AADOM Featured Company: Dental Card Services Alliance, LLC
AADOM Featured Company is a 30-minute, interview-style presentation sharing the company’s mission, product/service, and best practices for office managers.
Dental Card Services Alliance, LLC was founded in 2009 with the sole mission of leveling the playing field for independent dentists in the United States. The Founders’ Vision, which remains true to this day, was focused on three elements: providing comprehensive benefits designed to support dental practices with solutions once only available to larger businesses; reducing the cost of accepting credit card payments to the lowest possible point; and educating dental practices on how to minimize their payment services cost, by taking the complexity out of rate agreements. Dental Card Services is a proud corporate member of AADOM.
Five Golden Rules to Unlock Value for Your Practice by Reducing Your Credit Card Processing Costs
Credit card processing fees can be a significant expense for dental practices, eating into their revenue and impacting profitability.
To maximize efficiency and reduce costs, it’s crucial for practices to understand the key performance indicator, closely monitor this indicator, and avoid costly efficiency traps.
This article presents five golden rules that can help dental practice managers unlock value and protect their practices’ financial well-being by reducing credit card processing costs.
1. Understand the One Key Performance Indicator:
The most important metric to grasp when it comes to credit card processing costs is the “Effective Rate.”
The Effective Rate is calculated by dividing the total fees charged (withdrawn from your bank account) by your total credit card processing volume. This metric provides a dental practice with a baseline level of transparency as it tells you how much in total you are paying as a percentage of the total volume processed.
However, to obtain the maximum level of transparency and to be able to ascertain how much markup is in your account and what is driving the true processing passthrough costs, you need to be on an interchange cost plus plan.
2. Know and Monitor Your Number:
The best practice is to calculate your effective rate monthly and to monitor it as it provides a lagging (but near real-time measure) of your processing fees.
It is important to note that when often asked “What is your rate?” many practices typically respond with the “headline rate”, the rate they were initially quoted by the merchant services provider. This can be a particular challenge when you are on a surcharge plan or tiered plan as the headline rate is only a component of your total costs. The base rate on a surcharge plan may be 1.89% and $0.10 for qualified transactions but when you add up the surcharges and other fees for transactions that were not qualified you will often find yourself paying a lot more.
The same holds true for tiered plans. If the qualified tier is 1.89% and $0.10, you then must factor in the costs of the other tiers (mid- and non-qualified).
3. Avoid Costly Efficiency Traps:
How can anyone argue that efficiency is a bad thing?
We certainly would not, however, we believe everyone should know the cost of that efficiency and then evaluate whether the proverbial juice is worth the squeeze.
Two of my favorite “efficiency” examples today are integrated payments and virtual credit cards. I have included an example of both below:
1. Integrated Payments. We recently had a specific location practice that could save over $80,000 by switching from integrated processing to stand-alone processing. Suffice it to say, but this was the highest saving amount we have ever seen in 10+ years and thousands of analyses. So, is the price of integration worth it?
If we change the calculus and put the value in terms of production, does this change your answer? For purely illustrative purposes, assume your practice operates on a 10% EBITDA (Earnings Before Interest Tax Depreciation & Amortization) Margin. In this example, you are a $1.5MM a year practice producing $150K in EBITDA (after fair owners-doctors compensation). If we think if the in terms of production, that $80K in savings is the equivalent of $800,000 in production that the office would have to generate to produce that save value.
So, now I ask, is the price of integration worth it? How many hours does it take clinically on average to produce $800K in production?
2. Virtual Credit Cards. The push for practices to accept virtual credit cards (“VCCs”) from the insurance carriers/networks has certainly accelerated over the past few years as we continue to see more practices processing them.
However, the financial impact of this decision is often not very well understood, and this is certainly no fault of the practice. The true cost driver of accepting VCCs to the practice is tied to the practices current credit card processing plan type and fee structure.
In the best-case scenario, the practice is on a low cost, interchange cost plus pricing plan and the practice is paying 100% (not more of the interchange cost associated with that transaction type by the relevant card brand). In these instances, the typical transaction all in costs to the practice is slightly less than 3%.
Now the tricky part comes if the practice is on surcharge pricing or tiered pricing. Both plan types typically treat these types of transactions as not qualified. This means that the transaction is typically subject to a much higher rate than the headline rate and is typically paying an all-in cost well above 3% (or worse) for those types of transactions. Depending upon the practices mix of collections (insurance versus self-pay), the financial net result to a practice can be quite high. We would be remised if we didn’t point out that with most if not all carriers, you can elect to receive payment via electronic funds transfer (ACH) and avoid this material cost increase in. So, are the costs of this efficiency worth it?
