Are you being charged too much for credit card processing fees?

Eric Cohen: ©Merchant Advocate

Credit card spending has more than tripled in the last decade. For merchants accepting credit cards, that means billions of dollars in processing fees. While processing may be big money, few understand the ins and outs of this difficult-to-navigate industry. Credit card processors often inflate these fees, resulting in significant annual costs that are otherwise avoidable.

The sheer amount of fees can be overwhelming for medical offices, which often lack the knowledge or resources to challenge these costs. This makes it easier for processors to overcharge or add unnecessary fees without scrutiny. Fortunately, it is possible for those versed in the industry to understand each fee and break down a merchant statement to see where businesses, such as medical practices, can save money.

Here are some common questions:

Why is it important for medical practices to optimize credit card processing costs?

Medical practices face even more unique challenges with credit card processing than a typical merchant, including costly virtual credit card fees from insurance payments, software integration issues, and handling sensitive patient data. These factors often result in inflated fees, penalties, and even security breaches, all of which add significant costs to running a practice. By optimizing your processing system, medical practices can reduce these unnecessary expenses, ultimately strengthening their bottom line.

How much do credit card processing fees typically cost medical practices?

Average credit card processing fees range from 2.5% to 4.5%, depending on factors like the type of transaction, merchant category, and card used. For medical practices that handle large volumes of payments, these fees can be overwhelming and often go unchecked. By understanding and analyzing merchant statements, practices can identify areas where they are being overcharged and find opportunities for savings.

What are some ways medical practices can optimize their costs?

1. Implementing regular updates to your practice management software is crucial These updates often include critical patches for security and compatibility, and delaying them could lead to serious consequences, such as HIPAA violations that result in hefty fines and damage to your reputation. Keeping your software current ensures compliance and protects your business from costly penalties. Updates may also affect what information is being passed from your software to your processor, if required data is not shared, you will be penalized.
2. Similarly, regularly reviewing your credit card statements can help business owners and managers catch unexpected processing fee increases. While some fees are unavoidable as a cost of doing business, additional, inflated charges are sometimes added that can drive up your monthly costs. By staying proactive and identifying unnecessary fee hikes, you can negotiate with your processor to reduce these fees, leading to significant savings both immediately and over time.

What is credit card surcharging? What is the difference between credit card surcharging and cash discounting?

Surcharging adds a fee to the bill for using a credit card, whereas cash discounting provides a reduced price for customers who pay with cash. The purpose of these methods differs: surcharging helps cover credit card processing fees that businesses incur, whereas cash discounting bypasses those fees entirely. When implementing a true cash discount program, prices are raised across the board, and a set discount is given to those paying with cash.

Although removing the processor from the equation through cash discounting might seem appealing, it assumes that customers will have cash on hand, which is increasingly rare. This type of discount doesn’t reduce fees for those who still choose to pay with a credit card. Surcharging, while potentially less popular since customers typically don’t like paying extra just to settle their bill, directly covers processing costs. However, strict regulations on surcharge programs make offering true cash discounts a safer and less risky alternative, especially for medical practices who must also follow insurance regulations.

What are some things medical practices need to be aware of to ensure their surcharge program is compliant?

If you’re considering a surcharge program, laws and regulations vary by state and card network. For example, New York introduced a law earlier this year requiring businesses to disclose credit card surcharges, limit them to the processor’s fee, and display the total cost including the surcharge or the cash price alongside the card price before checkout. It’s important to familiarize yourself with any fee caps (typically no more than the processing cost) and signage requirements. Many states mandate visible signage at the point of sale, and some also require signage at the entrance to inform customers about surcharges.

Insurance reimbursement cards won’t work with surcharges: Since insurance reimbursement cards are corporate credit cards loaded with a specific amount to send payments from the insurance company, medical practices need to understand that they can’t add surcharge fees to the total payment. However, a medical office can add a surcharge fee to regular credit card transactions if their program and pricing for services falls in line with insurance requirements.

There are also tax implications involved when implementing surcharge programs. Merchants must inform their merchant acquirer and card networks before implementing a surcharge program. If the revenue from surcharges is not accurately reported on the 1099-K provided by the processor, it could raise a red flag due to potential discrepancies. Since the 1099-K typically includes the surcharge amount, it must be reported and deducted as an expense to ensure proper alignment.

How can medical practices ensure they are PCI-compliant and protect patient data?

To ensure PCI compliance, medical practices should implement proper security policies and procedures, train staff, and audit merchant statements to check for non-compliance penalties. Simple steps like regularly updating passwords, monitoring network security, and reviewing physical security measures can help protect sensitive patient data.

Eric Cohen is the founder and CEO of Merchant Advocate. A veteran of the finance industry, Cohen founded Merchant Advocate in 2006. After his extensive experience in the merchant services industry, he was determined to create a fair value proposition and transparency for merchants with their credit card processors. As the CEO and founder of Merchant Advocate, Eric has helped develop an entirely new industry of advocacy in merchant services, and his passion stems from saving merchants over $300MM in excess fees.