Health Plan Virtual Credit Card Payments Cut Into Physician Pay

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Economics Feature — December 2015

Tex Med. 2015;111(12):57-62.

By Amy Lynn Sorrel
Associate Editor

A new middleman is making its way into the health care industry. But like many physicians, one Houston pain specialist didn't notice at first. 

The physician, who wishes to remain anonymous, was accustomed to receiving a paper check attached to an explanation of benefits (EOB) as payment from the health plan that covers most of her patients. Recently, that check turned into a string of numbers resembling a physical credit card, with a note saying she could get paid faster with the so-called virtual credit card payment. 

Several months and $2,000 later, she realized the promise was too good to be true: Unlike checks or direct deposit payments the doctor receives from other health plans, each time her billing staff processed the virtual credit card, she incurred a 3-percent to 5-percent processing fee deducted from the health plan payment. 

The Houston physician knew payers were switching over to electronic payments. Until she called the Texas Medical Association Payment Advocacy Department, however, the doctor didn't know she had options. 

"All of a sudden, we had several health plans switch to virtual credit cards — no warnings," she said. "But I didn't realize until I contacted TMA that they all have the capacity to do EFT [electronic funds transfer]," or direct deposit, for pennies on the dollar.

To complicate matters, when her billing staff tried to opt out of the virtual credit card payment and switch to direct deposit, the practice encountered another manual, burdensome process. "The problem is we have to convert each one individually, and we have 30 to 40 insurance companies we work with. It's a lot of work." 

Unlike other administrative costs the health care system imposes on physicians, this is one doctors can control, TMA officials say. The problem is not all health plans and third-party payment processors have been up front about it, sparking organized medicine's call for more transparency and less hassle.  

A New Middleman

The American Medical Association, the Medical Group Management Association, and the American Hospital Association — along with NACHA, the Electronic Payments Association — continue to urge the Centers for Medicare & Medicaid Services (CMS) to establish standards on when and how health plans can implement virtual cards, a relatively new payment method in health care. NACHA maintains the Automated Clearing House Network system for conducting EFTs, the electronic transfer of funds from one account to another.

The use of virtual credit cards has largely proliferated as health plans abandon paper checks in favor of less costly electronic payments per administrative simplification requirements under the Affordable Care Act, says Priscilla Holland, NACHA senior director of health care payments. Payers and third-party payment processors also adopted them because they can receive cash-back rebates from credit card companies — usually a percentage of the processing fee — for paying claims with virtual cards. Credit card issuers and banks that process the virtual payments also profit off of the interchange fees. 

Health plans send virtual card payment numbers and instructions — via mail, fax, or email — to physicians who then process the payment using their in-office credit card system. 

Virtual cards and rebates, which are common in other industries, started with the travel business, Ms. Holland says. "They are just very new to the health care industry. And when you're looking at billions paid out on an annual basis in claims payments, and you start looking at an average of 3 percent [in transaction fees], that's a lot of money." 

Electronic payments certainly get funds to practices more quickly and with less risk than paper checks, she says. But unlike EFTs, the tradeoffs with virtual cards are steep. (See "Comparison of Electronic Payment Options.")

The cost of an EFT transaction for a $2,500 payment is a flat 34 cents. A same-day wire transfer would cost $10.73. A virtual card transaction would cost $75.10, which accounts for a 3-percent interchange fee and a 10-cent transaction fee.

Virtual card payments also involve manual processing: Practices must manually key the virtual card number into their office credit card terminal, versus a swipe, creating room for error. The funds are not available the same day. Nor can practices immediately match their claims to the virtual card payment. Unlike EFTs, virtual cards are not considered a HIPAA-compliant transaction, so they cannot contain patient information, creating extra steps to reconcile the payment with the original claim manually. 

Some large health plans proactively offer physicians the choice to go with EFTs or virtual cards as they migrate to electronic payment systems, Ms. Holland says. But a growing number of plans and third-party vendors that process plan payments are moving to virtual cards unilaterally, without warning and without much explanation of fees or opt-out procedures.

Ms. Holland says she also heard from a major credit card issuer at a recent conference that it plans to target small to midsize physician practices. 

"They are going after this market because it is very profitable, so we are going to see more of it," she said. "But it's about transparency and making sure providers are aware they have a choice and that they make an educated choice, so that they understand what they are actually paying for, and they've decided it's in the best interest of their practice."

Convenient for Whom?

In 2015, TMA and other state medical associations attempted legislation in their respective states to mitigate the subtle proliferation of virtual credit cards. In Texas and elsewhere, however, those efforts met stiff opposition from health plans, third-party payment processors, and the banking and credit card industry.

In May, vendors testified at the Texas Capitol that thousands of their physician, hospital, and health care professional customers are accepting virtual credit card payments as a safe, convenient method. Bank representatives also held up virtual credit cards as a valid payment option, questioning why physician practices would accept card payments from patients and not health plans. 

The Texas Association of Health Plans (TAHP) did not respond to Texas Medicine interview requests but testified during the legislative session that health plans typically use virtual credit cards as the only other electronic payment option available when practices refuse to sign up for direct deposit payments. Health plans still pay the full claim amount, and the transaction fee is set and collected separately by the company processing it, TAHP said.

Aetna representatives tell Texas Medicine the insurer has made it a policy to pay physicians electronically, and virtual credit card payments "are never mandatory," rather an additional option to EFT. The insurer says it prefers EFT over virtual credit cards and requires in-network physicians to accept EFT as part of their contract.   

