How doctors are losing money every time a patient pays a bill [PODCAST]

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“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.”

Jennifer Mogan is an anesthesiologist and account executive, Park Place Payments.

She shares her story and discusses her KevinMD article, “How doctors are losing money every time a patient pays a bill.”

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Hosted by Kevin Pho, MD, The Podcast by KevinMD shares the stories of the many who intersect with our health care system but are rarely heard from.

Transcript

Kevin Pho: Hi, and welcome to the show, where we share the stories of the many who intersect with our health care system but are rarely heard from. My name is Kevin Pho, founder and editor of KevinMD. Today on the show, we have Jennifer Mogan. She’s an anesthesiologist, and she wrote the KevinMD article “How doctors are losing money every time a patient pays a bill.” Jennifer, welcome to the show.

Jennifer Mogan: Thank you so much for having me.

Kevin Pho: We’ll get into your article in a little bit, but first off, can you share your story and your journey to where you are today?

Jennifer Mogan: Absolutely. So I always wanted to go into medicine from the time that I was very young. I took the very straight, narrow approach, straight from high school to college at Colgate University, then back to my hometown of Rochester, New York, for medical school. I stayed there for anesthesia residency, and I’ve been here in private practice anesthesia ever since, for the past 14 years.

When the pandemic started, I found myself struggling with the anxiety over being on the front lines in anesthesia. So I found I kind of needed to take a temporary step back from being in the OR and needed something to keep me busy and fill in the void. That’s when I stumbled upon credit card processing, through a very good friend who helped to found a female-founded and -run payment processing company several years ago. It’s on a mission to bring a change to the world of credit card processing, to bring honesty, transparency to the industry, and it’s certainly been lacking for years.

The more I learned about all these poor practices that go on, the more I was determined to be a part of that change and use what I’ve learned to help my colleagues, my neighbors, and the businesses in my area to stop getting taken advantage of, and put that $5,000 or $10,000 or $30,000 back in their pockets instead of in the processing companies’, especially right now during COVID, when every penny counts.

Kevin Pho: So tell me a little about that transition into credit card processing. Were there some challenges in that transition, and did you have an interest in this field before you made that transition?

Jennifer Mogan: I really knew nothing about this field before making that transition. It really took me a long time to embrace the idea that I could, and that it’s OK, to do something outside of and alongside of a clinical medical career. So I think it took a lot of soul-searching and being OK with myself to embrace that. Once I was able to do that, I realized how much value I have to offer to my colleagues by sharing this knowledge with everyone, and that made that transition a little easier.

I do fully intend to go back to clinical medicine. I can’t imagine leaving that behind, but it’s nice to be able to do them both alongside each other.

Kevin Pho: Before making that jump into the credit card processing field, did you have any prior training in the area?

Jennifer Mogan: Absolutely not. Being in medicine, I think we all kind of have our heads in the sand and really don’t understand most of this stuff. Honestly, the majority of business people and doctors in general don’t understand the credit card processing industry. It’s an industry that’s very poorly understood, not very transparent at all. So I think it’s valuable to have that information and to be able to share that.

Kevin Pho: All right, so let’s talk more about that. You wrote about that in your KevinMD article, “How doctors are losing money every time a patient pays a bill.” Now, for those who haven’t read that article, can you just walk my audience through it and share the story of why you decided to write it?

Jennifer Mogan: Yes, absolutely. So that’s a great question. Credit card processing is, like I said, an industry that’s really not well understood or really very transparent, and the poor practices out there are mind-blowing when you really get into it and learn about the ins and outs of the industry.

One of the key basic points to start to understand the concept is to understand what an interchange rate is. So there are hundreds of different credit cards out there, and each one has a different interchange rate, or percentage, and that’s dictated by the card brand, so Visa, Mastercard, Discover, and Amex. They all charge a particular interchange rate. Now, that rate varies on a scale from very low rates for debit cards, which we see a lot of in medicine with HSA and FSA, all the way up the ladder to a basic credit card, a rewards card, an Amex card, and all the way up to business and corporate cards, which can be well over 3 percent, as compared to those debit cards, which are oftentimes less than 1 percent.

