How Should Practices Manage Credit Card Processing Fees?

Rehab therapists can find themselves in a dilemma when it comes to charging patients for care and the associated credit card processing fee.  At 1.5% to 3.5% of a transaction’s total, the fee is relatively small per single transaction, but over hundreds of payments, it adds up to a significant sum that needs to be paid by someone, whether that’s the patient or the practice. And that answer isn’t necessarily as simple as you might think. 

On the one hand, rehab therapy practices have been nickel-and-dimed by payers for so long that there’s little room for error, let alone the beneficence to take on those fees for patients. On the other hand, if anyone is as hard done by under the current healthcare system as providers, it’s patients, with out-of-pocket costs rising year over year to keep pace with increased premiums. 

Are there rules about passing on credit card processing fees?

First, we have to examine what’s permitted versus what isn’t. When it comes to Medicare, passing on credit card fees is a no-no; per the fine print of the Medicare Participating Physician or Supplier Agreement, participating providers “shall not collect from the beneficiary or other person or organization for covered services more than the applicable deductible and coinsurance.” 

Beyond that, we get into the morass of individual payer rules, credit card networks’ rules, and state laws on the topic of surcharges, which creates a tangled web of potential violations if you’re not careful.

Let’s look at state laws first. As this article outlines: 

• Connecticut, Massachusetts, Maine, Puerto Rico have strict prohibitions on credit card surcharges. 
• New York, New Jersey, Colorado, Minnesota, Nevada, South Dakota, Nebraska, Georgia, Illinois, Kansas, Oklahoma, California, and Texas permit surcharges with limits, i.e. the surcharge rate cannot exceed the processing fee. Do your homework if you’re located in one of those states.
• The rest of the states permit surcharges, provided that businesses follow disclosure guidelines and credit card network rules.

As in all things legal, if you’re uncertain what the law in your state says or permits, consult with a qualified attorney. Better a handful of billable hours than a whole heap of trouble later!

What about credit card networks?  

Visa permits surcharging, provided that the practice is permissible in the state where the business is operating. Per Visa’s U.S. Merchant Surcharge Q and A, in order to implement a surcharge, the business must:

• Notify your acquirer at least 30 days prior to commencing surcharging
• Include the surcharge amount within a dedicated data field (labeled Field 28) in the transaction
• message sent to Visa (your acquirer will enable the population of this field)
• Limit surcharging to credit cards only (debit cards and prepaid cards cannot be surcharged)
• Limit the amount to your merchant discount rate (MDR) for the applicable credit card or 3% whichever is lowest
• Disclose the surcharge as a merchant fee and, for both in-store and online transactions, clearly alert consumers to the practice at the point of entry, the point of sale or transaction, and on every receipt

Mastercard also permits for a surcharge. Let’s again quote from the source, in this case Mastercard’s merchant surcharge rules: 

“Merchants are permitted to apply either a brand-level surcharge or a product-level surcharge to Mastercard credit cards. A brand level surcharge is one where the merchant charges the same percentage on all Mastercard credit cards. A product level surcharge is one where the merchant imposes a surcharge on a particular Mastercard credit product. In both circumstances, the level of the surcharge is subject to a cap.”

How much can I charge, I hear you asking. Here’s what MC says:

“The level of the fee that a merchant may charge a cardholder is capped in relation to the merchant’s cost for Mastercard credit acceptance. For merchants who choose to impose a brand level surcharge, a merchant may only surcharge a Mastercard cardholder at the lesser of the merchant’s average effective merchant discount rate that the merchant pays its acquirer for Mastercard credit acceptance or the Maximum Surcharge Cap, which can be found below. For merchants that impose a product level surcharge, the surcharge must not be more than the merchant’s cost to accept the particular Mastercard credit product, minus the Durbin Amendment’s cap on debit interchange fees.

Like Visa, Mastercard also requires disclosure to customers of any surcharges. It’s also important to note that all major credit card companies prohibit surcharges on debit transactions.  

Beyond credit card rules, payment processors—the intermediaries most businesses use to handle payments—also charge their own processing fees. This article from NerdWallet lays out the fees charged by most of the major payment processing services, which vary based on whether the company offers a flat-rate fee that encompasses all the individual fees that make up the credit card processing fee, or if they offer an interchange-plus rate that’s fixed, but passes the interchange fees (the money that goes to the bank issuing a credit card) on to merchants.  

What are payer rules around surcharges?

Given the number of different payers and their state subsidiaries, it’s impossible to outline a fixed position on surcharging — and unwise to try and make a broad statement. Each payer contract will outline the fee schedule and permissible charges; before you decide to go the route of adding a credit card fee surcharge, it’s worth giving that contract another look to see what language exists about charging over and above the agreed-upon rate. If the contract is unclear on the point or doesn’t say anything about surcharging, it’s probably still a good idea to ask that payer if they have a policy. 

How do I implement a surcharge for credit card fees?

The most important thing you can do in implementing a surcharge is to communicate clearly and directly with patients. As with the copay talk, setting financial expectations up front is key to avoiding later frustration.  

Credit card network rules around surcharges typically make a point that surcharge rates should not exceed the rate of the fee, and should not vary between customers or between cards so as not to either induce or disincentivize the use of any particular credit card. They also require that merchants inform them of their intention to add surcharges, typically through a form on their merchant portal, and to disclose to customers any surcharges—yet another reason to clearly communicate with patients. 

This amount of complexity and legal wrangling is why many practices opt to simply absorb credit card processing fees as an operating cost, or build those costs into their fee schedule as permitted. 

Should I implement a credit card processing fee surcharge to patients’ bills? 

If you’ve cleared every legal and regulatory hurdle and arrived at the point where you can add a surcharge for credit card processing fees, there’s still one big question left to answer: Should I?

There are salient points on either side of the argument. On the one hand, rehab therapy practices have been nickel-and-dimed by payers for so long that there’s little room to not collect every dollar owed, let alone the beneficence to take on those fees for patients. On the other hand, if anyone is as hard done by under the current healthcare system as providers, it’s patients, with out-of-pocket costs rising year over year to keep pace with increased premiums. 

Ultimately, it’s a decision that every practice has to make for themselves, assuming that state laws and payer contracts haven’t made the decision for them.