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Credit, debit ... bitcoin?

The new technology is intriguing and holds promise, but right now has little value for business operations

Physicians are notoriously slow to introduce technology into their practices, and yet, some are beginning to adopt the controversial e-currency, bitcoins.

Bitcoin, a peer-to-peer, open-source digital currency network that was first launched five years ago, has been getting a lot of media attention lately – sometimes for dark stories such as those spotlighting its role as the currency of choice for Silk Road, an online black market for illegal drugs that was shut down by the FBI this past October.

But it's also getting strong positive attention, especially from Internet thought leaders, because the Bitcoin system, which depends on no centralized authority but rather a loosely affiliated community of techies, offers some key breakthroughs in the areas of information exchange – particularly between parties unknown to each other – and digital cryptography.

The legal status of this so-called cryptocurrency is in flux worldwide, as various policymakers, monetary bodies and tax agencies get up to speed on its true ramifications.

In the meantime, curious people can still educate themselves and explore this new payment alternative without fear and in relative safety.

Doctors who have taken bitcoins have found that doing so is both simple and relatively "unmagical," as San Francisco physician Paul Abramson, MD, put it.

Abramson, founder of My Doctor Medical Group, is a former software programmer and trained electrical engineer with a significant personal interest in privacy.

It was privacy that drew him to learn more about bitcoins. Early assessments of the technology suggested the bitcoin exchange system had significant anonymity protections that could augment existing medical privacy laws and allow patients who sought the ultimate discretion a nearly invisible form of payment.

"It's important for people to be able to maintain their privacy" about all things, but particularly medical issues, Abramson said.

However, as bitcoin use has expanded, further exploration of its privacy protections has shown that, while it does take some effort to uncover a bitcoin user's identity, it is possible.

"As I've learned more about it," said Abramson, "I'm less excited about the anonymous possibility."

In any case, patients in his office seeking medical attention can't very well protect their identity from him – which removes one possible benefit of using bitcoins: the anonymity between buyer and seller.

But the benefits do exist.

For instance, taking transactions out of the hands of credit card companies can preserve patient privacy, as those organizations can legally access certain protected health information for the purposes of verifying the transactions.

For Abramson, accepting them has brought him unexpected business.

“I had some patients who had been buying drugs with bitcoins on Silk Road," which only handled transactions in bitcoins. After that operation was shut down by the FBI, they were no longer able to buy high-quality heroin. Instead, these patients decided to seek help from him instead.

But the real business draw of accepting bitcoins are their potential to save money.

Abramson uses a fairly simple setup, where he has a merchant account with a company that handles bitcoins. When he receives bitcoins, that company handles converting them into U.S. dollars. The company charges a 1 percent fee – which is less than the typical 2 percent or 3 percent transaction processing fee charged by credit card companies. This method is in common use throughout the bitcoin community.

As John Gomez, MD, owner and medical director of RapidMed Urgent Care Center in Lewisville, Texas, points out, to transfer bitcoins from one person to another, there are "zero transaction fees. Zero. It's beautiful."

And there were no startup costs, because his office already had an iPad for other purposes. (One possible problem may arise there, as Apple has recently been removing bitcoin-related programs from its app store.)

Gomez's office manager, Barbie Fiorendino, says no patients have yet used bitcoins to pay for service, but customers are expressing curiosity and interest in the prospect – especially since a local television station did a story about the clinic and bitcoins in January. The clinic distributes printed literature with explanations, and also has a bitcoin section on its website.

Unlike Abramson, Gomez is not planning to convert his payments out of bitcoins. His accountant, who was "very open-minded" about him accepting bitcoins, said he should book his revenue as dollars according to the bitcoin exchange rate at the time of the transaction – and keep records for future years, when he might convert the bitcoins he received back into dollars. At that time, he would have to calculate capital gains or losses for tax purposes.

His decision to keep his holdings in bitcoins is "a personal belief," he said. "I consider myself a future rich man" because of bitcoins' value prospects, he said.

"There will be ups and downs and there will be potential manipulations," said Gomez, but "in the long run, I think that it's a smart play."

But, for all the potential of savings on transactions, bitcoins are not particularly useful when it comes to their business operations, said Gomez and Abramson.

Not many vendors or suppliers accept them, Gomez noted, and Abramson said he has nobody with whom he can really do business in bitcoins. His landlord won't take them, and he has asked his employees if they want to be paid in bitcoins, but they have all declined.

"It is an abstract concept at first," Gomez admitted – but said that's really no less foreign than the idea that swiping a credit card is a functional stand-in for exchanging dollar bills.

Government regulators are paying close attention, with several countries, the U.S. included, studying how to track – and tax – bitcoin transactions. How those regulations shape up will likely determine the degree to which bitcoins become more widespread, Abramson said.

In the meantime, at least the cupcake store near Gomez’s office accepts them.

 Not sure about using bitcoins in your practice? Consider this:

"If you don't believe in bitcoin, don't bother," Gomez said. Abramson echoes this, suggesting people not accept bitcoins "unless you understand the potential ramifications," including keeping your bitcoin account information secure (if it's lost, your bitcoins are gone forever, with no way to recover them), as well as exchange-rate fluctuations and government regulatory moves. And it's important to follow new developments in this rapidly changing community.

If you do accept them, Gomez suggested holding them, reflecting his belief that bitcoins will appreciate in value over time. Abramson said just the opposite, calling people who hang onto bitcoins "gamblers" playing a market that has fluctuated wildly, hitting highs of over $1,200 per bitcoin in early December to around $600 right now.

That said, "it's easy to take bitcoin," Abramson said. "As a technology I think it's very interesting." He suggests accepting bitcoin "for amusement value," or perhaps as "a marketing move."

This story is based on a report appearing on Healthcare IT News.