Nearly 1 in 5 dental practices pay effective credit card processing rates of 4% or more, with an industry average of 3.37%, according to a benchmark study of 500 merchant statements.
- Nearly 20% of dental practices pay effective rates of 4% or more for credit card processing, with one practice paying as high as 15.6%.
- Pricing model matters most: Interchange cost-plus plans average 2.67%, while surcharge plans average 5.25% effective rates.
- Average savings potential: $7,780 per practice annually by switching to transparent pricing, with 96% of practices showing reductions.
- Virtual credit cards cost practices significantly: Insurance carriers paying claims via virtual cards instead of checks charge processing fees on already-earned reimbursements.
Nearly 1 in 5 dental practices paid effective rates of 4% or more to accept credit cards, according to The Dental Drilldown Benchmark Study, an analysis based on 500 merchant statements. The finding surprised the study's own publisher.
Dental Card Services Alliance LLC, which conducted the study, analyzed the 500 most recent statements submitted to it, representing $385 million in annualized card volume. For each statement, it calculated the effective rate: the total fees divided by total card volume. The average rate was 3.37%, 19.6% of practices paid processing rates of 4% or more, and the highest single rate was 15.6%.
The differentiator that separated practices
Pricing structure explained much of the gap. Practices on interchange cost-plus plans, in which the merchant pays the card networks' interchange rate plus a fixed processor markup, averaged 2.67%.
Practices using tiered plans averaged a rate of 3.13%, whereas practices using flat-rate plans paid 3.55% and those with cost-plus plans with added surcharges or fees paid an average of 3.81%. Surcharge plans, which typically charge a base rate on all transactions plus an additional rate on those that do not meet certain criteria, averaged 5.25%.
Practice size mattered less than many might expect. The smallest practices, those processing under $25,000 a month, averaged 3.86%, but above $50,000 a month, the average stopped improving, and even practices processing over $200,000 each month averaged about 2.72%.
The processor's name was also a weak predictor. Of 105 processors, which the study did not name, dental practices paid anywhere from 1.79% to 15.57%.
"What separates practices isn't how big they are," Dental Card Services Alliance Founder and CEO Alex Sadusky wrote. "It's overwhelmingly the pricing model they are on and how often they evaluate their plans."
A founder revisits his assumptions
"For years, I assumed a 4%+ effective rate was an outlier in dental credit card processing," Sadusky wrote in an article accompanying the study. Years ago, he said, the worst statement he could recall was a single office paying between 5% and 6% and that a practice overpaying by $10,000 to $30,000 a year counted as an outlier. In the dataset, Sadusky wrote, single-practitioner offices showed savings opportunities above $30,000 a year, some above $80,000.
Sadusky also wrote that adoption of interchange cost-plus pricing is "still way behind where it should be." The practices that rely on nontransparent plans are overwhelmingly independents. He said the spread in industry pricing is widening and that independents are often the ones absorbing fee increases while larger enterprises use their leverage to pull ahead.
Virtual credit cards are eating into insurance reimbursements
Sadusky also pointed to virtual credit cards. When an insurance carrier pays a claim with a virtual credit card instead of a check or an electronic funds transfer, he wrote, the practice's reimbursement comes back as a card transaction, with processing fees taken out.
Sadusky said he has written about virtual cards for years and believed the industry had “nipped this one in the bud.” The statements, he wrote, “tell a different story.” Carrier use is widespread, he said, and "coming at a massive cost."
Estimated savings using interchange cost-plus
Dental Card Services repriced all 500 statements using its own interchange cost-plus plans and estimated an average effective rate of 2.22% -- 34% lower than the 3.37% practices were paying. It works out to an estimated average of $7,780 per practice per year, with 96% of practices showing a reduction. The company said actual results vary with each practice's card mix.
Sadusky acknowledged his stake in the subject. He is the founder and CEO of a payments company, and the statements in the study were submitted to it, so the findings are not a random sample of the profession.
Calculate your effective rate and track it
The company is asking dental practices to calculate their effective rate at least once and then add that rate to its dashboard next to production and collections. The math takes about five minutes with one monthly statement: total processing fees divided by total card volume.
The full study is available for viewing; the data have been anonymized data, and no email is required. The company is also releasing case studies of the 100 worst credit card processing deals based on the study, counting down weekly from No. 100.
"There is no structural reason this industry should pay above-market processing rates," Sadusky wrote. "The reason it does is not risk. It is opacity."
