Dentists have a lot to juggle on their plates every day, and a lot of bills to pay, too (including dental credit card processing). According to the American Student Dental Association (ASDA), the average dental school graduate in 2017 has over $239,895 in debt, and 30% of graduates have over $300,000 in debt.
If that wasn’t bad enough, half of all dentists report that high levels of stress negatively impacts their practice, according to the British Dental Journal (BDJ).
The last thing dentists need to worry about is having a dishonest merchant services provider who is overcharging them for their dental credit card processing fees.
Unfortunately, this is very often the case. Most healthcare practitioners, including dentists, make much more than the average business owner, but also have less time to investigate the nuances of how credit card processing fees work, and what’s a fair rate (and what’s not).
What’s a fair dental credit card processing rate?
If you’re accepting one of the four major credit card networks—Visa, Mastercard, American Express, or Discover—then you’re paying somewhere between 1.5–2.9% in credit card processing fees. If you’re paying on the higher end of that range, chances are it’s not for a good reason.
A survey of most dental practice credit card processing fees would turn up predictable results: many dentists are likely on multi-tiered plans, loaded with hidden and complex fees and surcharges. In fact, dental practices may often be spending $300 to $500 extra per month on extraneous credit card processing fees.
On top of that, the average dental practice has a profit margin of 40%, which means expenses are generally around 60% of all revenue (if not higher). In this type of business setup, lowering expenses by all means possible should be a priority, especially as your practice continues to grow. Credit card processing fees, which are persistent, are one of the easiest fees to reduce.
Simply put, if you own a dental practice, it’s important to understand the unique considerations facing your business. And it’s doubly important to make sure that you aren’t paying outrageously high dental credit card processing fees. Here’s what you need to consider.
How merchant services providers (MSPs) might try to trick you
The best way to compare quotes from different MSPs to find the best dental credit card processing rates is by looking at the ‘effective rate’ under what’s called ‘pass-through pricing’.
First, some definitions:
- Effective rate: The average percentage of all fees you have to pay per transaction, including your MSPs markup rate, which is how they make money.
- Pass-through rate: This refers to both fixed interchange fees the MSP must pay to the card-issuing bank, as well as assessment fees they must pay to the card brand itself.
- Interchange fees: These are the fees you pay to the card-issuing bank.
- Assessment fees: These are the fees you pay to the card brand.
The problem with the pass-through rate (which includes interchange and assessment fees) is that these fees are non-negotiable because they are passed on from your patients to your MSP every single time they swipe a credit card.
But here’s where things get tricky. As the customer, you can either choose for your MSP to bill you these fees at no extra cost (hence, pass-through pricing) or you can choose to have your MSP pay the interchange fees as a courtesy on your behalf.
If you choose the latter thinking it will be more convenient or simpler on your end, you will most likely be overcharged for the convenience of having your MSP pay the interchange or assessment fees on your behalf.
Dishonest MSPs will only give you a quote for their markup rate, omitting the pass-through pricing rates entirely. As a result, dentists who don’t have time to read the fine print will think their effective rate is much lower than it actually is. In reality, the number they’re seeing in their contract does not include the pass-through rates paid to banks and card brands.
Ask your credit card processor for the following
You may be wondering how it’s possible for an industry like credit card processing, which is ubiquitous and integral to modern living, to be so opaque and dishonest. Frankly, it’s all fair game. Credit card processing by third parties is a largely unregulated industry, so most MSPs are actually incentivized to be less than ethical.
Finding an honest MSP for your dental credit card processing isn’t impossible, but it’s definitely not as easy as calling up the first processor who shows up in your search results. So before you decide on your MSP, ask them for the following in good faith:
- Full disclosure—Ask for a fully disclosed quote, in writing, that lists every rate and fee they charge. Also known as a rate card. If you see one that’s difficult to understand, be wary, but ask that they explain everything thoroughly.
- Pass interchange credits—This is a complicated, industry-specific way of saying that you want to be assured that whenever a patient’s card payment either bounces or needs to be refunded, you will receive half of the associated processing fees that banks will refund you, alongside the actual refund. Sometimes, MSPs will pocket the bank credits for themselves.
- No cancellation fees—You don’t have to agree to these one-time fees but you should also pick and choose your battles. If an MSP claims that it can’t waive the cancellation fee, the truth is that they can. But unless the fee is very steep, as long as everything else in the contract looks good, agreeing to this fee may just be smart negotiation.