So after you understand that basic concept, you can start to look at all the other pieces of the puzzle in which your processing company is charging you, like: What pricing model are you on, and what are your rates? What are the extra fees you’re being charged? Are you in a contract? Are you being charged for PCI non-compliance? I can go into a little detail about each of those, and how to protect yourself, and what you should know.

I guess the first thing is the pricing models. As I mentioned in the article, when you take into consideration the idea of the interchange rates, you can easily see how, if you’re being charged a flat rate, like Square or Stripe or even a lot of traditional processing companies, when you’re charged the same for every transaction, those can quickly add up. So Square is typically 2.9 to 3.5 percent. So when you’re getting a large number of debit transactions for your HSA and FSA cards, you’re really losing out on that, what we call regulated debit.

There’s another model out there called tiered pricing, which is used by a lot of banks, and it’s essentially like three different flat rates, where they just lump the different transactions, based on the characteristics of the transaction, into a different rate. With this model, you’re still not seeing the full advantage of those low rates. So by far the most economical model out there is interchange-plus pricing, which is basically wholesale pricing that’s based off of those interchange rates, and usually that’s the model that’s going to be best for your bottom line.

It’s hard to know what kind of pricing model you’re on just by looking at your merchant statement, because merchant statements are kind of like reading a foreign language. So if you have someone out there like myself who’s able to look at your merchant statement. Well, personally, I don’t; I send it to the office, and we have analysts who do, and they’re able to look at what kind of pricing model you’re on, as well as knowing what your rate is.

And that, I guess, is the second important piece of the puzzle: How do you know how your rate compares? Up until now, the payments industry has really been a free-for-all, and payment processors are kind of just crawling all over each other, trying to undercut the next one’s rate, and then they just pad the bill elsewhere to make up the difference. There hasn’t been a good measuring stick or a gold standard. It’s not like when you go out to buy a car and you have a published MSRP you can compare it to. So it’s hard for physicians, or business people in general, to really know what your rate means.

Lots of the poor practices out there revolve around this. They’ll undercut the rate, like I said, and then pad the bill elsewhere, or your rates will creep up over time, and then you have to spend time calling and negotiating and renegotiating your rates, and none of us have time for that. Neither does your office manager. Not to mention the fact that if you have to negotiate for a better rate, then they’re obviously not giving you their best rate up front.

So the company that I’m working for is trying to combat all of that by using a rate card to establish fair rates and guaranteeing those rates won’t increase. By using this rate card, we are typically beating other rates 90 percent of the time, and as I mentioned, sometimes those savings are really, really significant.

And then, after you understand what kind of rate you have and how that compares, the other part of it is all of those extra fees that get added onto the bill. So the merchant statements are often 7 to 10 pages long, with a laundry list of fees that you aren’t ever informed about, or they might just be posted quarterly or annually, so that the processing company is banking on the fact that you’re less likely to notice them, if you do look at your statement. People get tied into contracts and leases and all these other things.

PCI compliance is, I guess, the last big thing I wanted to talk about. PCI is kind of like having to deal with HIPAA, for credit cards. So there are standards that are meant to protect you and your customers from fraud and data breach. You have to do yearly paperwork to make sure you’re PCI compliant, or else you get charged a fee. The important piece of that is that your processing company actually gets a piece of that fee as well, so there’s no incentive for them to keep you PCI compliant.

I’ve seen those fees as high as $125 a month. I’ve also seen it double-dipped, where there’s an annual compliance fee of $120, and then a PCI compliance fee of $20 a month, presumably for helping to keep you compliant, and then also a PCI non-compliance fee of $20 a month. So make sense of that.

Kevin Pho: So if I’m a private practice clinician, or if I’m within a private practice group, what’s the most common situation when it comes to credit card processing that these groups find themselves in? What are some common default scenarios?

Jennifer Mogan: So a lot of people default to using their bank, which is not necessarily the best route to go, because the bank still has to have a processing company, and that’s also not the bank’s primary way of earning money, so they don’t have a lot of incentive to have a good program for you. So a lot of the time, people will just go with their bank because it’s the easiest method, and they don’t ask questions. They don’t get comparisons. They don’t know what to ask or how to compare. That, I think, is the biggest problem that people fall into.

