The adoption of electronic payments in the health care industry has been slower than in other large sectors.
This is understandable in an industry where back-end innovation is rightfully secondary to innovation in treatment and care. It is also, perhaps, a function of the complexity of an industry comprising many different types of payers and health care providers, with widely different requirements for managing payables and receivables.
Health care regulations have looked to increase the speed of Electronic Fund Transfer (EFT) adoption, with the Affordable Care Act (ACA) mandating all payers support EFT and the required Electronic Remittance Advice (ERA) to providers on HIPAA-covered transactions. This is a reflection of the commentary and testimony provided to the federal government on the immense advantages that electronic payments offer over checks and cash.
These advantages are real and uncomplicated. Health care providers of all shapes and sizes experience significant, sometimes existential, challenges in collecting what they are owed.
Electronic payments offer hospitals and practices a quicker, more efficient, trackable and safer way to collect. They eliminate the need to maintain a “float” on check payments, improving cashflow and decreasing the number of write-offs.
For payers, electronic payments significantly reduce the administrative and other costs associated with producing and mailing paper checks and eliminate the work and treasury costs involved in tracking and replacing checks that go missing or are stolen. To this point, health care providers often utilize electronic payments to pay their own vendors and health care suppliers.
The primary form of electronic payments used in health care currently is the venerable Automated Clearing House (ACH) system, which transfers funds from bank account to bank account.
This is a particularly attractive option for large hospitals and health care networks, which generally have extensive receivables technology and IT support that can manage the technological system changes needed to comply with the Affordable Care Act mandates for EFT and ERA in the correct format.
For smaller providers, however, ACH is less attractive; using it requires providers to establish a parallel payments infrastructure alongside their ability to accept credit and debit cards from patients. For these, virtual credit cards (VCCs), a payments innovation widely used in other industries, may offer a simple way to reap the benefits of electronic payments.
According to a study conducted by Medical Group Management Association of its members, 98% of survey respondents already accept payment cards.
VCCs use the same technology that supports consumer payment card transactions to make and receive health care payments. They function by processing a one-time payment for a predetermined amount to a designated payee, using a unique card number, in this sense functioning like a check or prepaid debit card. The organization receiving the payment enters the unique card number into either a card terminal or web portal, and the funds are delivered to the provider. The provider also receives the ERA simultaneously, electronically or as a printed hard copy (the fact that ACH cannot do the same is a major failing of that system). This allows the provider to reconcile the claim and determine what, if any, amount must be collected from the patient.
VCCs hold some attractions for larger providers too, particularly in offering cutting-edge data security which exceeds that of ACH. Many health care providers are increasingly aware of the danger to payment data from data breaches and their responsibility to protect from attacks.
Unlike ACH, providers do not have to provide bank account details to use VCCs. If fraud is suspected on a card transaction, the card network processes offer more efficient, effective and expeditious means of resolving transactions than typically found with ACH and check fraud. Further protection is provided by the fact that VCCs can be restricted to specific merchant category codes (MCCs), which means that such VCCs will only be chargeable by a specific type of merchant such as doctors or hospitals.
Despite these unique and valuable aspects, VCCs are, in fact, little different to traditional credit cards in terms of the hard ware they require for processing. For many providers, the ability to leverage existing infrastructure in order to efficiently process payments is a critical variable in their evaluation of the various payments options available to them.
The complexity of the health care industry rarely lends itself to the development and widespread adoption of a generic service that suits all needs. Managing payments is no exception to this rule. Adding VCCs to the range of options available will enable providers and payers an additional means to unlock the value inherent in electronic payments. Doing so can only enhance the efficiency and functionality of the entire health care ecosystem.