Crowe Healthcare Summit Revenue Cycle Performance Unclaimed Property Done Right Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP
What is Unclaimed Property? Unclaimed Property & Escheat 54 U.S. jurisdictions Texas v. New Jersey (1965) nexus does not apply Common types of unclaimed property: Accounts payable, open payables Payroll or P-cards Accounts receivables Bank accounts, unapplied cash Rebates, gift cards Patient refunds, write-offs Benefits (non-erisa) Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 2
Question What is often the highest area of exposure for unclaimed property in healthcare organizations? Accounts payable checks Accounts receivable credit balances Tangible property Gift cards What s UP? Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 3
Question What is often the highest area of exposure for unclaimed property in healthcare organizations? Accounts payable checks Accounts receivable credit balances Tangible property Gift cards What s UP? Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 4
Unclaimed Property is Quite Common Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 5
Unclaimed Property is Quite Common Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 6
Question How many hospitals are under active unclaimed property audits? 100 200 300 400+ What s UP? Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 7
Question How many hospitals are under active unclaimed property audits? 100 200 300 400+ What s UP? Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 8
Question What is the contingency fee typically received by third party unclaimed property auditors? 3% 8% 12% 15% What s UP? Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 9
Question What is the contingency fee typically received by third party unclaimed property auditors? 3% 8% 12% 15% What s UP? Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 10
Question Which states collect the most revenue from unclaimed property audits and annual compliance reporting? California Delaware New York Washington D.C. What s UP? Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 11
Question Which states collect the most revenue from unclaimed property audits and annual compliance reporting? California Delaware New York Washington D.C. What s UP? Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 12
How is Unclaimed Property Claimed? State databases https://mycpa.cpa.state.tx.us/up/search.jsp Name or DBA name www.missingmoney.com Recovery by a third party Required documentation Address confirmation Officer signature Notary Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 13
State Intent Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 14
State Reality Audit Contracts Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 15
State Reality Audit Contracts Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 16
State Reality Audit Contracts Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 17
Do the Math $8,000,000 is 12% of $66,666,666 Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 18
Do the Math $8,000,000 is 12% of $66,666,666 Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 19
What Does a Typical Provider Report Process Look Like? Correct Outstanding checks Accounts payable Payroll Patient refunds Payor refunds Report to operating state Apply unclaimed property exemptions Incorrect Report only in operating state Report by facility Overlook some property types Do not apply statutory exemptions Overlook entities in the organization Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 20
Question Which type of entities often represent the most significant unclaimed property risk to a healthcare organization? Physician medical practices Home health services Acute care facilities Surgery centers What s UP? Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 21
Question Which type of entities often represent the most significant unclaimed property risk to a healthcare organization? Physician medical practices Home health services Acute care facilities Surgery centers What s UP? Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 22
Standard Operating Procedure for Providers Patient Accounting System Accounts Payable Payroll Patient Refund Requests Stale A/P Checks Stale Payroll Checks 70-80% Active A/R credits Unapplied Cash Small Write-offs Unclaimed Property Compliance Processing Due Diligence Letters UCP State Report(s) Letters required to be Reports required to be mailed during particular filed to state of payee. timeframes and for Instead, often specific dollar thresholds incorrectly filed ONLY Audit Tax Advisory Risk Performance per each state to state of 2015 Crowe Horwath LLP incorporation 23
Areas of Most Risk in Healthcare Unclaimed Property Various facilities and clinics Hospitals Surgery centers Clinics Nursing homes Physician practices Ancillary services Typical accounts Accounts receivable Small-balance adjustments Unapplied cash Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 24
Causes Of Credit Balances Payments Adjustments Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 25
Question What is the largest contract audit firm? Kelmar Xerox Discovery Audit Services Innovative Advocate Group What s UP? Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 26
Question What is the largest contract audit firm? Kelmar Xerox Discovery Audit Services Innovative Advocate Group What s UP? Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 27
