Understanding the intricacies of credit card processing fees is crucial for any dental practice aiming to optimize its financial operations. While many practices focus on the volume of patients or the latest technology, few take the time to delve into the details of merchant processing costs, an often overlooked yet significant expense. By knowing how these fees are structured and what drives them, practices can make more informed decisions that directly impact profitability.
One emerging trend is the shift in fee structures imposed by processors, which often include subtle changes unnoticed by many business owners. These changes might manifest as incremental fee hikes or the introduction of new categories designed to capture additional revenue. Dental practices, particularly those relying on integrated credit card systems tied to their practice management systems, may find themselves at a disadvantage if these adjustments go unchecked. Understanding the strategies employed by processors and benchmarking your costs against industry standards can shine a light on areas where savings are achievable.
A Key Performance Indicator
What is your effective rate? Do you know this off the top of your head? If not, rest assured you are not alone. However, this key performance indicator lets you quickly evaluate your processing environment. By taking one minute a month, you can calculate your effective rate and quickly spot outliers that can be indicative of a processing change.
As a leading provider in dental merchant processing, Dental Card Services (DCS) is afforded the opportunity to evaluate statements on a daily basis, and over the past five years we have seen three key drivers of higher processing costs:
1. Your processor increased fees from when you signed up, and this was disclosed in a prior month’s statement.
2. Your processor introduced new fee categories.
3. Your practice started accepting virtual credit cards from insurance carriers/payors (which typically have much higher costs).
As a general rule of thumb, a benchmark for low-cost credit card processing is approximately 2%. As always there is a general range, which can vary from 1.5% to 2.5%. On interchange cost plus plans, there are typically three main differentiators that impact the effective rate: 1) Your volume—this helps cover the fixed monthly costs, 2) your processing environment—card present vs card not present, which carries higher interchange costs, and 3) the mix of cards utilized (debit cards carry the lowest interchange costs).
When firms introduce price increases, they are betting that the majority of businesses will not notice or assume that it’s the cost of doing business or simply not worth their time to make a change.
It should come as no surprise, however, that historically integrated credit card processing through your practice management system carries some of the highest costs on average in the industry. Business owners should know the cost and then decide whether to make a change. For those reluctant to make a change, I typically ask two questions: (1) Do you know how much dentistry you have to produce to cover the incremental cost? (2) At what cost would you switch?
In the past year, we have seen many practices with integrated credit card processing and effective rates above 5% and some over 8%.
2 Simple Steps to Securing Low-Cost Processing
· Contact multiple providers and request written proposals/applications (they do not need to see your current statement to make a proposal). The advantage here is you will see which providers put your best interest first: Do they propose a transparent, low-cost interchange cost plus plan; do they have early termination fees and/or penalties; and do they put their best foot forward upfront with the lowest costs. Note: After they provide their pricing, you can have an analysis prepared and choose the best firm for you.
· Periodically calculate your effective rate and take corrective actions as necessary.
Emerging Observations on Patient Surcharging
Situation: Practice contacted DCS for a savings analysis.
Client Effective Rate, Pre-DCS - 3.07%
DCS Estimated Effective Rate - 2.20%
Client started with DCS interchange cost plus program:
Q1 2024 Total Volume $249,101
Q1 2024 Net Fees $4,520
Q1 2024 Effective Rate 1.81%
Q1 2024 Percentage of Transactions with Debit Card - 39%
Client implemented surcharge:
Q1 2025 Total Volume $293,168 - practice revenue on CC up 17.69%
Q1 2025 Net Fees $2,369
Q1 2025 Effective Rate 0.81%
Q1 2025 Percentage of Transactions with Debit Card - 58%
A Win-Win for Patients & Practice
Debit card utilization increased by 46% at the practice. The hypothesis would be that—when given a choice of paying a surcharge and paying by credit card or paying no surcharge with a debit card—a significant amount of patients paid by debit card. This is one of the highest utilizations we have seen, especially for a non-pediatric/orthodontic practice. This appears to be a win-win: Those who value points continued to use credit cards and those who did not want to pay the fee switched to debit cards, and the practice decreased its total costs by another 48%.
Present and Future
We currently estimate that less than 5% of dental practices are implementing patient surcharges, and adoption rates appear to be increasing in both the DSO and independent practice channel. This trend extends beyond dental practices to lawyers, accountants, distributors, and manufacturers, who are adopting it to varying extents.
Alex Sadusky, CEO, Dental Card Services Alliance, LLC
Alex Sadusky currently serves as CEO of Dental Card Services Alliance, LLC (www.dentalcardservices.com), an organization he co-founded in 2009. Dental Card Services Alliance is the credit card processing services provider of the AGD Exclusive Benefits program and has numerous other endorsements, alliances, and associations.
