Patient Overpayments and Escheat Laws

June 29, 2012

Every physician practice has patient and/or payer overpayments on their books and every state has an escheat law. As such, holding on to these overpayments could put you in violation of state law – and states are starting to target physician practices for enforcement.

Every state has laws (called escheat laws) that require businesses to turn over unclaimed funds and other property to the state after a dormancy period, defined as the time during which there’s no contact with the rightful owner of the money or activity on an account. This includes credits on patient accounts – i.e. overpayments.

To highlight this issue, here is a letter a physician client of mine received from the State’s Comptroller Office:

In reviewing our files, we show that the above company has not reported any unclaimed property to the Texas Comptroller of Public Accounts. We do show that you have employees in Texas, which suggests that you may have unclaimed payroll that needs to be reported. Holders of unclaimed property are required to submit their reports and payments by November I of every year.

Examples of unclaimed property that your company may be holding and need to report are as follows: payroll, accounts payable, commissions, worker’s compensation, customer overpayments, refunds, rebates, and unredeemed gift certificates. For additional information on unclaimed property, please visit our Web site atwww.window.state.tx.us. The enclosed document also has helpful information.

If you have unclaimed property in Texas that needs to be reported, we welcome the opportunity to work with you in ensuring your company’s compliance with unclaimed property reporting requirements. As a result of House Bill 1840 of the 77th Legislative Session, the Comptroller may waive penalty and interest imposed on certain delinquent unclaimed property. Therefore, we are offering this waiver of penalty and interest to companies that have never reported unclaimed property in Texas.

As you can see, unclaimed property laws go beyond overpayments – Escheat laws apply to payroll and vendor accounts as well.. A physician practice may be at greater risk of having unclaimed funds than other businesses for the following reasons:

  • Patients are individual consumers, and often receive services on a one-time basis, so the physician may not get the name and address correct that first time, or stay in contact with the patient after services were rendered. It’s then harder to return a credit.
  • Since the billing and collection cycle is so long, especially with third party insurer, once a physician practice discovers it owes a patient money, that patient may be harder to locate.
  • A lot of health care dollars are spent at the end of a patient’s life. It’s much harder to locate a patient’s executor to return funds. The physician practice also may not know that the patient had died.

Keep in mind cash strapped states are going after practices to collect unclaimed funds that belong to former patients, employees and vendors.  So learn your state’s escheat requirements since these laws will vary by state. For example, the “dormancy period” differs by state and by type of abandoned property.

For more information on this subject, check out The National Association of Unclaimed Property Administrators’ website: www.naupa.org.

Reed Tinsley, CPA is a Houston-based CPA, Certified Valuation Analyst, and Certified Healthcare Business Consultant. He works closely with physicians, medical groups, and other healthcare entities with managed care contracting issues, operational and financial management, strategic planning, and growth strategies. His entire practice is concentrated in the health care industry. Please visit www.rtacpa.com

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