The Intersection of State Escheatment Laws and Patient Credit Balances: Preparing for Increased State Action in the Era of COVID-19
Wednesday, October 21, 2020

The COVID-19 pandemic has wreaked havoc on economies worldwide. Faced with the financial fall-out, state governments will likely scramble to find additional revenue streams during the pandemic and in the rebuilding years ahead.

Escheatment, the process by which a state takes custody of unclaimed property, offers a tempting way for states to bring much needed funds into their coffers. While many industries are exposed to increased enforcement of state unclaimed property laws, the health care industry — already burdened with fighting a global pandemic — is particularly vulnerable to intensified scrutiny from states due to the potential for significant patient credit balances.

Overview of Unclaimed Property

Unclaimed property refers to property an owner has left with a holder (typically a financial institution or a company) and failed to take action to indicate ownership interest in the property for a statutorily determined amount of time (referred to as a dormancy period). Once the dormancy period has passed and the property becomes “unclaimed” under the applicable state law, the holder of the property must timely report and remit the property to the state. The amount of time that must pass without activity from an owner before the property is considered unclaimed varies depending on the kind of property in question and the state in which the property is located. Holders can be held liable for both past and present noncompliance, with the potential imposition of hefty monetary penalties or interest. The rationale behind escheatment is that states are in the best position to preserve and protect the interests of the rightful owner.

The Impact of Unclaimed Property Laws on the Health Care Industry

The prevalence of patient credit balances, due largely to complicated payment and reimbursement processes, makes health care organizations easy targets for state escheatment actions. In general, a credit balance occurs when a provider received payment in excess of the amount charged for a particular service. Patient credit balances are common when multiple parties (e.g. patients, insurance companies, and sometimes government programs) are involved with the payment for services on one account. Examples of credit balances include when an insured patient overpays her deductible or copayment amount; when multiple insurers are involved and more than one pays; or when the provider or payer miscalculates the amount owed, resulting in an overpayment. Credit balances have the potential to become unclaimed property that must be timely reported and remitted to the state if they are not resolved with the owner of the property.

The amount of patient credit balances need not be significant to trigger unclaimed property obligations. Indeed, some states have reporting minimums of just a few dollars while others have no reporting minimums at all. In other words, accounts with a small amount of credit balances can still lead to a huge amount of liability.

Health care organizations should also be aware of exemptions in state unclaimed property laws, including the business-to-business statutory exemption, which eliminates the need to report and remit unclaimed property between businesses. If a provider is engaged in a continuous relationship with insurance companies that have overpaid, and the applicable state recognizes a business-to-business exemption, the credit balances may not be considered unclaimed property and therefore will not have to be remitted to the state. As states continue to experience financial pressure during and after the COVID-19 pandemic, however, states may eliminate the business-to-business exemption and demand retroactive reporting of previously exempt property.

Avoiding Liability for Unclaimed Property

As a consequence of the pandemic, states will likely aggressively exercise their right to audit the books and records of property holders for compliance and assess penalties and interest to the fullest extent possible. Audits are timeconsuming, invasive, and expensive.

To avoid scrutiny by states and potentially significant penalties, it is imperative that health care organizations have a robust compliance program that facilitates the tracking, documenting, reporting, and remitting of unclaimed property.

In addition to establishing an effective and comprehensive compliance program, health care organizations should perform an internal risk assessment and take action to rectify past violations of unclaimed property laws. For example, many states have ongoing voluntary disclosure agreement (“VDA”) programs that enable holders that have underreported (or not reported) unclaimed property to become compliant for previous periods, possibly without the imposition of penalties or interest.

In the middle of a pandemic, old credit balances and unclaimed property laws understandably may not have been a top priority for many health care organizations. However, failing to properly address unclaimed property, including patient credit balances, can result in significant business disruption and financial exposure for health care organizations. Establishing sound business practices regarding unclaimed property will not only streamline the tedious process of resolving credit balances, but will also protect health care organizations from unwanted state intrusion during, and in the wake of, COVID-19.


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