Healthcare Advisory- Don’t hold on to buried assets
Your hospital or practice may be holding unclaimed property that can weigh down your bottom line if not handled appropriately. To ensure your organization takes full advantage of all of its assets, it’s important to understand the laws relating to unclaimed property, such as wages or unpaid credit balances, and the applicable dormancy periods.
Unclaimed property is generally defined as property, held or owed in the ordinary course of business, that the owner hasn’t claimed for a specified period of time, known as the “dormancy period.” All 50 states and the District of Columbia have enacted laws allowing owners to collect unclaimed property. Most states don’t have a statute of limitations on unclaimed property; many audits cover periods dating back anywhere from 10 to 20 years.
Under unclaimed property laws, the party holding the property must transfer the abandoned property to a state custodian after the dormancy period expires. The duration of the period varies by state and by type of property (for example, wages or unpaid credit balances), but usually runs for three to five years. Regardless of which state your hospital is in, the period always commences on the date of the last contact with the property owner.
Unclaimed property laws typically involve abandoned financial accounts, uncashed checks and refunds, customer overpayments and more. For hospitals, unclaimed property might take the form of accounts payable, payroll, accounts receivable, unapplied cash, patient refunds, write-offs, benefits, open payables and, in particular, unpaid credit balances. These credit balances can result from insurance company overpayments or reimbursement rule changes, duplicate payments, or data transfer problems during billing system upgrades.
Let’s look at an example: A patient makes a $30 co-payment to a hospital for a crushed vertebra on January 29. It turns out that the procedure is fully covered by the patient’s insurance plan. The hospital eventually determines that the patient’s payment is an overpayment, and a credit balance is created. But if the patient can’t be located within the dormancy period, the $30 is considered unclaimed property, subject to remittance to the state.
Under another typical scenario, a hospital’s billing system is set up to record an $800 receivable for a procedure. Under a new contract entered into after the billing system was last updated, the insurer pays the hospital $900. An auditor examining the hospital’s books may identify the $100 difference as an overpayment and potential unclaimed property.
In such a case, the facility then needs to either prove the $100 isn’t unclaimed property (a process called remediation) or risk that it will be counted as such when the auditor extrapolates the hospital’s overall liability for unclaimed property in the audit period based on a sample drawn from potential unclaimed items.
To avoid a costly surprise in an unclaimed property audit, hospitals must perform an analysis to determine whether their unclaimed property has aged out of the applicable dormancy period. That can prove tricky, though.
For one thing, you need to look beyond the state where you’re located, because the relevant law and dormancy period depend on the last known address of the property owner. Our current health care payment model also complicates matters, as the example involving the $30 overpayment illustrates. Even though the credit balance may not have actually appeared on the books until April or May, the aging began back in January — the date of the last contact with the patient.
Once it’s determined that an account has aged out of the dormancy period, the hospital must send a due diligence letter to the patient to attempt to return the funds. If a refund can’t be made, payment must be made to the state the patient was last known to reside in.
Dig out the truth
A hospital’s unclaimed property can become almost invisible, buried under layers of daily financial transactions as the organization focuses on providing excellent health care and collecting ongoing revenue. But unpaid credit balances and other unclaimed property ultimately can drag down profits and generate auditing issues. To avoid this, and to make the most of your resources, dig out the truth about your organization’s unclaimed property.