How to avoid losing money at your practice from virtual credit cards

As health plans have moved to reimbursing physicians by electronic payments, practices have seen a proliferation of “virtual credit cards” that, in essence, charge doctors for getting paid. What’s worse, plans are getting a piece of the credit card charges.

Some doctors regularly receiving these payments are furious. And its likely many more aren’t aware they are losing part of their reimbursement from the process. 

“That isn’t really fair, if they’re getting a percentage back,” says Medhavi Jogi, MD, a Houston endocrinologist.

Allergist/immunologist James Baker, MD, of Baker Allergy, Asthma and Dermatology in Portland, Ore., says, “The idea that we have to pay to get our money is kind of fishy.”

Virtual credit cards (VCCs), which come from payers or their third-party vendors, are credit card numbers that can be used only once. They usually arrive via fax, accompanied by explanations of benefits. If a practice accepts virtual cards, a billing clerk keys in the number on the office’s credit card terminal. Within a few days, the payment for a batch of claims is deposited in the practice’s bank account, minus a transaction charge ranging from 3 percent to 5 percent.

While it is unclear how widespread VCCs are, six in ten practices surveyed recently by the Medical Group Management Association (MGMA) said they were concerned about their use. In a 2015 survey conducted by MGMA, the American Medical Association, and the American Dental Association, over two-thirds of respondents said they’d received VCC payments. Eighty-six percent of them said that these payments had increased in the previous year.

According to the Coalition for Quality Affordable Healthcare, the industry group that created operating rules for the HIPAA electronic transaction standards, the average provider savings from automated payment posting is $4.74 per claims transaction. Practices lose that savings if they’re paid through VCCs because, unlike electronic funds transfer (EFT), VCC payments cannot be automatically associated with electronic remittance advice.

Even without that loss, virtual credit cards can harm the bottom line, Baker points out. “Our overhead is 70 percent, and if you start to give away another 3 percent to 5 percent, you get hurt,” he says. 

Many physicians don’t understand, experts say, that they don’t have to accept virtual credit cards. Under the HIPAA administrative transaction rules, health plans are required to pay doctors through EFT to their bank accounts-which normally carries a fee of 34 cents per transaction-if the physician requests it. But it can take time to opt out of VCCs, and meanwhile the practice is not getting paid.

Lucrative business for plans

Why are health plans pushing VCCs rather than EFT? Observers say they’re receiving rebates from virtual credit card issuers and processors. 

Richard Trembowicz, JD, associate principal with ECG Management Consultants, says some plans get 1 percent rebates from card processors. The American Medical Association says the rebates can be as high as 1.75 percent.

Priscilla Holland, senior director of healthcare payments for NACHA-the Electronics Payments Association, which operates the national network for EFT, says payment vendors offer to take on l an insurance company’s payables to
providers. In return for getting business from the insurers, the vendors rebate half of the interchange fees to the plans. 

“So for some plans, payment of physicians has become a revenue center,” she says.

America’s Health Insurance Plans (AHIP), the insurers’ trade association, declined to comment on virtual credit cards in general or the rebates that plans receive. However, an AHIP spokesman tells Medical Economics, “We believe that any fees should be transparent to the provider so they can accurately assess which available payment option works for them.”

The opposite of transparency 

However, plans and their vendors can be far from transparent about electronic payment options. For example, Jeff Livingston, MD, an OB/GYN in Dallas, says his group has not asked for virtual credit cards but receives them anyway. In addition, he says, the plans that have sent those cards never told his practice they carried a 3 percent transaction fee. 

Robert Tennant, senior policy advisor to the Medical Group Management Association, says that practices generally receive VCCs without prior notice. Moreover, he notes, some payers and vendors describe them in language that implies that practices must accept the virtual cards. He cites a payer brochure that extols VCCs and, in tiny print, says that physicians have the right to receive payments by EFT instead.

This is not all the fault of the plans and their vendors. Often when billing clerks see a fax with a VCC number on it, they just assume it’s how that plan pays the practice and enter the number in their credit card terminal.

This happened in the practice of Jogi, the Houston endocrinologist, who was unaware of VCCs until he heard from Medical Economics and asked his biller about them. At that point, he discovered he’d been receiving these cards from Meritain Health, an Aetna subsidiary. Now Jogi, who admits that he seldom pays much attention to contract language, intends to enroll in EFT for all of his plans.

