Healthcare Guide to Virtual Card Payments Best practices for payers and providers to make virtual cards part of the payment mix

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1 Healthcare Guide to Virtual Card Payments Best practices for payers and providers to make virtual cards part of the payment mix Healthcare providers can expect fewer payments to come in the form of paper checks in the coming years. The reason for this is cost. Paper checks are expensive with costs that include the paper for the checks, ink to print them, envelopes, postage, and the manual process of batching and depositing the payments. Quite simply, electronic payment methods can cut many of these costs and allow benefits to payers and providers through wider adoption. In addition to Automated Clearing House (ACH) payments, virtual cards offer payers a low cost, electronic payment option and can help group health payers meet the medical loss ratio (MLR) requirements included under the Affordable Care Act (ACA). So whether the payment is via ACH or virtual cards, processing and paying claims electronically can help decrease administrative costs for both payers and providers alike. As for which of the electronic payment methods a provider elects may depend on a variety of considerations, including who is the payer (e.g., a plan, a Third-Party Administrator-TPA, a government entity), how often does the provider get paid by the payer, who is the provider (e.g., a hospital or a solo practitioner), the amount of the claim, the processes by which the provider reconciles the payment, and the practice management system utilized by the provider. All payers are not alike. All providers are not alike. Payers must be able to address and utilize technological innovation to address their costs, and providers should be free to select the electronic payment method that best serves their needs, after taking into account all relevant considerations, including costs. In many cases, providers may determine a blend of ACH and virtual card across their spectrum of payers is the best course of action. What is a virtual card and how does it work? While similar to a credit card in your wallet, a virtual card is not a plastic card, but typically a single-time use virtual card number chargeable to a predetermined dollar amount that is issued for a specific payment, just like a check. The processing of this one-time payment is done by either a credit card terminal or a web portal, where the organization receiving the payment enters that unique card number, or by an increasingly common virtual payment method called Straight Through Processing (STP), where the payment is processed automatically (terminal-free) and flows directly into a payee s bank account, just like ACH. Virtual cards have been used for secure business-to-business (B2B) transactions for years. Many hospitals and health systems already use them to make payments to suppliers and vendors. However, use of virtual cards for health insurance claim payments (i.e. Payer to Provider payments) is still relatively new. Page 1

2 Benefits of virtual cards for payers As payers increase the number of electronic payments they make to providers, virtual cards have become an attractive payment option for payments to healthcare organizations not yet receiving or willing to receive ACH payments. Unlike ACH, which requires healthcare providers to share banking information with payers, virtual cards require no enrollment and may be processed by any healthcare provider, either online or via an existing card terminal. Because of this, virtual cards are a viable electronic payment method for many healthcare organizations that is capable of processing card payments. Some of the benefit to payers employing virtual cards can include: Reduced cost less expensive than issuing checks or enrolling healthcare providers for ACH and securing the sensitive banking information for those providers. Improved claim payments and reconciliation provides an easy way for reconciling claims and the payments associated with them Secure and low risk offers increased control whereby payments may be restricted to a specific merchant category or an amount or both, and the settlement of payments may be tracked real-time by card processors. If fraud does occur, the resolution processes established by the card associations provide efficient and expedited mechanisms to protect the payer and the payees. In addition, virtual cards can be more secure than other payment methods, including both electronic and paper check. For instance, to receive payments via ACH, providers must give their bank account numbers to the insurance companies or TPAs. With most healthcare systems typically contracting with 50 or more payers, management may be reluctant to share its organization s banking information with so many different entities. The more times this information is shared, the more it increases exposure to potential fraud. Paper-based payments can expose payers and providers to even more risk. Check fraud occurs twice as frequently as any other payment fraud 1. It often only requires someone to intercept a check to either obtain bank account numbers or to wash the check to change the amount, the payee or both the payee and check amount, and then deposit it into another account. It is very difficult for payers or providers to recover funds once check fraud has occurred, as the money is already gone. Virtual cards have built-in safeguards to ensure that only those intended to get paid will get paid, and only in the proper amount. Virtual cards may be created as single-use or reloadable cards allowing payers to limit the use of each virtual card to a specific provider or provider type. Virtual cards may also be issued for a set dollar amount tied directly to the total of all the claims it is paying. Card processors have real-time access to virtual card transactions and can quickly identify and chargeback, if necessary, questionable transactions. Best practices for payers to employ virtual cards Effectively transitioning providers from paper checks to virtual card payments requires consistent, conspicuous and clear communication. In many instances, there is a direct, contractual relationship between the payer and the healthcare provider. In such cases, the payer should be explicit in its discussions and communication with the provider regarding its Page 2

