A practicing anesthesiologist for the past 14 years, when COVID hit, and the ORs came to an abrupt halt, I needed to occupy my mind. An opportunity to learn about the business behind running a practice came to me via a good friend who is a founding member of an award-winning Fintech on a mission to make a change in the credit card processing industry. I was stunned to learn about the questionable practices common in this industry. Medical education does not include business training, leaving us particularly vulnerable – no matter how great our office manager! I’ve seen first-hand how a little knowledge can yield significant savings in time and money. Here are the basics about what we, as doctors, should know.
Payment processing companies, a.k.a the “middleman”
If you accept credit cards, you must use a payment processing company, known as an Independent Sales Organization (ISO). Banks, often the default choice, are not always the best choice because banks must appoint ISOs too, meaning you are paying for two middlemen. It is in your best interest to choose your own payment processing company that keeps this necessary expense to a minimum.
Your practice was likely sold on a per-transaction rate when you first chose your payment processor. But to truly understand the costs, you must look at the entire picture, including other charges hidden in confusing merchant statements. While some fees are necessary, look out for these bogus fees: Regulatory and Security Fee, Batch Fee, Settlement Fee, PCI Compliance Fee, Release Fee, and Statement Fee. Also note that VISA/MC/DSCVR and AMEX reassess their interchange rates twice per year, a convenient time for processing companies to simultaneously make changes to their rates. An entire industry exists where businesses pay a third party to monitor rising processing fees – another unnecessary expense.
There are several pricing models for payment processing:
Flat rate pricing. As the name implies, your business is charged the same fee for every transaction, whether your patient uses an AMEX or a debit card. This is akin to a restaurant charging the same price for a pasta dish as they do a lobster dish. While simple, this pricing model is most likely not in your favor!
Tiered pricing. This model separates charges into three tiers depending on characteristics of the transaction. Often a business is sold on the least expensive tier, when in reality, most charges end up in the more expensive levels.
Interchange plus pricing. Generally interchange plus is more favorable because fees are based on wholesale costs. Historically this model was available only to large businesses like airlines and big box stores.
There are two main components of this pricing model:
- Interchange: the fee that comes directly from the card networks (VISA/MC/DSCVR/AMEX) which payments processors cannot control. These fees range from very low fees for debit cards, to higher fees for rewards cards or business cards.
- Plus: the markup your processing company charges to process the transactions and provide client service. This is described in a percentage fee (or basis points) and a per transaction cost (in cents). This does not include the aforementioned additional charges.
Here is the kicker for those of us working in medicine. While much of our reimbursement is through insurance companies, we process copays and out-of-pocket expenses frequently through debit cards associated with HSA and FSA accounts. In 2010 the Durbin Amendment was passed, which regulated and significantly lowered the debit card processing fees VISA/MC, and DSCVR could charge. But this amendment failed to regulate the “middlemen,” which don’t always pass along these savings, pocketing the difference instead. Interchange Plus is the only pricing structure that enables a business to receive the benefits of regulated debit.
Technology and security
Technological advances are essential to keep up with the constantly evolving threat of fraud and data breach. Magnetic strips use an outdated technology similar to cassette tapes which stores unchanging data that can be easily captured. Chip cards generate a unique cryptogram for every transaction, making it theoretically impossible to duplicate an approval code to commit fraud. In 2015, credit card issuers acknowledged this and transferred the liability of fraud back onto any merchant who was not using a chip reader. Once the data leaves your terminal and heads out over cyberspace, it is vulnerable to data breach. Updated terminals with the highest level of security are your best protection.
Contactless payments such as “tap and pay” credit cards, and Apple/Google Pay are the newest technology on the scene. Besides being very secure, there is the added benefit of paying without ever touching the dirty surface of the credit card terminal, a big plus during COVID. While updating your technology will come with a price tag, not only is it more secure but it allows you to accept all forms of payment in this increasingly technological world. Some companies will offer free technology with signup and a contract. But be aware that you are just being charged in a different way, tying you to high rates or terminal leases that leave you paying the true cost of that equipment over and over.
The Payment Card Industry Security Standards Council has created a set of standards to help protect you and your customers from fraud and data breach. If these regulations are not met or this yearly paperwork is overlooked, businesses are charged a monthly or quarterly PCI Noncompliance Fee ranging from $20 to over $125 per month! This is an easy way for your payment processing company to collect some extra cash. Payment processors with a conscience will make sure you are PCI compliant and educated about how to protect yourself.
In summary, be informed. Read through your merchant statement – know your rates and compare them with other companies. Look out for hidden and unnecessary fees on your statement that add up quickly and make your effective rate much higher than you bargained for. Make sure your pricing structure allows to you take advantage of regulated debit. Stay up to date on technology, and make sure you are PCI compliant. And most of all, ask questions! Within this industry not known for its integrity or customer service, finding a payment processing company that you trust is priceless.
Now that you have a little knowledge, dig out some recent merchant statements and reach out to an honest and transparent payment processing specialist. You, your office manager, and your balance sheet might be pleasantly surprised.
Jennifer Mogan is an anesthesiologist.
Image credit: Shutterstock.com