Sample Kelmar Audit Data Request Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 28
Additional Insight Regarding Audits Temple-Inland, Inc. v. Thomas Cook, Kelmar, et al Federal judge to rule on Delaware extrapolation techniques Auditors move to first priority states Challenge for healthcare providers since extrapolation used in first priority states Auditors have exhausted large DE entities Seeking new industries with significant unclaimed property to pursue Credit balances provide ample opportunity for extrapolation Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 29
Question What type of organization has paid the most in unclaimed property audits over the last 5 years? Government entities Retail companies Hospitals Life Insurance What s UP? Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 30
Question What type of organization has paid the most in unclaimed property audits over the last 5 years? Government entities Retail companies Hospitals Life Insurance What s UP? Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 31
Question Which of the following hospital systems was one of the most recent to receive an unclaimed property audit notice? Intermountain Healthcare Community Health Systems Health Management Associates Tenet Healthcare What s UP? Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 32
Question Which of the following hospital systems was one of the most recent to receive an unclaimed property audit notice? Intermountain Healthcare Community Health Systems Health Management Associates Tenet Healthcare What s UP? Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 33
Aggressive Audit States Delaware California Texas Michigan New Jersey New York Ohio Florida Louisiana Massachusetts Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 34
Aggressive Audit States Delaware California Texas Michigan New Jersey New York Ohio Florida Louisiana Massachusetts Utah Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 35
Question How much time does the average patient accounting representative need to resolve a credit balance? 2 minutes 10 minutes 15 minutes 25 minutes What s UP? Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 36
Question How much time does the average patient accounting representative need to resolve a credit balance? 2 minutes 10 minutes 15 minutes 25 minutes What s UP? Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 37
Last Activity Date vs. Date of Service Number of Accounts Date of Service Last Activity Date Year 2013 2012 2011 2010 2009 2008 2007 2006 No Txs No DOS 10 2006 6 14 14 16 17 16 25 3 3 2007 29 22 33 23 68 30 4 2 2008 69 70 100 91 119 7 5 2009 140 157 187 146 35 34 2010 311 246 466 36 73 2011 473 338 73 76 2012 1372 478 172 2013 4155 5 802 2014 1 Sum of Account Balances Date of Service Last Activity Date Year 2013 2012 2011 2010 2009 2008 2007 2006 No Txs No DOS ($13,028.98) 2006 ($3,477.05) ($1,340.69) ($7,320.36) ($1,331.33) ($4,060.12) ($2,916.68) ($3,497.85) ($1,318.81) ($200.74) 2007 ($13,286.50) ($20,613.59) ($16,415.74) ($3,165.08) ($15,680.22) ($7,894.51) ($804.39) ($191.22) 2008 ($40,295.18) ($34,395.81) ($56,396.03) ($12,391.82) ($24,140.90) ($855.26) ($1,350.89) 2009 ($98,115.13) ($134,118.88) ($84,953.44) ($25,907.45) ($6,191.25) ($41,660.89) 2010 ($236,360.77) ($159,863.10) ($212,938.78) ($5,099.16) ($35,231.73) 2011 ($452,160.19) ($402,036.01) ($32,449.78) ($35,786.59) 2012 ($1,329,655.04) ($194,550.51) ($119,747.20) 2013 ($3,495,270.19) ($874.16) ($565,193.11) 2014 ($351.00) Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 38
Sample Extrapolation How to turn $9K into Accounts Receivable Issue Year Report Year Revenue 2009 2014 72,155,110 O/S Unclaimed Property- IL Total O/S Unclaimed- All States 2008 2013 80,505,952 7,963.01 13,480.94 2007 2012 71,471,382 1,077.74 17,385.15 2006 2011 62,272,164 151.87 9,187.95 Estimated Total Due 9,192.62 Total Estimate Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 39
Sample Extrapolation How to turn $9K into $109K Accounts Receivable Issue Year Report Year Revenue 2009 2014 72,155,110 O/S Unclaimed Property- IL Total O/S Unclaimed- All States Error Ratio Estimated Total Due 2008 2013 80,505,952 7,963.01 13,480.94 0.000167 2007 2012 71,471,382 1,077.74 17,385.15 0.000243 2006 2011 62,272,164 151.87 9,187.95 0.000148 2005 2010 60,955,068 0.000186 $11,337.64 2004 2009 61,813,919 $11,497.39 2003 2008 63,605,515 $11,830.63 2002 2007 62,015,897 $11,534.96 2001 2006 60,466,007 $11,246.68 2000 2005 58,954,851 $10,965.60 1999 2004 57,481,462 $10,691.55 1998 2003 56,044,896 $10,424.35 1997 2002 54,608,465 $10,157.17 1996 2001 54,401,242 $10,118.63 9,192.62 Total Estimate $109,804.60 Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 40
Property Types Dormancy Analysis Unclaimed Property Tool Unclaimed Property Client Crowe Horwath Compliance Regulations Various Exemptions Outstanding, Stale-dated Items Legal Support State Laws Statutory Definition Value-add Opportunity Required Compliance Identified Exemptions Unclaimed Property Exempt Accounts ADP Due Diligence UCP State Reports Detailed report of Supporting Audit Due diligence letters Final escheat reports specific accounts Defense Packet required to be mailed prepared for all meeting statutory documentation for and collected as part of reporting jurisdictions exemption requirements statutory exemptions the unclaimed property process Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 41
