Among the many compliance obligations that corporations have, one that can be the most complicated and costly to an organization, if neglected, is unclaimed property compliance.  While each state has its own unclaimed property law, and no two laws are exactly alike, every state has the authority to audit the books and records of a holder if the state has “reason to believe” that the holder is not in compliance with the state’s unclaimed property law.

States have recently targeted the healthcare industry, including both providers and insurers, for unclaimed property audits.  The level of risk for an unclaimed property liability in the healthcare industry can be greater than average due to the unique accounting challenges that may give rise to its occurrence.This includes:

• Multiple payors, including the patient, insurer or multiple insurers, Medicare/Medicaid can result in overpayment for services.  It is often challenging to determine who is entitled to the refund.
• Decentralized accounting systems in large healthcare organizations create risk on an enterprise-wide level, including all affiliates such as outpatient care centers, rehabilitation centers and physician practices.
• Accounting adjustments/overpayment for contractual allowances. This can occur when a healthcare provider unknowingly uses an expired contract to estimate and record a receivable.  If the incorrect amount is recorded and the payment is larger than the estimate, it will result in a credit.  Other causes can be an incorrect billing for service or a miscoding of services provided.
• De minimis write offs.  Many healthcare institutions have a policy of writing off what they consider to be de minimis credit balances. According to most unclaimed property laws, there are no de minimis amounts of unclaimed property, therefore, any and all amounts are owed to the owner and if the owner cannot be located, they must be reported to the state.
• Unapplied cash or other payment is common in the healthcare industry and can occur when they cannot be attributed to a specific patient.
• Unclaimed patient accounts and security deposits are a common source of unclaimed property generated by long-term care and assisted living facilities.

Recognizing that the healthcare industry is susceptible to unclaimed property liabilities, the states have begun to issue audit notices via their third-party audit firms.  States frequently utilize the services of audit firms to represent the state in an audit because they lack the resources or expertise to engage in audits in certain industries.  Most often, the audit firms will represent multiple states in the audit, with the state of incorporation taking the lead in the audit.  It is not uncommon for unclaimed property audits to go on for years.

What can healthcare providers do to minimize exposure?

• Have detailed policies and procedures for the handling of inactive and unclaimed accounts. Keep them updated and ensure that the entire enterprise is operating under the same procedures.
• Have a record retention policy to support unclaimed property compliance.  While the typical record retention period for tax is seven (7) years, unclaimed property record retention should exceed ten (10) years, as that is often the minimum lookback period for an unclaimed property audit.
• Ensure that unclaimed property liabilities are addressed in all contracts with third party providers.
• Make an unclaimed property compliance review part of your merger and acquisition transactional due diligence.
• Be aware of business to business transactions that may be exempt from unclaimed property in some states.
• Ensure that transaction details are maintained or systems archived in the event of a system conversion.
• Report unclaimed property on an annual basis to all states where a liability exists and ensure that all operating entities are reporting either on their own or as part of a consolidated enterprise-wide report.

If your organization has a questionable or inconsistent unclaimed property reporting history, there are things that you can do to get ahead of an audit:

• Control your own destiny.  Perform a self-assessment to determine liability, state by state.
• Take advantage of opportunities to voluntarily comply.  Most states have a voluntary compliance/disclosure program that will allow you to report out-of-compliance property penalty and interest free.  If you enroll in a voluntary program, you can likely avoid an audit.
• Establish policies and procedures that are implemented enterprise-wide.  It is important that all entities, divisions and subsidiaries are utilizing the same standards for handling and reporting dormant accounts.
• Ensure that unclaimed property compliance is part of your compliance and risk evaluations.

Consider hiring an advocate to evaluate your unclaimed property exposure and develop a compliance strategy that is cost effective and time sensitive.   A state-specific solution is the best solution, as one size does not fit all when working with the states.

Unclaimed Property Advocates, LLC, an affiliate of Urish Popeck, LLC, is a full-service unclaimed property annual reporting and advisory service organization.  For more information, please contact Maureen Ferrari Grollman, Managing Partner, at meferrari@upadvocates.com or via telephone at 610-256-7931.