Know your risk exposure
Staying compliant can be an organization’s best defense against an audit. To be compliant, organizations need to know where their risks lie. Healthcare organizations should be aware of two of the main risk exposure areas related to unclaimed property.
Multistate exposure
Unclaimed property laws and reporting requirements are dictated on a state-by-state basis, with no current federally consolidated reporting mechanism or rule. It is easy to see, therefore, how unclaimed property can get very complex, very quickly, especially for health systems that do business in multiple states.
Reporting rules for unclaimed property are based on the state in which the payee is located, not the location of the hospital or health system. For example, an Illinois-based hospital might be required to report unclaimed property to 15 different states if the hospital’s patients come from 15 different states or if the hospital works with vendors located outside Illinois.
Unclaimed property requirements differ vastly across states. Thoroughly understanding these diverse requirements is necessary for today’s healthcare organizations to stay compliant with unclaimed property reporting rules. Examples of differences in state unclaimed property reporting requirements include:
- Dormancy period. States vary in the length of time that must elapse before they can consider property abandoned.
- Due diligence requirements. Timing varies for when notifications (for example, letters) need to be sent to payees, alerting them to abandoned property to which they are entitled.
- Aggregate thresholds. Recognizing that it can be burdensome for entities to track down owners of many small refund amounts, some states allow businesses to group together properties under a certain dollar threshold (for example, 99-cent refunds). An organization can then report the bundled unclaimed property items in aggregate and not by the payees’ names. States vary in the dollar amount threshold.
- The amount of and time frame for penalties assessed on late or past-due unclaimed property filings. Some states are more aggressive than others in assessing unclaimed property-related penalties and interest. For example, if a more aggressive state has a three-year dormancy period and an organization reports unclaimed property after four years, that state might automatically charge the organization with a penalty and interest. Another state might send a notification prior to charging the penalty or allow an automatic waiver for first-time violations.
- Documentation and reports. Unfortunately, organizations can’t fill out an unclaimed property report for one state and send it to all the other states in which its payees reside. Keeping track of each state’s report type and requirements for completing the reports is vital. For example, some states still require hard copy reports, including compact discs or signature notarization, while others allow for online uploads with no paper forms required.
- Voluntary disclosure programs (VDPs). Most states allow organizations holding unclaimed property to come forward in good faith if they have identified an unintentional gap in their reporting history. For example, following a merger or acquisition, an organization might find that the acquired entity has overdue or unreported unclaimed property. The acquiring organization in this case could contact the state to begin the VDP process and come into compliance with its unclaimed property reporting obligations. Each state has its own VDP rules, processes, and timelines.
Multiple variances among states regarding unclaimed property compliance create multiple risk exposure areas for health systems and hospitals. Organizations should take care to keep track of such differences and consider not only the state in which they are based but the states in which their patients and vendors are located.
Active credit balances
Another common – though often overlooked – area of risk exposure related to unclaimed property reporting is credit balances. It is estimated that approximately 70% to 80% of a health system’s total unclaimed property liability is active credit balances sitting in its patient accounting system (PAS).1
Common examples of credit balances that could be unclaimed property include:
- Inactive credits
- Patient credits
- Payer credits (in some states)
- False credits
Organizations should thoroughly examine their credit balances by conducting an aged dormancy analysis. The analysis should focus on the following:
- Inactive credits. Such credits include inactive accounts in the PAS that have had no payment or transaction activity in the past three years.
- Patient credits. Even credits that are not old are a big risk area in terms of patient satisfaction and publicity.
- Payer credits. While these can be considered less of a priority for most organizations, some states require organizations to report payer credits as unclaimed property.
- False credits. Credit balances that are not the result of an overpayment (such as an incorrect contractual adjustment) are false credits. It’s important that organizations get these off their books in order to avoid overinflating the credits population, particularly during an audit assessment.
Once credit balances are identified, the organization should aim to resolve them as quickly as possible. Because credit balances require significant time and expertise to resolve accurately, organizations should consider engaging third-party unclaimed property specialists to work through them. In addition, organizations can consider applying automation to address credit balances, whether internally or by working with a third-party vendor.