The other thing is, a lot of smaller practices, as they’re getting started, especially now with the pandemic, with a lot of online, virtual things, with direct patient care, people are turning to Square or Stripe or PayPal because it’s easy to set up. But it’s important to know that Square, Stripe, and PayPal are what are known as merchant aggregators. So when you are under the umbrella of one of those companies, you are under the same umbrella as every other merchant using that company. So you do not have your own merchant account. It’s just like if you and everyone else in your town went out and opened a bank account together. You’re all under the same umbrella.

And that becomes an issue. Especially at the beginning of the pandemic, Square withheld up to 30 percent of funds from many of their merchants because they were anticipating a large number of chargebacks, and especially at the beginning of COVID, that was not the time to withhold funds from a merchant. So you can run into those sorts of problems using those companies. You feel like they’re big, they’re well known, they’re established, they’re looking out for you. They typically are not.

Kevin Pho: Now, let’s say I am an established private practice, and I just wanted to look further into which credit card processing option I have and where I can optimize this. So, I guess, where can that physician or clinician or office manager get started?

Jennifer Mogan: Our company offers what we call a free payment checkup, and that’s where we find out some information about your business. We get a copy of one or two months of your merchant statements, and then our analysts put together a comprehensive comparison for you, using our rate card as your comparison, so you have a standard to look at. Then we share with you that information on a side-by-side comparison, so you can see exactly if you are receiving fair pricing, and the service that you deserve, and everything that you need.

Ninety percent of the time, like I said, we’re able to show that there are areas for improvement. Ten percent of the time, we’ll come back to you and say that you are receiving fair pricing and that you have a good setup, and if you’re happy with your setup and your service, then we recommend you stay with what you have. That’s unique in the industry. Most companies are just trying to get the business no matter how they can.

Kevin Pho: For a typical practice, how much do you think they can save by delving into credit card processing practices and optimizing that?

Jennifer Mogan: That’s a very hard question to ask you, because it’s specific to the business. But I’ll have to tell you, personally, of all of the analyses that I’ve done, it’s been anywhere from zero savings, they already have a fair processor and fair rates, all the way up to, I’ve seen as much as $30,000 a year in savings from their credit card processing.

Kevin Pho: We’re talking to Jennifer Mogan. She’s an anesthesiologist, and she wrote the KevinMD article “How doctors are losing money every time a patient pays a bill.” Jennifer, we talked a little about private practices and how credit card processing affects private practices, but the vast majority of physicians work for large academic hospital systems. Do you see the same situation happening with larger conglomerates as well, that they themselves are not getting fair deals when it comes to credit card processing?

Jennifer Mogan: Honestly, I can’t speak to that. We typically deal with smaller to medium-sized businesses. Usually, those larger companies are established in some sort of bigger system that is servicing them, so I really can’t speak to that, unfortunately.

Kevin Pho: If a clinician or office manager just wants to find out more about this industry, and maybe you pique their interest in terms of delving into their statements and credit card processing companies, what are some resources that you can recommend?

Jennifer Mogan: Absolutely. You can feel free to reach out to me on my Facebook or LinkedIn page, for Jennifer Mogan. You can click on the link for this article. I’d be happy to talk more to anyone. As far as beyond that, look at your statement, look through your fees, be informed, be knowledgeable. As far as who out there to trust, I don’t know, besides myself. There are some good processing companies out there, but you just don’t know unless you look.

Kevin Pho: My final question: What’s your take-home message that you want to share with the KevinMD audience?

Jennifer Mogan: Be informed, and learn something new every day, I think. Be it a piece of knowledge, a new skill, someone’s name in your workplace that you didn’t know before, I think every piece of information that falls into our lap can enhance your life, can help you out in some way. I’ve been very fortunate to learn something new that has helped myself, my colleagues, and hopefully a lot more people out there.

Kevin Pho: Jennifer, thank you so much for sharing your time and insight, and thanks again for being on the show.

Jennifer Mogan: Thank you very much.

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