Private Payer Resource Center

Electronic funds transfer (EFT) is a secure and efficient payment method used by health care organizations. EFTs enable direct deposits of funds from insurance companies into bank accounts, reducing administrative hassles. In contrast, virtual credit card (VCC) payments are made by insurance companies issuing single-use credit card numbers to physicians. VCCs offer enhanced security but often incur higher fees. Health care organizations can choose between these options based on their preferences, balancing security and costs in managing their financial transactions.

In March 2022, CMS released guidance on VCCs and EFTs (PDF), as well as business associate compliance (PDF) requirements. The guidance states that while insurance companies are allowed to use VCCs for physician payments, they cannot force physicians to use VCCs. If a physician chooses to receive payment through EFT, the insurance company is obligated to comply with their request. Further, insurance companies cannot require physicians to work with a particular vendor for deposit notifications, receiving electronic remittance advices (ERAs), or other services related to payments and reassociation.

What are the advantages of VCCs?

VCCs offer enhanced security by providing a single-use credit card number for each transaction, limited validity, transaction amount restrictions, and enhanced security measures for processing, which reduces the risk of unauthorized transactions and other fraud. Further, they contribute to a more efficient payment process by eliminating the need for physical card handling, reducing the risk of loss or theft, and offering a digital solution that aligns with modern payment preferences practice. And VCCs also simplify reconciliation by providing traceable transactions and detailed electronic records, enhancing accuracy, reducing errors, and streamlining the practice’s payment reconciliation process.

What are the disadvantages of VCCs?

Accepting these payments comes with direct and indirect costs including:

• Revenue loss due to merchant fees, which are often higher for VCCs than in-person cards. In fact, the American Medical Association (AMA) approximates fees associated with VCCs are typically between 3-5% of the total claim payment, which is higher than is typical for EFTs.

• Increased workload from card processing. The VCC requires running the virtual card through a payment processing system or portal, a lengthier process than just running a physical card through the reader. And it is one more type of payment you must track in your overall accounting process, adding complexity and potential for errors.

• Increased risk of embezzlement due to the potential misuse of card details within an authorized processing system. VCCs enable easier misappropriation of funds than EFTs or traditional credit cards which necessitates practices to implement stricter internal controls.

Note that insurance companies may be encouraged to use VCCs because of incentives offered by issuers, with rebates reaching up to 1.75%.

How can dermatologists avoid using VCCs?

There are some steps you can take to prevent insurance plans from imposing VCC payments.

1. Review contracts carefully. Carefully examine insurance contracts to identify any clauses related to VCCs and associated fees. Be cautious about automatic enrollment and re-enrollment in VCC payments.

2. Opt-out and switch. If you determine that you have been automatically enrolled in VCC payments, take immediate action to opt out. Contact the insurer's provider relations or billing department to insist on EFTs or traditional checks, even if it leads to delayed claims payment. Learn more about our guidance on private payer contracts.

3. Streamline the payment process. Simplify and optimize your payment system by establishing appropriate roles, fostering teamwork through efficient systems, maintaining current technology, and dedicating time for continuous learning and improvement. An efficient payment process helps offset advantages offered by VCCs.

4. Educate staff. Educate your staff on distinguishing health insurance payments from patient payments. Develop a visual guide outlining the format and information associated with VCCs. A typical VCC payment might appear as a digital notification or email containing a single -use credit card number, a specific payment amount, and details about the transaction and provider. The exact format varies based on the issuer and the payment processing system used.

Dermatology practices must consider security, cost, and administrative impact when choosing payment methods, choosing the best option for them and their patients. You have the right to insist on EFTs or other forms of payments if VCCs do not meet your needs.

Additional information

• Guidance Letter 2022-04 - Health plans’ payment of health care claims using VCCs and adopted HIPAA standards for Health Care EFT and ERA transactions

• CMS Health Care Payment and Remittance Advice and Electronic Funds Transfer

• HIPAA Administrative Simplification Resources & Frequently Asked Questions