- No rate increases. Some MPs will raise the rates on you every few years and claim it’s a normal part of the business. It’s not. Because credit card processing fees are percentages of payments, they naturally adjust for inflation. Your MSP will make a profit even if your rate never increases, and honest MSPs will keep your rates the same as long as you remain a customer. The only exception would be if the issuing bank or card brand raised their interchange or assessment fees (the pass-through fees).
What about HIPAA-compliant credit card processing?
As a quick aside, many dental practices have asked whether their MSP is HIPAA-compliant, and only want to work with HIPAA-compliant MSPs. But there really is no such thing as a HIPAA-compliant MSP, because basic processing generally falls outside the scope of HIPAA requirements completely.
Essentially, dental practices are ‘covered entities’ that must work with HIPAA-compliant third-party service providers when handling ‘sensitive’ patient information. But when it comes to simple credit card billing and processing, your MSP doesn’t need to count as a HIPAA-compliant associate, because patient payment information isn’t classified as ‘sensitive’ by HIPAA.
This also means that your dental practice should not be providing protected health information (PHI) to your MSP under any circumstances. Don’t enter details about a patients’ treatment in online payment forms. Leave comment boxes blank. Provide the essential information necessary for your processor to handle the payment, and nothing else.
As long as you can check this box, your merchant services provider doesn’t have to be HIPAA-compliant for you to work with them.
Health Savings Accounts / Flexible Spending Accounts?
You may also very rarely have some patients who want to use their health savings account (HSA), health reimbursement account (HRA), or flexible spending account (FSA) to pay for visits. If you want to accept these cards, you’ll need to let your processor know the correct classification.
We’re referring to merchant category codes (MCC), which designate your business type. The following list of MCCs includes specialists and general practitioners as well as dental and optometry practices. For dentists, the correct MCC is 8021.
How much you pay in card processing fees in one year
According to the Bureau of Labor Statistics (BLS), dentists make a median salary or income of $151,440. Those in the bottom quartile made less than $104,800, while those in the top quartile made over $208,000.
The average dentist had a median salary of $151,440 in 2017
Note that these numbers refer to average salaries (i.e., profit before taxes), not revenues. We can use the aforementioned profit margin of the average dental practice (40%) to extrapolate the average revenue of dental practices: $378,600.
We can also assume that the average dental practice accepts most of its payments via patient credit cards or through public or private insurance, which often pays dentists using plastic or virtual credit cards as well.
This is borne out by a recent finding that looked at data from across 12,500 dental practices in the U.S. In 2016, 18.37% of dental patients paid with cash. The rest (81.63%) paid with credit cards.
With these assumptions, let’s see how much the average dentist paid to their credit card processor in 2019 on the higher end—as well as how much they’d pay over a 30-year career, assuming revenue does not increase (in other words, this is a very conservative expense estimate):
|# of years in business:||30 years|
|30-year total revenue:||$11,358,000.00|
|% of credit card payments:||81.63%|
|Average credit card processing fee:||0.029 (2.9%)|
|Processing fees in 2019:||$8,926.48|
|Processing fees over 30 years:||$268,874.53|
Wow, those card processing fees really add up. In 2017, the median home price in the U.S. was $199,200, which means your medical practice credit card processing fees over 30 years would add up to well over a single family home. That’s crazy.
Put another way, if the average dental practice overhead is as high as 60% and the average dental practice only had $151,440 in profits, that means that the average 30-year credit card processing total for dental practices is almost as high as TWO ENTIRE YEARS of your take-home profits. That’s unacceptable.
What a cash discount program can do for you
With a continued push by insurance providers to reimburse doctors and dentists with virtual or plastic credit card payments, your percentage of credit card payments will likely rise over time, even if you demand that more patients pay with cash. And more patients are increasingly expecting in-person, over-the-phone, and online credit card payment options from their dentists.
Fortunately, whether you already accept credit cards or don’t, there is a better way that signing up with an MSP for dental credit card processing. Like eliminating those fees entirely.
With a cash discount program, you don’t have to just suck it up and deal with dental credit card processing fees or become a cash-only dentist. Simply put, a cash discount program is a type of credit card surcharge program that certain merchant services providers can help you set up for your medical practice. The best part? It’s 100% legal and compliant.
If you’d like to learn more about a cash discount program and how we can help you set one up in less than a week, just click the button below or call +1 (929) 293-1800: