Unclaimed Property Concerns for the Healthcare Industry - Part Two

By Joseph Carr, Patrick Pilch and Steven Shill

Last week, we discussed the basics of unclaimed property and healthcare industry particulars along with issues that may arise when multiple parties are involved with the payment for services. This week, we’ll discuss the details of unclaimed property audits and proactive measures that can be taken if you have not yet addressed unclaimed property.
Third-Party Settlement Audits, Private Escheat Laws, And ‘Prompt Pay’ Laws
Given the nature of the complications in billing and collections between healthcare providers and insurance companies, and the relatively small population of insurance companies, healthcare providers and insurance companies typically engage a third party to conduct a periodic settlement audit to resolve open items. At the conclusion of one of those audits, both parties agree that neither party may seek a refund or adjustment from the other party for transactions that occurred during the audit period. At the conclusion of a third-party settlement audit, the healthcare provider makes adjustments and write-offs to accounts receivable (for example, credits and debits) arising from the settlement.
However, a state may have a private escheat law that generally prohibits a holder from enforcing a contractual term that has the effect of transferring ownership of unclaimed property from the owner to the holder.
The application of such a law would presumably, for unclaimed property purposes, void an agreement between a healthcare provider and an insurance company that neither party may seek refund or adjustment from the other party for transactions following a third-party settlement agreement. That is because the effect of such an agreement is to transfer the ownership of unclaimed property to the holder.
It may be reasonable for a healthcare provider unfamiliar with unclaimed property that has been a party to a third party settlement audit or is aware of prompt pay laws to consider the matter of aged-receivables and related credits closed. As such, the healthcare provider may not retain detailed support for any settlements conducted, nor consider documenting the reason for related write-offs and adjustments. However, a healthcare provider familiar with unclaimed property, or that has unfortunately experienced an unclaimed property audit, may know that the application of some contractual terms or a prompt pay law may not necessarily sever a state’s right to unclaimed property resulting in the state (or third-party auditor) requiring a healthcare provider to prove it no longer owes an amount at issue.
Proactive Measures
Companies that have not addressed unclaimed property or that have not yet been the subject of an audit have various options to achieve compliance with state unclaimed property laws. Many states offer programs (commonly referred to as voluntary disclosure agreements, or VDAs) that allow a company to voluntarily come forward and resolve its unclaimed property liability with a waiver of interest and penalties and with a reduced audit period. In turn, the states require that the company undertake a comprehensive review of all areas that may generate unclaimed property and may require the company to provide support for its findings.
A company that does not wish to participate in a voluntary disclosure may want to consider performing a diagnostic review or feasibility study to identify areas of risk and perform a high-level quantification of potential exposure. The result of that type of review may then be used by management to determine the appropriate course of action, which may include conducting additional testing and remediation, prospectively filing compliance reports in the company’s largest states of operation, implementing unclaimed property policies and procedures, or even ultimately participating in a VDA.
Finally, companies in the healthcare industry should implement (or periodically reevaluate) policies and procedures as they relate to unclaimed property, including record retention and the level of support required and maintained for areas that may give rise to unclaimed property (for example, accounts receivable and related credits). That should include reviewing patient accounts to identify and resolve credits on a timely basis; using accounting system codes consistently to record errors and overpayments; documenting in the system the reason for credit or debit offset; scanning and retaining copies of invoices, correspondence, and other documents supporting the write-off or resolution of credits; and listing specific credits, rather than lump sums, in third-party settlement audits with insurance companies.
Unclaimed property affects all companies, and audits are being aggressively pursued by states in their quest for additional revenue. The abundance of third-party audit firms that work on a contingent fee basis allows states to expend little time and resources in the pursuit of unclaimed property and makes unclaimed property even more appealing to states. While most companies will usually generate some type of unclaimed property, those in the healthcare industry are at a unique disadvantage given the nature and frequency of transactions with patients and insurance companies, as well as the use of estimates and frequent revisions in booking receivables. Accounting professionals in the healthcare industry should be mindful of unclaimed property in their day-to-day activities and in their policies for record retention, and those with potential deficiencies in their monitoring of unclaimed property should consider a voluntary disclosure and other options for unclaimed property compliance.

Healthcare providers that meet any of the following factors or combination of factors should seek guidance on best practices to mitigate escheat risks, including when an organization:
  • Is incorporated or formed in DE, PA, MA, NJ, NY, TN, TX, FL, CA;
  • Receives payments from multiple sources (e.g., private co-pay, private insurance, state insurance, etc.);
  • Deals with hundreds of DRG designations;
  • Operates healthcare business for at least 10 years;
  • Negotiates private internal audit settlements with insurance companies;
  • General ledger and subledger system changes;
  • Has no escheat filings or $0 (negative return) filings;
  • Has de minimis amounts escheat filings;
  • Consistently reclassifies A/R credits to P&L;
  • Consistently leaves aged credits on P&L; or
  • Receives unclaimed property notices of any kind from states in last 12 months.
For more information on unclaimed property issues, please contact Joseph Carr, Partner & National Unclaimed Property Practice Leader at (312) 616-3946 or jcarr@bdo.com, and read the latest Unclaimed Property Alert

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