States Leverage Unclaimed Property Audits to Plug Budget Gaps: Healthcare Industry in the Crosshairs

Unclaimed property (UP) is becoming a major issue for the healthcare industry. States are looking to cover budget gaps, and UP has become the answer for many states. While, in theory, UP should have a net zero impact on the state, history has shown the exact opposite. The amount of UP collected by the state far exceeds what is returned to claimants. Currently, it is believed that the states have over $70 billion of UP in the state coffers.

Based on prior state audits, annual compliance filings by other healthcare companies, and recent litigation, the states know healthcare is an industry with the potential for significant unclaimed property exposure. Many states have increased the number of audit notices sent to all types of healthcare facilities, from hospitals to long-term care to practice groups.

The area that tends to generate significant unclaimed property is the patient accounts. These patient accounts house overpayments, duplicate payments, and credits that, if unresolved, may need to be remitted to the states under their unclaimed property laws. Patient credits can also come as refund checks issued but never cashed. In most states, a current relationship is not taken into account. Therefore, a credit or refund check over three years old could be classified as unclaimed property. States consider any private pay or insurance payment as potential unclaimed property. Due to the large number of transactions, it may be nearly impossible for the entity to research and resolve all the credits, especially to the standards of the states’ third-party auditors. UP assessments often include items that may not be unclaimed property but instead, items for which the company could not provide adequate support.

Important Facts about Unclaimed Property

• Unclaimed property is property that has not been resolved with the owner within a specified amount of time.
• Sourcing of Unclaimed Property:
  • First, to the state of the last known address on file
  • Second, to the state of the holder’s incorporation or domicile
• All 50 states plus the District of Columbia, Guam, Virgin Islands, Puerto Rico, and some Canadian provinces have unclaimed property filing requirements.
• The statutory lookback period is generally 10-15 years.
• Applies to all entity types:
  • Corporations
  • S Corporations
  • Partnerships
  • Limited Liability Companies (including disregarded single-member LLCs)
  • Not-for-profit as well as for-profit

What are the top UP concerns for healthcare?

• Aged patient credits on the balance sheet
• Uncashed patient refund checks
• Unresolved accounts payable liabilities/uncashed vendor checks
• Uncashed payroll checks/rejected direct deposits
• Large volume of private pay and insurance payments that could cause overpayment and duplicate payments
• Most states have no de minimis exemption, so all amounts are reportable

State outreach methods that healthcare entities should be on the lookout for:

• Unclaimed property questions on income tax returns
• Compliance reminder notice
• Annual compliance report review
• Desk audit or compliance questionnaires/inquiries
• Self-audit notice
• Voluntary Disclosure Agreement (VDA) invite
• Third-party audit notice

Given the expectations and risks, healthcare organizations should begin having discussions now with the accounting process owners. A proactive game plan to address unclaimed property can help your organization mitigate historical risk and ensure that, in the future, the processes and compliance are in place to minimize future exposure and state notices. Based on the states’ proven success in auditing healthcare organizations, it is not a matter of “if” a non-compliant company will receive an unclaimed property audit letter but more of “when.”