Just six months after implementation of the new electronic funds transfer (EFT) operating rules, the Medical Group Management Association has dashed off a letter to the CMS Administrator Marilyn Tavenner complaining that payors and clearinghouses are charging unreasonable fees to providers for EFT transactions, asking for guidance from the agency.

Intended by the Affordable Care Act to simplify the administrative burden of paper checks in healthcare, the rules required by Section 1104 went into affect January 1, 2014, when payors also were required to implement EFT and electronic remittance advice (ERA) transactions for all providers that requested them, as well as abide by the new operating rules.

MGMA President Susan Turney, MD, affirmed the association’s support of the payment of medical services through EFT, but called “improper” the use of “virtual” credit cards and the high fees levied for EFT transactions by some clearinghouses and payors, fees that range from 1 percent to 5 percent of the transaction amount.

“We strongly encourage guidance in this area to specify a low, cost-based figure,” she wrote, suggesting that an appropriate EFT transaction cost leverage the 13 to 34 cents identified by the NACHA, the electronic payments association, as the cost for a health plan and a financial institute to conduct an automated clearing house (ACH) EFT transaction. “It is important to remember that fees in excess of these cost-based amounts will result in providers not transitioning EFT and the industry not realizing the significant efficiencies associated with this transaction.”

Robert Tennant, MGMA senior policy advisor called the EFT and ERA operating rules the lowest-hanging fruit in the administrative simplification world, a way to eliminate the cost of cutting and mailing paper checks on the payor side; and opening, reconciling and depositing the check on the provider side. “All of that takes time and money, so by moving to electronic payment, both payor and provider would save money,” he says. “It is a win–win.”

For instance, one of the most cumbersome administrative burdens for a provider is addressed by the new operating rules: associating a payment with its explanation of payment, typically received separately.

“It added not just angst, but time and burden to try to determine out what the payment went to and whether it was the correct amount,” Tennant says. One of the new operating, or business, rules specifies that the payor must put the same "trace" number on both the payment and the explanation of payment or remittance advice, which comes three days after the payment.”

A disconcerting trend

Shortly after the law went into effect, MGMA began hearing from members that payors and clearinghouses were paying them with “virtual” credit cards. “If providers were owed $5,000 for services,” Tennant explains, “the health plan would send them a 16-digit credit card number, and say, ‘Punch it into your Visa system, and that’s how you will get paid.’”

Two things happened, Tennant says. “One, like any credit card transaction, the provider is charged a fee by the credit card company,” he reports. “Two, it took away from the ability of the practice to re-associate the payment with this electronic remittance advice, which was designed to streamline the claim’s revenue cycle. They not only lost some automation ability, but they were forced to pay the transaction fees, which range between one and five percent.”

Payors are choosing to pay by credit card rather than low-cost EFT transactions for a very compelling reason: they are incentivized by the credit-card companies. “In some cases, they are offered a kickback from Visa or MasterCard or whomever,” Tennant says. “Not only does the provider pay all of the fees, but the health plan can actually save money on the payment. If you are a health plan and getting 1.75 percent cash back, for example, that is a pretty enticing offer from the credit-card companies.”

Making the credit card practice even more problematic, Tennant says, is that in many cases the health plans and clearinghouses have an opt-out clause buried in the fine print of their provider contracts: Providers must accept virtual cards unless they opt out, instead of the more desirable approach of offering EFT payment unless something else is requested.

“We’ve found that a lot practices are getting the virtual cards, and some are sending them back and asking for EFT,” Tennant says. Further discouraging the use of EFT, some health plans are charging up to 2% of the transaction amount for an EFT transaction, an amount Tennant calls “ridiculous.” “It costs only pennies to initiate an EFT transaction between a health system and a bank,” he says.

While the MGMA and the AMA have testified before the National Committee for Vital and health Statistics on the subject and are starting to get some attention from policy makers, Tennant reports that the practice is becoming more rather than less prevalent.

Emdeon, one of the nation’s largest clearinghouses, is heavily promoting the virtual credit card option to payors in a brochure. “Our perspective is that if a clearinghouse makes it absolutely clear the ACH (automated clearing house) EFT is available at minimal or zero cost, and after that the provider decides they want to be paid by another method, that’s one thing,” Tennant states. “But to start out with a virtual card and then force the provider to opt out of that we think is contrary to the spirit of the law.”