"However, there is no contract to enforce with an out-of-network provider," Aetna officials said. As such, "if a provider is otherwise uncomfortable with sharing bank information or has an extremely low volume of claims (like a rural out-of-network doctor), then a virtual credit card is a viable option for those providers" and "the only means of electronic payment left available."

Among the physicians and other professionals Aetna pays electronically, 7 percent receive payment via virtual card. Aetna also makes it a policy to give physicians a 90-day notice letter before issuing any virtual card payments, followed up with reminder notices stuffed into check envelopes.

"Providers are always offered the option to enroll in EFT. Providers can also opt out of virtual card payments at any time by enrolling in EFT," Aetna representatives said, adding the information on the actual virtual card payment informs them how to cash the virtual card payment, as well as the fact that they can still enroll in EFT at any time.

On the other hand, Aetna says it spends $10 million a year printing and mailing checks, and "any rebates associated with payments made via virtual card are applied to offset print and postage costs associated with paper check/EOB mailings. At a time of escalating health care costs, eliminating a viable option for an electronic payment that saves the system administrative overhead does not make sense." 

Virtual payments may be convenient for health plans, but any savings or administrative simplification virtual cards supposedly offer are lost on physician practices, says Austin pediatric cardiologist Hanoch Patt, MD. The member of TMA's Select Committee on Medicaid, CHIP, and the Uninsured testified on behalf of TMA's bill. 

While some health plans and vendors proclaim a high acceptance rate of virtual cards, Dr. Patt is skeptical those numbers mean doctors are voluntarily accepting the payment method. 

"One of the challenges with the virtual credit card is that it's insidious. Offices are not even made aware the fees are taken out, and you are essentially paying to get paid," resulting in a unilateral cut to their contracted payment rate, he said. "Unfortunately, physicians are used to having to jump through hoops to get paid for their services, but as it stands now, we also have to go through all these extra hoops just to opt out. Ultimately, this is extra time and money away from patient care when you are already trying to run a medical practice in a lean way to take care of your patients and keep the lights on. There's no value in this when we have an alternative that works much better." 

According to TMA and AMA research, opting out involves another administrative layer that deters practices from choosing EFT: Practices often must contact each claims processor by phone and sometimes in writing. Some health plans and vendors also make it more difficult by providing no contact information with the virtual credit card number; communicating inaccuracies about the safety of sharing banking information for EFT; and requiring extra steps to enroll in EFT when it should be as simple as signing up an employee for direct deposit. 

Taking Charge

Physician practices don't have to accept the financial and administrative costs associated with virtual cards. TMA officials say doctors have a choice and the right to demand that their payers issue payments via direct deposit. 

Medicare has required EFT payments for several years, and recent federal rules mandate that health plans provide EFT payments if physicians request it. That's what the Houston pain specialist did with TMA's help. 

She doesn't object to the use of virtual credit cards in all situations. For health plans with smaller, infrequent payments, the fees were not as high, for instance. The physician does, however, take issue with health plans forcing her to accept virtual cards without advance notice and creating what she calls "unreasonable" processes to revert to another form of payment. It took more than two months for the high-volume health plan she works with to switch her to EFT payment. 

Meanwhile, the physician is slowly transitioning the other health plans she takes to EFT and exploring whether the clearinghouse her billing management service uses can help her enroll in EFT with multiple plans at once. 

NACHA's Ms. Holland says physicians also may be able to use CAQH's EnrollHub — a free, secure online tool — to streamline EFT enrollment with multiple plans. "The other option is to look at the health plans you are working with and identify the top 20 percent giving you the majority of your revenue and start [enrolling in EFT] with them. Then slowly work your way to converting the rest."

Ms. Holland also clarifies physician practices are not required to accept virtual credit card payments from health plans just because they accept traditional credit card payments from patients. In fact, she says the two scenarios vastly differ. 

"When you're taking a credit card from a patient, it's a convenience for the patient. And when you're paying an interchange fee, what you're paying for is shifting the liability from the provider to the card company if the patient doesn't pay. And that's a reasonable expectation when you're dealing with consumers," Ms. Holland said. Virtual card payments, on the other hand, shift the fees to practices, "and when you have a contract with a health plan and they are required to pay you, there really isn't a good business case to support accepting virtual credit cards."  

So far, CMS has yet to respond to NACHA and organized medicine's requests for standardized guidance on health plan virtual credit card use, including opt-in — versus opt-out — requirements and procedures. CMS considers such guidance outside its regulatory scope, Ms. Holland says.

Meanwhile, organized medicine and NACHA have prepared educational resources for physicians about their payment options when it comes to virtual cards. (See "For Your Staff" below.)

TMA continues to track the issue. Use TMA's Hassle Factor Log to share health plan complaints. Starting in January, watch your inbox for TMA's 2016 Survey of Texas Physicians, and share your experiences with virtual credit cards to help TMA gather data for future advocacy efforts. 

Amy Lynn Sorrel can be reached by phone at (800) 880-1300, ext. 1392, or (512) 370-1392; by fax at (512) 370-1629; or by email.


For Your Staff 

AMA Electronic Funds Transfer Toolkit

AMA's 3 Things Physicians Can Do to Avoid Virtual Credit Card Fees

CAQH EnrollHub to enroll in EFT with multiple plans at once

CAQH sample letter to request EFT payments

NACHA health care payments resources 

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Last Updated On

May 13, 2016