Medical Group Slams Insurers' Use of 'Virtual Credit Cards'

Ken Terry

June 27, 2014

Some health plans and claims clearinghouses are improperly using "virtual" credit cards to pay physician practices or are charging excessive fees for electronic funds transfer (EFT), the Medical Group Management Association (MGMA) said in a recent letter to the Centers for Medicare & Medicaid Services (CMS).

According to MGMA, both activities run counter to the intent of the Affordable Care Act, which aims to encourage the use of EFT and other electronic transactions to reduce the administrative costs of healthcare.

In a list of frequently asked questions accompanying its regulations on standard operating rules for EFT, MGMA noted in its letter, CMS states "the health plan also cannot incentivize a provider to use an alternate payment method other than the adopted standard or adversely affect the provider for using the standard transaction (i.e., charging excessive fees)."

MGMA asks CMS to expand on this list of questions by specifying:

  • that "virtual" or other types of credit care payments from health plans do not meet the Affordable Care Act standard and operating rules requirements;

  • that health plans and clearinghouses may not, as part of their contracting process, require providers to accept virtual credit cards in lieu of EFT payments; and

  • a clear definition of what constitutes 'excessive fees' for EFT transactions.

Expensive Option

Virtual credit card numbers, which are linked to but do not reveal actual credit card numbers, are typically used with a single vendor, such as a physician's practice. When the practice receives a virtual proxy card number for a particular payment, a staff member keys in the number on a point-of-service terminal and the payment is deposited in the practice's bank account.

Although this approach seems innocuous on the surface, it can cost practices a lot of money, said Robert Tennant, senior policy advisor to MGMA, in an interview with Medscape Medical News. The reason is that the health plan is making a credit card payment that carries the same kind of bank charge to the payee as any other credit card payment. For physician practices, that fee can be as high as 5% of the payment, Tennant noted.

"If it's only a $45 payment, like a copay, that's no big deal," he said. "But if the payment is hundreds or thousands of dollars, 3% to 5% on $20,000 to $30,000 is a large amount of money."

In contrast, he observed, insurers pay very low fees to banks when they transfer money directly into practices' bank accounts. The MGMA letter said these fees range from 13 to 34 cents per transaction, regardless of how big the payment is.

MGMA does not believe practices should pay any fees to have their money transferred to them, said Tennant, but if a fee is charged, it should not be more than the payers' actual cost.

The other reason why MGMA opposes virtual credit cards, he noted, is that "it flies in the face" of efforts to standardize the electronic remittance approach. Under CMS' standard operating rules for EFT, which went into effect January 1 along with rules for electronic remittance advice (ERA), the 2 transactions are linked through a "trace number" that practices can use for automated payment posting. "You lose that advantage when you go to the virtual credit card," he pointed out.

Meanwhile, he noted, some clearinghouses have charged what MGMA regards as excessive fees for routing the standardized transactions between health plans and providers. They have claimed those fees are based on value-added services, "but when they were pushed, they reduced their fees," he said.


The leading health insurers and clearinghouses are promoting virtual credit cards, Tennant said, and MGMA has received many complaints about this from its members this year. Some practices have adamantly refused to accept the virtual card numbers, telling plans they must either use traditional EFT or cut paper checks.

Curt Mayse, a St. Louis-based principal with ECG Management Consulting, said he has not heard about the virtual credit cards. Most of his clients, he said, are receiving direct EFT from 90% of their payers, he said, and are now able to link EFT with ERA.

In an indication that the virtual card approach is becoming mainstream, however, Emdeon, the nation's largest claims clearinghouse, has posted a brochure about virtual card payments on its Web site. Aimed mainly at payers, the brochure argues that this kind of payment can eliminate the hassle of signing up providers for EFT payments. On behalf of its payer customers, Emdeon will automatically set up practices for virtual credit cards, and they have to opt out to use a different method.

Emdeon's pitch is that a plan can save money in the enrollment process and can also increase the percentage of payments made through EFT rather than paper checks, which cost more to process.

Emdeon did not respond to a request for comment from Medscape Medical News. United Healthcare and WellPoint, the 2 biggest health plans, also did not respond to similar requests by press time.

The CORE committee of the Coalition for Affordable Quality Healthcare (CAQH), which developed the standard operating rules for EFT and ERA for the Department of Health and Human Services, told Medscape Medical News in an emailed statement that the operating rules do not address virtual credit cards.

"Federal regulations do allow the industry to use other, non-[Health Insurance Portability and Accountability Act-]mandated payment options such as virtual cards," CAQH CORE added. "However, should payers and providers decide to use virtual cards, they would not benefit from the many advantages driven by the CAQH CORE Operating Rules, such as electronically matched ERA and EFT."


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