Who Wins When You Pass Credit Card Fees to Patients? It’s Not Who You Think
Passing credit card fees on to the consumer, known in the processing industry as surcharging, has become a hot topic in recent years. While some dental practices view it as an option for tackling growing operational costs and point to its rise in popularity among other industries, others see it as a potential source of backlash from patients and insurance regulators.
For office managers, understanding the implications of these programs—including whether they are compliant with state laws, card brand rules, and insurance provider contracts—is critical when considering surcharging as a potential route to offset costs.
The Rising Costs of Dental Care and Payment Acceptance
Operating a dental practice has never been more expensive, with processing fees consistently increasing year after year. Meanwhile, patients face increasing financial difficulties in affording care. This dual challenge underscores the importance of carefully evaluating payment structures and programs, including whether to surcharge patients.
Missteps in implementation can lead to compliance risks, strained patient relationships, and conflicts with insurance agreements.
And costs are only going to continue to increase. “We have already received notifications from some of the bigger processors in the dental industry that they will be raising rates in 2025,” warns Merchant Advocate’s dedicated AADOM representative, Cheryl McKenna. “And compared to rate increases we’ve seen in the past, some of these are very significant.”
The Real Winner of Surcharging
A surcharge program adds a fee to all credit card transactions, excluding debit cards, which are illegal to surcharge. However, distinguishing between credit and debit cards isn’t always straightforward.
To comply, dental practices need a payment processing system capable of automatically distinguishing between debit and credit transactions. However, many dental industry-specific point-of-sale (POS) systems lack this capability, further complicating compliance. Practices may also use different POS systems across locations, making tracking things and ensuring compliance even murkier.
The real winner when a practice adopts a surcharging program is the processor and the rep who sold them the program.
Let’s say the true cost of acceptance for a dental practice is 2.1% all-in. To pass the fee, the program must charge a flat 3% to the patient. The practice cannot make a profit from a surcharge—but the processor can. Now, your patient is paying 3% and the processor and salesperson are receiving almost 1% more.
Under a surcharge program, the processor: 1) makes more money on each transaction, 2) no longer has the practice manager scrutinizing acceptance costs, and 3) has effectively directed any negative backlash about fees onto the practice.
State Laws and Card Brand Rules
The biggest challenge in implementing a surcharge or cash discount program lies in navigating the complex and inconsistent regulatory landscape. State laws vary widely; while some states ban surcharges altogether, others impose specific restrictions on how they are applied.
Additionally, card brands such as Visa and Mastercard have their own rules governing surcharge programs, including how fees must be disclosed to customers. Failure to comply with these rules can result in fines or loss of payment processing privileges. Moreover, processors or vendors selling these programs may not fully understand the dental industry or prioritize compliance, leaving practices vulnerable to penalties.
McKenna shares a recent incident involving a dental client whose processor was trying to sway them with false promises about the legalities of surcharging. “I had a client with four practices in Illinois receive a phone call from a processor who told her, ‘Hey, Illinois just passed this law, and you don’t have to pay processing fees anymore’,” she begins. “I was concerned that this might be untrue and found a CPA firm who wrote a piece about how they interpreted the Illinois law. I then met with them and found our conclusions were the same: no one’s going to be able to [have a surcharge program in Illinois] and be compliant.”
“You can only surcharge regular services, not tax other things. What’s the practice going to do if they sell a toothbrush or a whitening kit?” Not only must the practice comply with the card brand rules, but they must figure out ever-changing state laws. “These processors are not really diving into state laws to make sure that the practice is compliant,” she concludes. “If my Illinois-based client switched their four-location practice to surcharge, as of July 1st it will be illegal.”
Insurance Provider Considerations
Dental practices must also consider their contracts with insurance providers, which may include clauses regulating how payments are processed, if there are ceilings or set prices for covered services or products, and whether additional fees can be passed on to patients. Violating these contracts could lead to reimbursement issues or even termination of the provider relationship.
Tax and Reporting Implications
Another layer of complexity involves tax reporting. Practices implementing surcharge programs must notify their payment processors and relevant card networks in advance. Additionally, surcharge revenue must be accurately reported on tax forms, including 1099-K filings, to avoid potential audits or penalties.
Cash Discounts
Cash discount programs offer another option. These programs list the full price of services upfront and provide a discount to patients who pay with cash. However, many cash discount programs are simply rebranded surcharge programs that apply a fee to all card transactions and remove it for cash payments—an approach that is noncompliant for debit transactions.
A truly compliant cash discount program ensures transparency by clearly displaying the base price and applying the discount only to cash transactions.
So, What Should I Do?
For dental office managers, striking the right balance between reducing credit card processing fees and maintaining patient trust is essential.
Rather than implementing a surcharge program, we suggest reviewing your monthly merchant statements to identify hidden fees or unnecessary charges to bring down overall acceptance costs. Merchant Advocate can help audit your payment processing setup, ensure compliance with laws and regulations, and negotiate directly with your processor.
Should you choose to still move forward with a surcharging program, remember to always prioritize compliance and understand your state’s laws regarding surcharges and cash discounts. Secondly, ensure your programs align with card brand rules and insurance provider agreements.
By staying informed about state laws, card brand requirements, and insurance contracts, dental office managers can implement payment policies that benefit both the practice and its patients.
With the right approach, it’s possible to reduce costs while maintaining a patient-centered experience. Find out more and receive a FREE analysis now:
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