3 intent to use virtual card payments, other available payment options (check, ACH, etc.) and how to select preferred payment option. If no such direct relationship exist, payers must nonetheless inform the providers ideally in advance or at the time of payment. If communication occurs at the time of payment, then clear instruction must be still be provided about other payment options available to the provider and how to select the preferred payment option. While many providers may already use virtual cards to pay their vendors, they may not understand how to accept and/or process these payments. Thus, each provider communication should clearly detail the specific virtual card processing methods, either online or by using an existing card terminal. Payers should also emphasize that each virtual card, like a check, is single-use and can be for the sum of multiple claims. Acceptance of virtual card payments starts with an objective understanding of the true costs of accepting payment via virtual cards versus paper checks and ACH payments. Using independent cost data of different payment methods can help providers better see the big picture of total costs of the payment lifecycle. Too often providers focus only on the interchange fee of the virtual card without taking into account the higher costs associated with the entire payment lifecycle of checks or maintaining ACH enrollment with multiple payers and re-associating remittance advice with those ACH payments. While it is important for payers to provide instruction on how to process virtual cards, it is equally important for them to provide exact details about how the Remittance Advice (RA) will be delivered and when. Providers rely on the RA to reconcile their Practice Management System (PMS) and identify the patient payment responsibility. Payers should deliver the RA so the provider can easily combine or re-associate the RA with the virtual card payment for reconciliation with the PMS. This can be accomplished by delivering the RA with the virtual card payment itself - something that cannot be done with ACH. Alternatively, payers should include re-association or reference numbers for the associated RA(s) on the virtual card payment itself, and inform providers of this fact. When doing so, payers should provide guides for this re-association process that include specific details and even sample virtual card payments with RA numbers highlighted to help providers find the reference numbers. This can be accomplished through provider-facing websites, in written communications with the provider, or in connection with provider discussions with payer call center representatives. In addition, if the RA is not provided alongside virtual card payments, payers should give providers guidance on how soon they can expect a RA after a payment arrives. It s also prudent for payers to point out that virtual cards are significantly more secure than paper checks because they are authorized for a specific use, and may be tied to a specific provider or merchant type or amount or both, and transactions associated with the virtual card can be tracked real-time by card processors. Furthermore, because dispute processes utilized by the card associations differ from the traditional banking system (with respect to check or ACH), prompt reporting by the provider of any fraud associated with the payer s virtual card payment allows the payer to immediately dispute, and reverse, if applicable, fraudulent transactions on an expedited basis similar to what happens when a consumer disputes a transaction on his or her personal credit card. Finally, payers should ensure all communications clearly and conspicuously state that providers have the right to opt-out of receiving virtual cards and provide information on Page 3

4 payment methods from which providers can choose. This should include clear information on what payers would like providers to do to make their payment choice. If a provider would prefer to opt-out of virtual card payments in favor of ACH, provide explicit instructions for how to enroll in this payment method. Every virtual card payment communication should include the opt-out procedures and instructions for enrolling in ACH, without exception. Payers should ideally plan for the first communication to be made to providers well in advance of the initial virtual card payment, particularly if there is a direct relationship between the payer and the provider. Further, payers should have procedures in place to promptly respond to provider payment and RA preference requests, and answer any questions or solve problems providers may experience with the virtual card payment. To the extent a payer does not hear from a provider, the payer may also choose to follow-up directly with providers after the first virtual card payment is sent and processed to see if the process went smoothly. Where practical, the payer should also follow-up with the provider if, after a reasonable number of days, the virtual card is not processed. To help spur adoption, payers can work directly with providers to maximize their workflow to create the productivity improvements they can derive from virtual cards. Payers and TPAs should be proactive and prepared to help providers develop methods for re-associating the payment with claims and further automating the payment process by integrating accounts receivables with the practice management system. All of this can be done with an eye toward even greater automation by encouraging the provider to eventually migrate to straight through payment processing, whereby the entire transaction is completed electronically without the need for manual intervention such as keying payment amounts or virtual card numbers into a card terminal. Payer Best Practices Checklist Here is a quick checklist of action items to help payers ensure they are doing all they can to help providers understand virtual card payments: Communicate changes to payment policy and/or reasons for introducing the virtual card payment option through written communication, website guides, and/or trained, dedicated call center staff Emphasize that the virtual card represents a choice to a provider, and that all payment types have costs of delivery to the payer and costs of acceptance to the provider. Provide clear information on providers right to choose how they are paid and what they should do to make their payment choice Explain one-time use of virtual cards Detail how to process virtual cards Provide general information on the costs associated with card payments Instruct providers to contact their merchant acquirers to inform them of their plans to accept virtual card payments and provide tips for how to negotiate lower fees based on the anticipated higher volume of B2B card transactions in addition to their consumer/patient card transactions Deliver the RA with the virtual card payment and/or provide re-association numbers so payments and RAs may be easily combined and reconciled, and inform providers where to find RA information on virtual card payments Inform providers when RAs will arrive Page 4

5 Brief providers on the security advantages of virtual cards Clearly detail opt-out rights and procedures in each and every virtual card payment instruction If possible, communicate with providers well in advance of go-live date Promptly effect provider preference requests and have procedures in place to quickly address questions or to troubleshoot Explain to the provider they have the option of receiving multiple types of payments from a payer and that the provider can change its elections at any time. Be prepared to work with providers to effectively integrate virtual cards with their back office accounting software and practice management system Benefits of virtual card to providers Transitioning from paper checks to virtual cards carries significant benefits for healthcare provider organizations, as well. Providers only need an existing card terminal, or an online portal, and they are ready to go. If they have adopted straight through processing, the process is even more streamlined as payments can be deposited directly into the provider s account. Other benefits of accepting virtual card payments include: No enrollment required. A provider is paid by electing to process the virtual card payment through its existing card terminal or a web portal. Improved cash flow. On average, virtual card payments are received ten days sooner 2 than payments made by check. Providers who adopt straight through processing won t even have the small lag time between receiving the virtual card and processing it, as the payments are deposited directly into the provider s bank account. There may also be savings to the provider on bank deposit and item charges by the provider s bank. Easier and faster reconciliation. Current end-of-month account reconciliation is often slowed by missing RAs and posting errors. Virtual card and RAs can be delivered at the same time. By integrating claims and payment data, providers save time compared to paper checks. Reduced staff time. Payments received by checks require hands-on staff time to prepare and batch deposits, as well as the need to physically deposit the checks at the bank. Payments deposited electronically eliminate this manual processing and save significant staff time. Increased security. Checks are more susceptible to fraud as they can be intercepted in the mail and then altered. Virtual cards inherent characteristic of onetime payment use restricted to a specific payee, helps ensure the money goes where it is meant to, all electronically. Further, unlike ACH payments, providers can accept virtual card electronic payments without the need to share sensitive banking information with third parties. Best practices for providers to accept virtual cards Providers need to prepare to receive virtual cards to ensure they will be processed correctly and to optimize updated workflows associated with these electronic payments. The first step is for providers to contact their merchant acquirer to inform them of the provider s plans to accept virtual card payments. Further, with an expected increase in virtual card payment Page 5

6 volume, providers should be sure to negotiate lower rates with their merchant acquirer and processor based on the anticipated increase in volume. To help with the transition, providers should solicit their payer partners for clear and consistent communication about their plans to send virtual cards, including the go-live date. This ensures adequate time to make any back office adjustments needed. Ask payers to work with you to effectively integrate these payments with your accounting and practice management systems to ensure you are getting the full benefits of electronic payments. For even more efficient payments, providers should also inquire about Straight Through Processing, which allows the payer to deposit your payment automatically, and seek the payer s expertise to set-up automated re-association of payments with claims. Provider Best Practices Checklist Healthcare provider organizations planning to accept virtual card payments can use this checklist to ensure they are properly prepared: Contact merchant acquirer to inform them that the provider will be accepting virtual card payment and work with the merchant acquirer to negotiate a more favorable fee structure Communicate with payers to develop a comprehensive understanding of their plans and timelines for making virtual card payments Solicit the aid of payers to help with back office integration to ensure you are getting full benefits of virtual card payments Inquire about Straight Through Processing and automated re-association of payments and claims Expect electronic payments to increase While healthcare providers may be comfortable with the workflow of paper checks, there is little doubt that payments using virtual cards will increase in the coming years. The reason is simple: check payments are both cumbersome and expensive when compared to virtual cards. Combine this with regulations requiring payers to cut expenses to meet Medical Loss Ratio (MLR) requirements and it is easy to understand why many are adopting this electronic payment method. Instead of resisting this inevitable move to more efficient electronic payment methods, providers can treat this transition as an opportunity to work with their payer partners to fully reap the back office benefits and significant automation opportunities inherent in virtual card payments. By accepting virtual cards, healthcare organizations can expect to benefit from faster payments compared to checks, improved payment security, improved integration and better management of the entire claims to payment cycle. And as healthcare accelerates its transition from paper-based models to electronic systems throughout the enterprise, the time to adapt to and adopt virtual card payments is now AFP Payments Fraud and Control Survey Report of Survey Results; Association for Financial Professionals; April Healthcare Virtual Cards Study; Beth Griffin and Ed Downs; 2015 MasterCard Worldwide. Page 6