Dental Card Services firmly believes our role is to educate the office on what is possible and that every office should make the decision that is in their best interest.
4. Watch Out for Red Flags:
Red flags in credit card processing are typically found in two places: (1) the monthly statement and application “contract” of your existing provider and (2) the communications from their parties seeking to win/earn your business. A red flag can be something that merits a deeper look or something that discredits a party. I will highlight a few examples below for reference:
1. Daily discount. This typically means your provider is taking their processing fees out on a daily basis. This is often done in high-risk industries where there is a higher perceived financial risk. While in theory this should not lead to higher costs, it is a complete bookkeeping nightmare as you try and reconcile your daily deposits.
2. Risk Assessment Fee & Settlement Funding Fee. We started seeing these with greater frequency beginning in 202 and the financial impact on practices was quite significant. In one example, the practice processed roughly $19,000 a month with 50 transactions. The practice had surcharge pricing with headline rates of 1.915%/2.005% and 29 cents a transaction plus surcharges on approximately 60% of their volume. In addition, they were charged a settlement fee of an additional 99 cents per transaction and 0.49% on every dollar processed and a risk assessment fee of an additional 35 cents per transaction and 0.46% on every dollar. The net result was that the practice had an Effective Rate of 6.15%.
3. Your Practice Is Not “Insert Any of the Popular Terms” Compliant. When a third-party company you do not do business with calls you, faxes you, emails you, or stops by the front desk to tell you are not compliant go ahead and show them the door. They have no way of knowing that you are not PCI Compliant, HIPPA Compliant, or that your Terminal Is Not Compliant or whatever else they are selling. These are just tools of a very aggressive industry that are designed to get your office engaged to get them to share information that they can then try and use to win your business.
5. Maximize Savings from Credit Card Processing Evaluations:
We have seen over the years practices miss out on capturing the full value from their credit card processing evaluations.
The leakage traditionally occurs in two ways: (1) the use of third parties that charge based on gross savings delivered and (2) the process by which they engage the providers.
To maximize your practice’s savings from your evaluation of credit card processing, we recommend five basic steps for every practice:
1. Take control and be informed. Utilize the resources you have available to understand the difference in credit card processing plan types and how they impact costs and transparency.
2. Get second and third opinions from providers your peers recommend. Contact multiple providers and request their proposals. In doing, do not send your statement. What you are currently paying and what plan type should not be a factor in any provider determining what plan type and fee structure they would like to propose.
3. Look at the total iceberg, not just what is above the surface. Evaluate the plan type, the fees, and the T’s and C’s. You will learn a lot about the firm from what they propose. Did they propose what is in your best interest from the get-go, or only respond with a revised proposal after learning it was a competitive situation or where the floor is to win the business? If you want a savings analysis after they send you the information, that is fine.
4. Avoid items that add to switching costs. These typically include leased equipment and proprietary equipment. In both these scenarios, you are often restricted to utilizing that equipment to a particular provider. As such, you are then out the remaining months on the equipment or out the cost of what you purchased.
5. Maximize your strategic freedom and keep the power. Your ability to switch providers is your ultimate weapon against rising fees and poor customer service. Early Termination Fees or Early Deconversion Fees only increase the costs of switching and often provide a significant hurdle to practices (even in situations where the savings are multiples higher).
By adhering to the five golden rules mentioned above, dental practice managers can either unlock significant value and reduce their credit card processing fees or more effectively manage their current operating environment allowing them to allocate greater resources to focus on delivering quality patient care and ensuring sustainable growth.
As you will learn in our AADOM Featured Company presentation above, Dental Card Services provides a free, no obligation analysis and other benefits for AADOM Members. As part of each analysis, Dental Card Services will (i) calculate your current effect rate, summarize your current plan type, review your current statement for triggers, provide a savings analysis, and serve as an ongoing resource (whether you choose DCS or not, we are here for you). Getting started with dedicated AADOM Support is as easy as completing this Dedicated AADOM Support Form or calling (866) 472-1214.
Learn about the presenter:
Alex Sadusky is the co-founder, CEO of Dental Card Services Alliance, a leading provider of credit card processing services to independent dentists in the U.S. He has held senior management positions with Dentsply Sirona, where he served as Vice President, Office of the CEO, and Vice President of Strategy and Business Development. Alex is also the co-founder, CEO, and director of TruBlu Dental Management, Inc. TruBlu, through its platform of 6 operating companies, is focused on preserving independent dentistry and private care by leveling the playing field for independent dentists and unlocking profitable practice growth.