letter stated.

“Physicians cannot afford any further cuts to their reimbursement, particularly with the current budget crisis and sequestration cuts,” Dr. Madara wrote. “These fees take away valuable health care dollars that physicians can use toward other critical efforts like health [information technology], quality improvement, and payment and delivery reform initiatives.”

Credit cards more frequent

Physicians at Sandhills Pediatrics in Southern Pines, N.C., first received a 16-digit credit card number from an insurance payer in May 2012. Office staff accepted credit card payments from patients, but this was the first instance of a payer sending a virtual credit card instead of a paper check or a payment deposited directly in the practice’s bank account. The staff brought this to the attention of Christoph Diasio, MD, who at the time recently had reviewed credit card policy and swipe fees at the practice.

Every credit card transaction carries a fee for the payment recipient, usually 1.9% to 3% or more of the transaction amount. Credit card companies build in additional fees to offset fraud risk and other costs when numbers are entered manually.

Dr. Diasio objected immediately to the payment method because he knew that manually keying in a card number would cost the practice a higher credit card transaction fee. “It represents a unilateral cut, and that’s not fair,” he said.

In February, the AMA wrote the American Assn. of Preferred Provider Organizations about similar complaints from physicians in other states, including California, Texas and West Virginia. AAPPO and the VA did not respond to requests for comment by this article’s deadline.

The complaints included those from smaller practices that do not accept credit cards. Payers continue to issue them anyway because of the incentives that they receive.

“We were deeply concerned to learn that some virtual credit card organizations offer kickbacks of up to 1.75% per claim to payers of their claims administrators when payments are made in this manner,” the AMA stated in the Feb. 15 letter. “We hope [third-party administrators] are not utilizing this as an incentive or motivation to implement such policies.”

Using credit cards shifts the costs of transferring money electronically from the payer to the practice, said Priscilla Holland, senior director of health care payments at NACHA, the Electronic Payments Assn. NACHA maintains the Automated Clearing House Network system for conducting EFTs.

Credit cards are a type of EFT and may fill a void in the current marketplace, but many people may be unaware of how they work, Holland said. Transfer fees often are used to offset fraud prevention and to validate that the paying account has funds available for the transaction, but she said such fees to pay for physician services are unnecessary.

The cost of an automated clearing house transaction to move a $2,500 payment is 34 cents. A same-day wire transfer would cost $10.73. A virtual card transaction would cost the most at $75.10, which accounts for a 3% interchange fee and a 10-cent transaction fee.

The costs don’t stop there when one considers staff time, Holland added. Office staff must swipe or key in the cards on a card machine. The transactions do not include remittance advice information as required by new electronic health care transaction standards under the Health Insurance Portability and Accountability Act. Remittance advice remarks offer standardized information about the payment, forcing office staff to take the extra step of downloading the explanation-of-benefits information. This would be counter to the Obama administration’s recent efforts to streamline HIPAA-compliant electronic transactions, Holland said.

Doctors can demand an EFT

From the health plan perspective, using credit cards for issuing payment is a revenue generator. For practices, it drains revenue in situations in which profit margins already may be thin.

The cost incurred for mailing paper checks or paying via EFT has been part of the cost of doing business for insurers, Holland said. She compared using virtual cards to an employer charging employees fees to receive their paychecks.

But practices don’t need to accept that situation. Physicians can demand that their payers issue payments via EFTs deposited directly into a practice’s bank account, provided they can convince the payers. That’s what Dr. Diasio did with the help of the North Carolina Medical Society. The insurer dropped its use of the virtual credit card and began paying the practice with an EFT.

The issue no longer is a problem for his practice, but recently he has heard of other practices in his state receiving virtual cards from insurers.

“When a mother comes into the practice and wants to pay with a credit card, it’s one thing,” Dr. Diasio said. “But when it’s an insurer, who is sitting on a pile of cash and their method of payment effectively cuts our hard-fought payment rates by 3%, it is unacceptable.”

Back to top


Tips on payer credit cards

Accepting insurer payments that come in the form of a plastic or virtual credit card costs physician practices more compared with other options. The American Medical Association has compiled a frequently asked questions document about card agreements and electronic funds transfers. Advice includes suggestions that a practice:

  • Review and evaluate its payer contracts to determine if it is required to accept credit cards as a method of payment.
  • Understand merchant card agreements and associated fees if it decides to accept credit cards. The practice also may want to ask if payers are using credit card reward programs that give them cash back.
  • Request payment using the health care EFT standard known as ACH CCD+. This transaction, approved by the Health Insurance Portability and Accountability Act, is less costly to payees than credit card transactions.

Source: “What do I need to know about payer and patient credit cards?” American Medical Association, 2012 (link)

Back to top

External links

Electronic Funds Transfer (EFT) Toolkit, American Medical Association (link)

AMA letter to CMS Administrator Marilyn B. Tavenner regarding use of credit card payment to physicians, Aug. 14 (link)

“What do I need to know about payer and patient credit cards?” American Medical Association, 2012 (link)

Back to top



Read story

Confronting bias against obese patients

Medical educators are starting to raise awareness about how weight-related stigma can impair patient-physician communication and the treatment of obesity. Read story

Read story


American Medical News is ceasing publication after 55 years of serving physicians by keeping them informed of their rapidly changing profession. Read story

Read story

Policing medical practice employees after work

Doctors can try to regulate staff actions outside the office, but they must watch what they try to stamp out and how they do it. Read story

Read story

Diabetes prevention: Set on a course for lifestyle change

The YMCA's evidence-based program is helping prediabetic patients eat right, get active and lose weight. Read story

Read story

Medicaid's muddled preventive care picture

The health system reform law promises no-cost coverage of a lengthy list of screenings and other prevention services, but some beneficiaries still might miss out. Read story

Read story

How to get tax breaks for your medical practice

Federal, state and local governments offer doctors incentives because practices are recognized as economic engines. But physicians must know how and where to find them. Read story

Read story

Advance pay ACOs: A down payment on Medicare's future

Accountable care organizations that pay doctors up-front bring practice improvements, but it's unclear yet if program actuaries will see a return on investment. Read story

Read story

Physician liability: Your team, your legal risk

When health care team members drop the ball, it's often doctors who end up in court. How can physicians improve such care and avoid risks? Read story

  • Stay informed
  • Twitter
  • Facebook
  • RSS
  • LinkedIn