Unclaimed property (UP) is becoming a major issue for the healthcare industry. States are trying to fill budget gaps, and for many states, UP has become the solution. In theory, UP should have zero impact on states, but history has shown the exact opposite. The amount of UP collected by states far exceeds the amount returned to claimants. Currently, states are believed to have over $70 billion in UP sitting in state coffers.
Based on past state audits, annual compliance filings by other health care companies, and recent litigation, states recognize that health care is an industry that can be at significant risk for unclaimed assets. Many states are increasing the number of audit notices being sent to all types of health care facilities, from hospitals to long-term care to practice groups.
A common place where large amounts of unclaimed property can occur are patient accounts. These patient accounts store overpayments, duplicate payments, and credits that, if unresolved, must be remitted to the state under unclaimed property laws. Patient credits can also arise as refund checks that were issued but never cashed. Most states do not consider current relationships. Thus, any credit or refund check that is more than three years old may be classified as unclaimed property. States consider private or insurance payments as potential unclaimed property. Due to the large number of transactions, it may be nearly impossible for an entity to investigate and resolve all credits, especially according to the standards of a state third-party auditor. UP assessments often include items that may not be unclaimed property, but instead items for which the company was not able to provide adequate support.
Important Facts About Unclaimed Property
Unclaimed property is property that has not been settled with the owner within a specified period of time. Where to source unclaimed property: There is an unclaimed property filing obligation first in the state of the last address listed on file, then in the owner’s state of corporate or permanent domicile. All 50 states, the District of Columbia, Guam, the Virgin Islands, Puerto Rico, and some Canadian provinces have unclaimed property filing obligations. The statutory lookback period is usually 10-15 years. Applies to all entity types: corporations, S corporations, partnerships, limited liability companies (including disregarded single-member LLCs), for-profit and non-profit
What is UP’s biggest concern regarding health care?
Old patient credits on your balance sheet, uncashed patient refund checks, outstanding accounts payable liabilities/uncashed vendor checks, uncashed payroll checks/rejected direct deposits, large amounts of personal and insurance payments that may result in overpayments or duplicate payments, and most states do not have de minimis exemptions, so all amounts are reportable.
State outreach methods for healthcare organizations to note:
Unclaimed property questions on income tax returns, Compliance reminder notices, Annual compliance report reviews, Desk audits or compliance questionnaires/inquiries, Self-audit notices, Voluntary Disclosure Agreement (VDA) invitations, Third-party audit notices
Given the expectations and risks, healthcare organizations should begin the conversation now with their accounting process owners. A proactive game plan for dealing with unclaimed assets can help organizations mitigate past risk and ensure processes and compliance are in place in the future, minimizing future risk and state notices. Based on state track record in auditing healthcare organizations, it’s not a matter of “if” non-compliant companies will receive an unclaimed assets audit notice, but rather “when.”
