Mitigate the Risk From Unclaimed Property

By Eric J. Boggs and Ryan Hartman
| 6/16/2015
8 Best Practices for Mitigating Liability of Unclaimed Property

In the search for untapped revenue sources, state governments have become more assertive in enforcing unclaimed property laws. Although these laws have been on the books for decades, they were not applied widely in the healthcare industry until recently.

In 2013, for example, only about 200 hospitals were under an unclaimed property audit; today that number is closer to 500. Hospitals and health systems are frequent targets of such audits because they often carry active, unresolved credit balances within patient accounting systems for years

    hc-connection-144319432-250x180This situation creates risk in the realm of unclaimed property. Many finance departments escheat only outstanding checks to the state and do not work with business offices to gather information on the outstanding credit balances.

    To mitigate unclaimed property risk, healthcare organizations should examine their processes in the following areas:

    • Write-off policies. In our experience, many business offices establish small-balance write-off policies with the stipulation that the same approach is followed on debits and credits. Interestingly, most finance departments in the same organizations would not accept such a policy. Even so, many hospitals have a write-off policy despite the fact that the credit balances should be reviewed as unclaimed property. To address this miscommunication, organizations should change their write-off policy for credit balances to move the liability from the patient accounting system into an unclaimed property liability account rather than adjusting the credit balance to other income. The liability then can be reviewed each year, and appropriately aged accounts can be turned over to the state.
    • Managed care contracts. Contract administration with managed care payers often involves setting a review timeline to examine and resolve aged overpayments and underpayments. The payer and the provider both are given an incentive to maintain a strong relationship and resolve accounts in a timely fashion. The business office should be aware of such guidelines in the contract and appropriately resolve credits owed to such payers.
    • Divested entities. In today’s healthcare landscape, organizations continue to merge with and acquire both large and small facilities. As part of an acquisition, the purchaser might acquire active credit balances in the patient accounting system. If the purchasing health system’s finance department is looking only at outstanding checks and not outstanding credit balances, the organization risks overlooking liabilities that should be reviewed in accordance with unclaimed property laws. The finance department and the business office integration team should work closely together during an acquisition to identify clearly which assets and liabilities are included in an acquisition.
    • Unapplied cash. Most finance departments believe that all cash taken in is posted somewhere in the system. However, many business offices – again, even in the same organizations – take a different approach. Often, insurers provide a single payment for several different claims. If all the payments can’t be matched readily to a patient encounter, the additional funds frequently are applied to a holding account in the patient accounting system, sometimes referred to as a “dummy patient account.” Most finance departments assume that such accounts exist only as temporary holding accounts and that unapplied payments are quickly researched, identified, and posted to the appropriate patient. Unfortunately, this often is not the case. The balance in some dummy accounts can grow unchecked for years, with additional dollars posted each month. Eventually, the finance department recognizes what might have become several hundred thousand or, in some unfortunate instances, millions of dollars in unapplied cash that unclaimed property auditors would consider a liability owed to another individual or entity. The finance department and business office should maintain consistent communication about dummy patient accounts, regularly review the balances, and confirm that unidentified payments are being quickly researched and resolved.
    • Sunsetting patient accounting systems. When a patient accounting system is shut down, the business office can become lost in the shuffle. Older credit balances that cannot be refunded are often transferred as a lump sum onto the new balance sheet. Once the old system no longer is functioning, the details associated with those old credit balances no longer are in place, which makes unclaimed property reporting difficult, particularly when trying to provide appropriate detail. Before the patient accounting system is closed, credit balances should be researched to determine who is owed the overpayment. That information can be recorded and tracked until the credit balance becomes dormant and then can be escheated to the state.
    • Debit and credit matching. Often, debit and credit balances for the same patient can be identified and matched. For example, if patient John Smith has a $10 debit balance relating to a missed copayment at his last visit but also has a $10 credit balance from a separate encounter relating to his overpayment for other services, those balances can be used to offset each other. Organizations should be careful to verify that only balances for the same patient are applied in this manner to avoid offsetting patient debit balances with insurer credit balances.

    Creating consistent, well-communicated policies with input from both the finance department and the business office will help confirm compliance with unclaimed property laws. The entities should communicate regularly about existing processes and should work together to identify potential sources of unclaimed property in the patient accounting system. Only through coordinated efforts can the healthcare organization efficiently achieve unclaimed property law compliance.


    Being Proactive: Questions to Ask Yourself to Reduce Unclaimed Property Risk

    1. How quickly is unapplied cash resolved?
    2. What is our policy for treating outstanding refund checks?
    3. What is our process for sunsetting a patient accounting system?
    4. What is our policy for treating aged credits in accounts receivable?
    5. Is a small-balance write-off policy in place in accounts receivable?
    6. How do we credit balances acquired during an acquisition or merger?
    7. Is unclaimed property a topic in our vendor agreements?


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      Eric Boggs
      Eric J. Boggs