Overcoming unclaimed property compliance complexities with automation

By Eric J. Boggs, Jason F. Higginbotham, and Chad R. Oakley
| 7/14/2020

Throughout the country, the focus on unclaimed property by states and third-party auditors continues to intensify. States increasingly are viewing unclaimed property as a major source of revenue – a way to fill budget gaps without raising taxes. The result is an uptick in unclaimed property audit activity within the healthcare industry.

Many healthcare organizations and their leadership now are spending more time, energy, and resources maintaining compliance with unclaimed property regulations. Several complexities within the industry today, however, make staying on top of unclaimed property particularly challenging.

One complexity in healthcare is the near-historic levels of merger and acquisition (M&A) activity in the industry.1 Unclaimed property likely is being discussed more frequently during the due diligence process of M&A transactions, as both stock and asset deals affect an organization’s exposure.

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Another factor that increases complexity in the healthcare industry is patient accounting system (PAS) conversion.2 Whenever an organization undergoes a PAS upgrade or conversion, legacy patient accounts – particularly those in a credit balance status – can present unclaimed property risk.

In addition, record retention has become a hot topic in recent years, coinciding with the surge in unclaimed property audits, M&A activity, and PAS conversions. While each state has its own rules, most typically have a fairly long look-back period – usually longer than most organizations’ record retention policies. A typical state look-back period is 10 years plus dormancy (potentially an additional three to five years depending on the state and property type).3 Many organizations, however, maintain records for the IRS-recommended seven-year period or less4 and often do not have access to pre-acquisition records to confirm prior unclaimed property compliance, or lack thereof.

These are just some of the factors contributing to healthcare organizations’ heightened awareness of unclaimed property risk and exposure. Staying ahead of the changing unclaimed property landscape can be challenging and stressful for healthcare leaders. One solution that can help organizations stay organized when it comes to unclaimed property compliance is automation, specifically within an organization’s accounts receivables (AR) processes.

Applying automation

For today’s healthcare organizations, automation can help make sense of the challenges related to organizing, analyzing, and retrieving unclaimed property data – and meeting state requirements. But first, organizations need to determine which areas related to credit balances can be automated. Following this automation journey can help:

  1. Craft. Are the organization’s current processes done the right way? Use data to determine best-practice processes within AR that should be replicated and to identify best performers and areas that are ripe for automation.
  2. Standardize. Can these processes be completed in a similar fashion? Institute best-practice processes throughout the AR cycle by educating staff members, instituting workflow enhancements throughout processes, and establishing performance management metrics.
  3. Automate. Can the identified best-practice processes be automated? Transition automatable processes into no-touch work steps within defined groups. These defined groups then can manage and update the artificial intelligence process for continuous improvement.
  4. Sustain. For each best-practice initiative implemented, track and monitor performance to gauge progress by connecting results to financial statements.

Once an organization has determined which processes to automate and is using that automation to identify its aged credit balance population for unclaimed property review, its next step would be to exclude any exemptions. This can be accomplished by identifying whether a credit balance is a true overpayment – actual unclaimed property that is owed – or a contractual or administrative adjustment.

After making those exclusions and exemptions, the organization then would have a refined population, including addresses of any owners who are due monies. When the organization has a defined list of unclaimed property and understands where it’s going to be reported, it then can focus on the different remediation options available to the organization.

Focus on remediation

One remediation option is engaging in a state voluntary disclosure agreement (VDA) program. Rather than reacting to an audit, engaging in a VDA program is a proactive maneuver that involves working with the state to review aged liabilities and determining what is reportable. VDA programs commonly provide the benefit of waiving penalties and interest associated with past-due properties and give the organization the comfort of reduced audit risk from the state for the associated period(s).

The unclaimed property landscape is an evolving area for the healthcare industry. Working with unclaimed property and industry specialists can help organizations determine best courses of action for their unique situations.

1 Tara Bannow, “Hospital Megamergers Continue to Drive Near-Historic M&A Activity,” Modern Healthcare, July 22, 2019, https://www.modernhealthcare.com/mergers-acquisitions/hospital-megamergers-continue-drive-near-historic-ma-activity
2 “Patient Accounting System Conversion Results in Revenue Cycle Disruption at Hospitals, Data Shows,” MediRevv, https://www.medirevv.com/blog/patient-accounting-system-conversion-results-in-revenue-cycle-disruption-at-hospitals-data-shows
3 Eric Boggs, Marc Grossman, and Omar Ruiz, “Best Practices for Mitigating Liability of Unclaimed Property,” Crowe, May 16, 2017, https://www.crowe.com/insights/healthcare-connection/best-practices-for-mitigating-liability-of-unclaimed-property
4 “How Long Should I Keep Records?” IRS, page updated May 28, 2020, https://www.irs.gov/businesses/small-businesses-self-employed/how-long-should-i-keep-records

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Eric Boggs
Eric J. Boggs
Jason Higginbotham
Chad Oakley