Considerations for Managing Patient Credit Balances Under State Unclaimed Property Laws
By Paul J. Welk, PT, JD*
As you read this article, it is very likely that every reader who is a physical therapy (PT) private practice owner has multiple patient accounts that currently reflect an amount of money that is owed to the patient, commonly referred to as a credit balance.
How a practice manages its patient credit balances is an important, and often overlooked, issue. The ramifications of mismanaging credit balances can be significant. This article will provide an overview of state unclaimed property laws (also known as “escheat”), discuss how these laws regulate credit balances, and review issues to consider when managing patient credit balances under state unclaimed property laws.
Unclaimed property can be defined as property or financial assets owed to an individual or business that is held by an individual or entity that does not have a legal claim to it. The purpose of unclaimed property reporting requirements is to best ensure that the property is returned to its rightful owner. In general, state unclaimed property laws require the holder of property that has been unclaimed for a period of time (also known as a “dormancy” period) to report and remit the property to the appropriate state agency. By way of example, Pennsylvania’s unclaimed property law includes a three-year dormancy period for credit balances and requires that reports for 2019 be filed by April 15, 2020.1 State unclaimed property laws also often set forth a property holder’s obligations to send notice to the owner of the property before a report is filed. Once unclaimed property is turned over to the state, the state then maintains it, seeks to locate the owner, and returns the funds to the owner once he or she is identified.
PT private practices, like other health care providers, frequently have large numbers of patients with credit balances. These credit balances can arise from insurance overpayments, a patient paying a deductible or copayment amount higher than what is ultimately deemed to be required, when patients have multiple insurers involved in the reimbursements process, and a variety of other circumstances. By way of example, if a practice incorrectly collects a $40 co-payment from a patient but later discovers that the co-payment should have been only $10, the $30 credit balance on the patient’s account will likely be subject to the state’s unclaimed property laws if the credit balance was not otherwise returned to the patient.2
In the author’s experience, PT private practices are often unaware of the reporting requirements relative to unclaimed property, and in some cases only become aware of these obligations once they are subject to a government audit or when significant credit balances are otherwise brought to the practice owner’s attention; for example, as part of financial due diligence in connection with a practice sale. In the context of a government audit, failure to comply with unclaimed property laws can result in significant penalties, fees, and interest payments. As part of the audit process, in certain cases a state may review a sample of a practice’s financial records and then seek to recover substantial dollar amounts based on statistical sampling methodologies. In the context of a practice sale, either a seller or buyer may be unaware of the importance of assessing compliance with unclaimed property laws and the potential liabilities that could result from noncompliance. Failure to appropriately consider unclaimed property liabilities in the context of a practice acquisition can lead to disputes among the buyer and seller following the sale as to how these liabilities should be handled.
In order to reduce risk in the area of unclaimed property, PT practices should start with a review of their respective state’s unclaimed property reporting requirements.3 For those practices that may have locations in multiple states, it is important to understand the various reporting requirements as to the different practice locations. The practice must also consider the state of residence of patients that are receiving physical therapy services and how this affects reporting obligations.
Once the practice has a familiarity with its obligations under the state’s unclaimed property law, it can perform an internal audit to assess its compliance with its obligations. If noncompliance is identified during an audit, the practice can take appropriate steps to address particular concerns. By way of example, many states offer a voluntary disclosure process for businesses that have failed to comply with the state’s requirements and wish to achieve compliance. This process often involves the business entering into an agreement under which it agrees, among other things, to comply with the state’s unclaimed property law and report all past-due unclaimed property. In exchange, the business may be eligible for a waiver of penalties and interest that would otherwise be assessed for non-compliance.
Based upon the particular requirements of the applicable state or states and any issues identified during the audit process, practices should implement policies and procedures for managing patient credit balances and timely returning the same to the patient or, when returning the credit balance is not possible, complying with the state’s unclaimed property reporting and remittance requirements. By way of example, a practice may elect to assess patient credit balances on the first business day of each month and establish procedures for returning credit balances where appropriate. In determining when a credit balance should be returned to a patient, practices can consider a variety of factors including the state’s dormancy period and whether the patient is receiving ongoing services from the practice such that the credit balance could be applied to a future financial obligation of the patient. As an additional resource to aide in maintaining compliance, certain practice management software or billing platforms may have functions which assist in tracking and managing credit balances.
Although patient credit balances may not initially appear to be an area of risk for a physical therapy practice, given the trend in many states to step up enforcement of unclaimed property law compliance, practices should take the time to consider how credit balances are managed and assure compliance with applicable state unclaimed property laws.
1Pennsylvania Treasury, Unclaimed Property, Property Recovery and Reporting. Pennsylvania Treasury website. https://www.patreasury.gov/unclaimed-property/holder/. Accessed February 23, 2020.
2Guide to Unclaimed Property Credit Balances and Credit Memorandum. North Carolina Department of State Treasurer website. https://files.nc.gov/nccash/documents/forms-and-guides/upcreditbal.pdf. Accessed February 18, 2020.
3Unclaimed Property Reporting Instructions. Texas Comptroller of Public Accounts website. https://comptroller.texas.gov/programs/unclaimed/. Accessed February 18, 2020.
Paul J. Welk, PT, JD, is a Private Practice Section member and an attorney with Tucker Arensberg, P.C. where he frequently advises physical therapy private practices in the areas of corporate and health care law. Questions and comments can be directed to firstname.lastname@example.org or (412) 594-5536.
Please note that this article is not intended to, and does not, serve as legal advice to the reader but is for general information purposes only.
*The author has a professional affiliation with this subject.