Myths around virtual payment: 3 things to consider

Jeffrey W. Brown - Print  | 

The move toward automated collections is reaching a tipping point in healthcare, with 82 percent of physician practices and 92 percent of hospitals planning to ditch manual, paper-based processes for reconciling bills by the fourth quarter of 2018, a recent Black Book survey shows.

One solution that holds potential to improve cash flow and profit margins for hospitals and physician practices: automated payment from insurers, including virtual card payments.

Providers could save nearly $8 billion annually by moving to automated claims management processes, including electronic claims payment, according to the 2016 CAQH Index. Modern, virtual card payments are one way payers and providers can reduce the administrative burden related to payment processing, increasing speed to payment and enhancing data security.

But there are stigmas related to virtual card payments that prevent widespread adoption in healthcare, even as other industries experience success. Getting past the myths related to virtual card payments is critical to establishing a solid mix of payment approaches that best meets your organization’s needs.

There are three things to consider in evaluating whether virtual card payments are right for your organization.

Not all virtual cards are created equal.
One of the biggest benefits of virtual card payments is that unlike check payments from insurers, the remittance advice can be included with each payment, streamlining the claims reconciliation process. Virtual cards are prefunded. For payers, the virtual card number serves as a unique identifier for the transaction, improving payment accuracy and reconciliation. Virtual cards are loaded only with the amount of the payment. And because virtual card payments typically are received sooner than check payments (up to 10 days sooner), they offer strong potential to improve cash flow for physician practices and hospitals.

Another advantage to virtual cards is that no enrollment is required. There are no bank deposits to make, because once the payment is processed, the funds are deposited directly into your merchant account. And virtual cards eliminate the risk of payment fraud, as payment is guaranteed. There is no risk of stolen, lost or whitewashed checks—a significant advantage, given 78 percent of U.S. organizations were the target of check fraud last year.

There are processing fees associated with virtual card payments, just like there are with any credit card transaction. Depending on the merchant services provider, fees can range from three percent to five percent of the transaction.

It’s important to know that you can negotiate the interchange fee for virtual card payments with your merchant services provider, just as your organization would for payments made with traditional credit cards. One strategy to consider: Negotiate lower rates based on your total anticipated volume of credit card transactions and virtual card payments combined.

Virtual cards aren’t a fad.
While virtual cards are relatively new to the healthcare marketplace, they are widely used by other industries. Use of virtual cards is growing by nine percent per year for business-to-business (B2B) transactions across industries, with total spend expected to reach $377 billion this year.

Virtual card payments are one trend that is transforming commerce worldwide. Data shows the average monthly spend on virtual cards by corporate buyers nearly tripled between 2011 and 2015. Nearly one-third of businesses that aren’t currently using a virtual card said they planned to adopt this payment option within the next three years, according to a report by Visa. While 60 percent of B2B payments continue to be made by check, 69 percent of CFOs expect use of virtual card payments to increase over the next three years, primarily due to their potential to manage the growth in corporate spend by:

• Automating transaction processing (80 percent of CFOs)
• Reducing processing costs (65 percent)
• More seamlessly integrating with vendor/supplier systems and processes (63 percent)
• Improving functionality in information acquisition (62 percent)

In healthcare, virtual card payments are made to providers via single-use cards, with the information transmitted to providers through online display, fax, or mail. Payments can be processed directly from the same machine used to process credit card payments at the point of service.

Virtual cards support the payee’s desire for choice.
Incorporating virtual cards as part of a comprehensive suite of options for payment gives both payers and providers flexibility in managing claims payment. For example, while electronic payments increase efficiency for both payers and providers, 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 also reduce the potential for fraud by eliminating the temptations associated with paper checks.

It's important to look for a virtual card provider that offers the ability to easily reconcile payments by including the explanation of payment is included with the transaction. This provides a significant advantage over ACH payments, where electronic remittance advice (ERA) is sent separately—causing headaches and administrative burden for staff, who must spend considerable time trying to marry the ERA with payment.

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.

Finding the Right Payment Mix
The potential for savings in moving from check-based to electronic claims payment totals $2.20 per transaction, according to the CAQH Index. Much of the savings results from reduced back-office workflows and faster reconciliation of payment and claims remittance data. Taking the time to distinguish between the myths and facts of virtual card payments and negotiate the right terms for your organization is critical to supporting a mix of payment options that improves cash flow and reduces costs.

Jeffrey W. Brown is President of VPay, a leading turnkey claim payments platform focused on healthcare.

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