Financial Cleaning: Managing Credit Balances and Navigating Unclaimed Property Reporting/Audits

Many hospitals, health care systems and other health care providers currently have credit balances on their books representing unclaimed funds from payers, vendors and even patients. In addition to reporting and returning governmental program overpayments timely and complying with commercial payor contracts that may dictate how credit balances are handled with respect to the applicable payor, health care providers, like all businesses, are generally required under state law to report certain unclaimed funds, and, in some cases, turn over such funds to the state. Due to the potential for significant credit balances, health care providers may be the target of unclaimed property audits by states and could face financial liability for failure to satisfy applicable reporting requirements. States have engaged outside audit firms specifically to identify companies that have not filed unclaimed property reports in order to find unreported unclaimed property that must be turned over to the state.

Unclaimed property is most commonly in the form of intangible personal property for which there has been no owner activity for a specified period of time. Unclaimed property includes, among other things, uncashed payroll or vendor checks, credit balances, overpayments, unidentified remittances, and goods received but not invoiced. For health care providers, credit balances present one of largest sources of potential liability with respect to unclaimed property. Unclaimed credit balances can arise as a result of duplicate payment, overpayment, payments based on the wrong DRG, payments of the same bill by multiple sources, and unapplied cash or payment that cannot be matched to a specific patient or treatment. Because of this potential liability, health care providers should, among other things, monitor and return credit balances, understand the proper treatment of credit balances in connection with unclaimed property laws,  seek proactive solutions to limit the accumulation of credit balances, conduct due diligence with respect to credit balances and unclaimed property liability in any acquisition, and establish unclaimed property policies and procedures, including procedures to reconcile credit balances.

Health care providers must navigate the applicable state law and the U.S. Supreme Court’s decision in Texas v. New Jersey to determine the state to whom and when the unclaimed property shall be reported. Every state requires companies to file annual unclaimed property reports. To the extent a health care provider is filing these reports, the health care provider should conduct internal audits and engage outside consultants and/or counsel to ensure that all unclaimed property, including credit balances, are properly being reported. To the extent a health care provider is not filing these reports, the provider should come into compliance with unclaimed property laws by voluntarily reporting past due property through a state’s voluntary disclosure or amnesty program, some of which can be initially negotiated  by outside counsel without identifying the provider. Importantly, if a provider has never filed these reports, the provider may be subject to liability with respect to unclaimed property from the time the provider was incorporated.