Moving from Paper to Electronic Payment: 3 Key Considerations

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By Jeffrey W. Brown

More than half of patients prefer electronic billing and payment, a recent survey shows, yet healthcare organizations are slow to make the move: Just 20 percent are ready to accept payments other than by check, cash or traditional credit card.

Meanwhile, the cost of paper-based check payments is staggering. Providers spend 8 to 30 minutes more processing manual transactions than electronic transactions, according to the 2016 CAQH Index. Costs increase by $3 per check-based transaction. At more than 3 billion manual transactions a year between payers and providers alone, that’s a significant expense.

One paperless payment option that has the potential to revamp medical billing: virtual card payments.

Virtual card payments are widely used by other industries, with total spend for business-to-business transactions expected to reach $377 billion this year. But while 69 percent of executives expect use of virtual cards to increase over the next three years, more than 40 percent of CFOs admit they don’t know enough about virtual card payments to use them, according to an industry report.



What should healthcare leaders consider in determining whether to ditch paper-based transactions for electronic payment, including virtual card payment? Three factors are key.

Speed in processing. Electronic payments typically arrive 10 days sooner than check payments. When hospitals and physician practices replace checks with electronic payments from their largest payers—commercial insurers—they significantly improve cash flow, boosting their organization’s financial health.

But while payers have been quick to support electronic funds transfer (EFT) to providers, provider adoption of EFT for claims payment has lagged: Just 60 percent of healthcare organizations accept electronic payment from commercial insurers, though they are required to do so from Medicare.

Why aren’t healthcare organizations embracing EFT? Security is one factor. Providers that wish to receive Automated Clearing House (ACH) payments must share confidential bank information with each payer. Not only does this pose security concerns for providers, but the process for enrollment can be time consuming, especially when providers work with hundreds of payers.

Virtual cards address this challenge by enabling providers to process the payment from the same machine used to capture credit card payments. Virtual card payments are made to providers via single-use cards, with the information transmitted to providers through online display, fax, or mail. The cards are loaded only with the amount of the payment. No enrollment is required, and payment is guaranteed. There are no bank deposits to make, because once the payment is processed, the funds are deposited directly into the provider’s merchant account.

Ease in payment reconciliation. A drawback to ACH payments is that the remittance advice typically arrives separately from the payment—sometimes days later—and that can cause headaches for billing staff in reconciling payments. There’s also the issue of importing the electronic remittance advice into a practice management system. Some practices don’t trust the auto-posting process, preferring to rely on manual input.

Virtual card payments can solve this challenge by including the explanation of payment with each transaction. This streamlines workflows and eases administrative burdens associated with medical billing—one of the key costs physician practices face, according to a report from the American College of Physicians. While there is still some manual entry associated with virtual card payments, payment processing and reconciliation time is markedly reduced, supporting more timely communication with patients regarding their balance after insurance.

Many providers are establishing EFT/ERA arrangements with their largest payers, then accepting virtual card payments from other health plans and payers. It’s an approach that maximizes efficiency in collections from smaller payers while providing flexibility, reduced administrative burden and improved cash flow for hospitals and physician practices. Look for a virtual card provider that ensures the explanation of payment is included with the transaction.

Cost per transaction. The potential for savings in moving from check-based to electronic claims payment is considerable when you take into account all of the business processes associated with making and delivering check payments, like administrative costs, paper, postage and more. The CAQH index put this  cost at around $2.20 per transaction when you factor in the efficiencies gained in moving from manual to automated claims management processes alone. However,  when you include the cost of postage, administrative costs, instances of check fraud and more, the true cost is much higher: $3 to $20 per transaction, or $60,000 to $400,000 a month for companies with 20,000 transactions per month. Much of the savings that can be gained from switching to electronic payment results from reduced back-office workflows and faster reconciliation of payment and claims remittance data.

There are processing fees associated with virtual card payments, just as there are with traditional credit cards. Depending on the virtual card provider, fees can range from 2.5 percent to 5 percent of the transaction.

The American Medical Association cautions providers that virtual card payments come at a high cost: 5 percent per transaction. But not all virtual cards are created equal, and it’s possible to negotiate a lower rate. Healthcare leaders should negotiate the interchange fee for virtual card payments with their merchant services provider in the same way they would with traditional credit card payments. One strategy to consider: Negotiate lower rates based on your total anticipated volume of credit card transactions and virtual card payments combined.

A More Modern Approach to Payment

Ninety percent of senior finance executives across multiple industries anticipate a move away from paper-based checks in the next three years, with 69 percent predicting increased use of payment cards to satisfy financial obligations, according to an industry report. With so much administrative time and cost tied to medical billing and payment, exploring automated options for electronic payment, including virtual card payments, is critical to protecting your organization’s financial health.

Jeffery W. Brown is president of VPay, a leading turnkey claim payments platform focused on the property and casualty, workers’ compensation, healthcare and warranty industries (jbrown@vpayusa.com).

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