Addressing Unclaimed Property’s Risk to Healthcare Organizations

By Eric J. Boggs; Ryan W. Hartman, MHSM, CHFP; and Omar A. Ruiz
| 3/5/2019
Addressing Unclaimed Property’s Risk to Healthcare Organizations
Unclaimed property presents a growing risk to healthcare organizations. The increasing number of unclaimed property audits within the industry – and a heightened focus on unclaimed property compliance by multiple state legislatures – is making this issue more of a priority.
 
If an organization fails to report unclaimed property as required by law, it may incur significant penalties and interest. Rather than waiting to receive an audit notice, healthcare institutions should proactively implement effective policies and processes to manage tracking, reconciliation, and processing of unclaimed property. Following are some ways healthcare organizations can help manage unclaimed property and minimize risk.
 
Beware of audit activity increasing
The healthcare industry overall has seen an uptick in unclaimed property audits during the past few years. More and more states are realizing that unclaimed property can bring in substantial revenue, which has led to an abundance of audit firms contracting with states to conduct audits of organizations’ unclaimed property compliance. With more audit firms on the scene, the chances of a healthcare organization being audited have increased severalfold. In addition, audit duration and complexity also have increased.

Organizations need to make sure they are prepared should they receive an audit notice, and having a well-managed unclaimed property compliance process and documented policies in place can help. When an organization has a good handle on its unclaimed property, it will be in a better position to limit the financial strains of addressing an audit, including costs of external consulting, legal advice, and internal resources. An effective compliance program also helps minimize the organization’s overall risk.

Conduct an overall risk analysis
An internal assessment can help organizations identify and proactively address any risks. The assessment should cover an organization’s business processes, unclaimed property compliance history, and current compliance with unclaimed property laws.

An overall risk analysis can help an organization answer important questions such as:
  • What business areas and property types within the organization pose a potential unclaimed property risk? (Common types of unclaimed property in healthcare include accounts receivable credit balances, unapplied cash, unidentified remittances, overpayments, patient refunds, accounts payable, and payroll.) 
  • Do any gaps exist in the organization’s compliance history? If so, how can they be addressed?
  • Has the organization assumed unclaimed property liabilities through a merger or acquisition?
  • Does the organization have any unclaimed property that is past due? 
  • What is the overall potential unclaimed property exposure across the organization?
Address credit balances
Through conducting an overall unclaimed property analysis, many organizations find that much of their total unclaimed property liability is in the form of credit balances sitting in their patient accounting systems (PAS). Organizations should have good controls in place for regularly reviewing and resolving credit balances in the PAS.

As a general rule, the older a credit balance gets, the more time it takes to accurately resolve, as it can become increasingly difficult to contact the owner of that credit. Often, hospitals prioritize credit balance accounts to be worked by account balance (larger dollar accounts first). This leaves a high volume of smaller credits to become aged, adding to the organization’s unclaimed property liability. Healthcare organizations should pay extra attention to aged or inactive credits and make sure a policy is in place to work these accounts in a timely fashion. 

Unposted or unidentified cash accounts can be another substantial issue in healthcare organizations. It often can be difficult to identify where these dollars need to be posted. Common scenarios that result in these types of accounts include when patients mail a check without identifying what the payment is for or when a payer submits an electronic remittance that is lacking enough detail to identify necessary reconciliation information. Unposted cash should be identified and reconciled as quickly as possible, and organizational policies should reflect that goal.

Also, organizations should not write off accounts below a certain dollar amount, as even small-dollar amounts still are reportable as unclaimed property. States have certain aggregate dollar threshold amounts whereby properties can be escheated without having to conduct research. Therefore, hospitals can be in compliance with state unclaimed property laws without having to devote too many resources to research small-dollar credit balances. An organization should review its write-off policies and decide what its thresholds are concerning:
  • When staff should investigate an overpayment
  • When a refund should be issued
  • When and how an overpayment should be communicated to the fund’s owner within the organization to make sure it fits the organization’s available resources while keeping the organization in compliance with unclaimed property laws
Be proactive
With today’s rise in audits and constantly shifting unclaimed property statutory regulations, it has become increasingly challenging for healthcare organizations to manage their unclaimed property processes in ways that minimize risk, including taking these actions:
  • Implement effective and documented policies.
  • Have a well-managed compliance process.
  • Conduct an internal assessment of historic and current compliance with unclaimed property regulations.
  • Institute controls for reviewing and resolving credit balances.
Organizational leadership should seek help from unclaimed property specialists to proactively and properly manage their overall unclaimed property processes and help prepare in case an audit does occur.
 

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Eric Boggs
Eric J. Boggs
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Ryan Hartman
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Omar Ruiz