What is unclaimed property: Patient credit balances legally belong either to the patient or the state. Even if they’ve been held on your books for a long period of time, they still do not belong to the practice. If credit balances sit “abandoned” for three years or more, the money is considered unclaimed and therefore the property of the state. This is true whether the balance belongs to a current patient, past patient, deceased patient, or any other permutation of a patient. In most states, unclaimed property laws that pertain to the healthcare industry focus on insurance and patient credit balances. By state law, when this abandonment occurs, the practice is obligated to turn the money over to the state.
The time that lapses before property is deemed abandoned is called the dormancy period, and this period varies from state to state. Once the dormancy period has passed, the monies must be turned over to the state. Unclaimed property (primary rule) first goes to the state of the patient’s last known address. If the patient’s address is unknown, (secondary rule) the right to the money goes to the state where your practice is located.
Enforcement of unclaimed property laws:
The rationale behind assigning ownership of unclaimed property to the state is that the state is best able to preserve and protect the interest of the rightful owner. This is not a tax, but a right of ownership by the state. Ownership of unclaimed property is enforced by state audits. During these audits, the state is permitted to look as far back as the date of your practice’s inception; typically they will look as far back as 10 to 20 years.
A significant number of the credit balances resulting from a date of service are created as a result of the complicated billing and payment process, which often involves three or more parties, providers, patients, and payers. As transactions overlap each other, and balances are transferred from one entity to another, there is great opportunity for thousands of dollars in credit balances to wind up on the books. As time goes on, it is increasingly difficult to determine what is owed to whom, and the burden of sorting this out falls on the providers. Providers who do not untangle this web of credit balances in a timely fashion leave themselves open to the risk of an audit. In that case, when the state conducts an audit, and determines there is a credit balance, they lawfully expect the funds to be transferred to the rightful owner, whether that’s the patient, the insurance company, or the state. We have all seen scenarios where a credit balance sits on the books for a long period of time with no attempt to return the funds to their rightful owner. Over time, it’s easy for unscrupulous providers to come up with excuses, objections, and rationalizations for why keeping the overpayments is not a problem. In all cases, the provider must do the right thing and return the money.
There is a well-documented case from 2007 in which a large cardiology group in Tennessee refused to refund overpayments to federal payers, private insurers, and patients in excess of a few hundred thousand dollars. The settlement was $3.3 million, of which $2.9 million was paid in penalties. This practice learned a rather expensive lesson: if you are holding money you’re not entitled to, give it back. Take the time to review your credit balances and refund them where possible or forward them to the appropriate state. Then create and adhere to a strict policy to review and refund credit balances on a monthly basis. This may represent a financial burden in the short term--it certainly will be an administrative burden—but it’s a burden that falls to the provider to bear.
Every practice will have credit balances. That’s normal. But keeping the “free money” is against the law and just not worth the risk of getting caught.