Confusion about which jurisdiction to report to is a common side effect of the complexity of unclaimed property reporting in the healthcare industry. Huge amounts of data, massive numbers of transactions, varied data systems, wholesale upgrades of systems and unaligned data entry processes for multiple payers all add to the vast complexity of researching unclaimed amounts. Most healthcare institutions do the best they can, but there often isn’t time, tools or expertise in-house to manage the unclaimed property reporting process. In many cases it's just not a priority, and neglect leads to issues that can result in millions of dollars in assessments.
One key problem is identifying who exactly a credit balance is owed to (the property owner). This is determined legally through court-tested priority rules. However, healthcare institutions often generate invalid unclaimed credit balances in the first place, and it's not always clear who a credit balance is owed to. Learn more about this in the July 2015 issue of MarketSphere's KeepUP™ Newsletter.
Priority rules for remittance and reporting of unclaimed property
The unclaimed property acts drafted by the Uniform Law Commission (ULC) are the basis for most unclaimed property statutes across all U.S. reporting jurisdictions. Canada’s statutes are similar. Early ULC acts did not make it clear what to do when unclaimed property holders did not have any address for a property owner. As a result, states sometimes competed for the right to claim the property. This conflict was tested in the U.S. Supreme Court, and the result was what the industry calls “priority rules” for unclaimed property reporting.
The “First Priority Rule” gives the first right of custody of unclaimed property to the state where the holder’s records say the property owner was last known to have lived.
The “Second Priority Rule” says the right of custody belongs to the holder’s state of incorporation when there is no known address for the owner. If the holder is not a corporation, the state of the organization's principal place of business is awarded the property until and unless another state can claim rights to the property under the First Priority Rule.
These rules must be followed faithfully to ensure proper reporting of unclaimed property and avoid assessments for penalties and interest in the event of an audit.
Accurate reporting of patient credit balances
The complexity of data management in the healthcare industry adds to the confusion about which state has the right to claim custody of unclaimed property. There are two main issues:
- Multiple sources of payment. Payment doesn't always come from the property owner. It comes from insurance, Medicare, Medicaid, or even family members. If a patient credit balance is created, the healthcare institution must check to see who actually is owed this amount and report the amount to that payee’s last known address when it is designated as unclaimed. If an insurance company overpays, for example, a valid credit balance likely belongs to the insurance company payer and that affects which state has rights to the balance.
- Complex billing system. Many healthcare institutions use third-party managers for billing and collections, and those companies may not be set up to track unclaimed property, since they are not responsible for reporting it (unless it's in their contract). In addition, health insurance companies use third-party payers, which complicates ownership of overpayments.
These conditions create many opportunities for mispostings, incorrect adjustments and other errors. It also can lead to the creation of credit balances that might not actually be owed to the patient.
Solutions to the problem of determining unclaimed property reporting jurisdiction
First and foremost, it is imperative that healthcare institutions intimately understand and control all patient billing and payer systems and the way data moves. Once that is done, procedures can be developed to isolate and identify errors.
Second, those errors must be remediated as soon as possible, so they don't inadvertently turn into unclaimed property. Above all, the goals are 1) to prevent errors from lingering in data systems without the organization's knowledge, and 2) to establish documentation of the errors showing why the amounts should not be included in unclaimed property reports. In the event of an audit, this can substantially reduce assessments, including penalties, interest and past-due amounts.
How much of a difference does this make to unclaimed property assessments for healthcare?
MarketSphere has worked with many healthcare organizations to manage the challenges of unclaimed property. In fact, one of our clients was the largest hospital corporation in the United States. Because of the massive amount of data and transactions involved and an associated volume of unclaimed property, streamlining data management and unclaimed property processes for such a company can result in millions of dollars of reduced liability.
In addition to advising healthcare companies in the management of data and processes, we also can build proprietary systems to automate parts of the process and help accurately identify and report unclaimed property.