A practice’s billing staff is usually not cognizant of the VCC charges, Holland says. The group’s accounting department may discover them later when they see their bank charges for the previous month, she adds.

Even then, it may be impossible to figure out how much the individual transaction charges were, because they appear on the bank statement as a lump sum, says Cindy Madden, business manager for Baker
Allergy, Asthma, and Dermatology.

Contract terms

Trembowicz, who is an attorney, says he has seen more plan contracts that give the carriers the right to send practices VCCs unless they request EFTs instead. If physicians don’t object to this language, the plans can fax their practices VCCs without asking their consent in most states. Some insurer contracts even specify that physicians must accept VCCs to be in their networks, Holland says. The Centers for Medicare & Medicaid Services (CMS), however, prohibits plans from requiring that under its regulatory authority over the HIPAA administrative transactions.

Trembowicz advises physicians to negotiate out any contract clauses that obligate them to accept VCCs or that give plans the default option to send them the virtual cards. “I haven’t seen an insurance company go to the mat over that,” he says. 

He stresses that clauses allowing VCCs are not HIPAA violations because the law does not prohibit the use of VCCs. However, he says, “If the provider agrees to permit the use of VCCs by contract, it could be construed as a waiver of the request to use EFT for the term of the contract. This is the reason that we recommend as a best course the exclusion of VCCs as an option for payment at the time of contract negotiation.”

Livingston’s practice has been able get rid of those clauses when they appeared in its contracts. Nevertheless, the group still receives VCCs from some payers. While it doesn’t accept them, he says, it’s a lot of work to opt out of them.

Opting out of contracts

When Livingston’s staff calls a plan to reject a VCC payment, he says, the clerk at the insurer’s office usually doesn’t know what they’re talking about or resists their request. Every plan has eventually complied, he says, but often it requires time and effort.

A big practice like his has the resources to fight VCCs and can ride out a temporary accounts receivable problem, he points out. “A smaller practice might not be able to do that and may not be able to delay the payment. You have to meet payroll. Cash flow is really key in running a medical practice. Anything that slows that down is harmful.”

Knowing this is the case, plans and vendors often tell practices that if they’re willing to accept a VCC, they’ll get paid right away. Otherwise, it might take a month or two to get paid, including the time required to enroll in EFT, Tennant notes. 

Some plans, Holland says, tell practices that if they want to opt out of VCC, they have to do it piecemeal. “They make them go through it line by line for each patient, and they only take five patients at a time.
After that you have to hang up and call them back. If you have to spend all this time opting out, in a lot of cases the doctor accepts the virtual cards.”

This tactic is illegal, Trembowicz says. If the provider asks to opt out of VCCs for payments for all services, that request must be honored. To make sure that it is, he recommends sending the vendor a cease-and-desist letter by certified mail/return receipt requested.

Livingston’s group has run into another problem that delays opting out of VCCs: Large insurance companies often have many sub-plans, and billers have to call each one and tell them to stop sending the virtual cards, he says.

Practices should make EFT the default in payer contracts and should proactively enroll their providers, Trembowicz says. This strategy has worked well for
Livingston’s practice, which now gets 80 percent of its payments through electronic funds transfer. 

VCCs may have a place in some practices, Tennant says. As an example, he cites an urgent care center in Aspen, Colorado, that treats people from all over the country with many different plans. Its doctors don’t want to enroll in EFT for all those plans and would rather eat the fees, he says. 

Don’t ding patients

Trembowicz strongly recommends against practices passing VCC fees onto patients.

“This is both highly impractical and potentially a violation of federal and state law and provider agreements,” he says. First, a number of states prohibit this kind of surcharge. Surcharges might also run afoul of federal truth in lending laws because the charge is not related to a consumer transaction but to a third-party transaction between the insurer and the provider. Surcharges could also violate insurer contracts that require providers not to charge patients more than the allowed amount. 

Finally, he said, it would be difficult for a practice to determine the surcharge at the time of service because the insurer’s method of payment might not be known, and the practice would also have to apply the cost sharing rules of a patient’s plan to calculate the surcharge.

In any case, VCCs can drain a considerable amount of money from practices, so it behooves doctors to pay attention to this issue, Holland says. “This is costing the physicians a lot, and it’s not adding any value to their practices.”