Aged Liability Risk and Opportunity Typical Liability Breakdown Active A/R Exempt AP/PR/OL Exempt Reported No Action Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 42
Reporting Priority Rules First Priority: State of the owner s last known address Second Priority: State of incorporation of the holder All healthcare providers are subject to escheat Reciprocity agreements typically will only cover incidental property (10 items or fewer) Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 43
Typical Provider Process Provider State Report State Health System Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 44
Let the Game Begin Provider State Report State Health System Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 45
Typical Provider Process Continued Health System Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 46
Best Practice Provider Process Provider State Report States Health System Top Side Consolidation Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 47
Risks and Benefits Risks Unclaimed Property Audit Often Very Costly Third Party Auditors (Contingency Fee) Extrapolation Benefits Exemption Analysis Don t Over-escheat Policies and Procedures and Consolidation Decreased Admin Costs Recoveries Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 48
Closing a Hospital System Credit Accounts Exemption Analysis Adjustment Reversals Future (Pro Forma) Exemption Analysis Dr. to Cr. Analysis Identification of Refunds Address Verification Escheat or Transfer Liability Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 49
Question Is it acceptable to write-off small balances? Yes No What s UP? Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 50
Question Is it acceptable to write-off small balances? Yes No What s UP? Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 51
Question What is often the most cost effective way to work a credit balance under $5? Outsource Move to escheat liability account Write-off to bad debt Resolve internally What s UP? Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 52
Question What is often the most cost effective way to work a credit balance under $5? Outsource Move to escheat liability account Write-off to bad debt Resolve internally What s UP? Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 53
Be Proactive Questions to Ask What happens to unapplied cash that is not applied or refunded? Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 54
Be Proactive Questions to Ask What happens to unapplied cash that is not applied or refunded? What is your policy for treatment of outstanding checks? Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 55
Be Proactive Questions to Ask What happens to unapplied cash that is not applied or refunded? What is your policy for treatment of outstanding checks? What is your process for sun setting a patient accounting system? Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 56
Be Proactive Questions to Ask What happens to unapplied cash that is not applied or refunded? What is your policy for treatment of outstanding checks? What is your process for sun setting a patient accounting system? What is your policy for treatment of aged credits within accounts receivables? Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 57
Be Proactive Questions to Ask What happens to unapplied cash that is not applied or refunded? What is your policy for treatment of outstanding checks? What is your process for sun setting a patient accounting system? What is your policy for treatment of aged credits within accounts receivables? Is there a small balance write-off policy in place in accounts receivables? Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 58
Be Proactive Questions to Ask What happens to unapplied cash that is not applied or refunded? What is your policy for treatment of outstanding checks? What is your process for sun setting a patient accounting system? What is your policy for treatment of aged credits within accounts receivables? Is there a small balance write-off policy in place in accounts receivables? How do you handle any undischarged obligations from an acquisition? Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 59
Be Proactive Questions to Ask What happens to unapplied cash that is not applied or refunded? What is your policy for treatment of outstanding checks? What is your process for sun setting a patient accounting system? What is your policy for treatment of aged credits within accounts receivables? Is there a small balance write-off policy in place in accounts receivables? How do you handle any undischarged obligations from an acquisition? Is unclaimed property in your third party billing company agreements? Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 60
Consolidated Reporting Uniform data collection process Uniform dormancy, due diligence, and exemption analysis State-specific unclaimed property reporting knowledge at each facility no longer needed Reduced cost of generating reports, cutting checks, and obtaining executive signature Standardization of financial records storage Single report to most states Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 61
What Now? Examine your internal processes Assess potential areas of risk Confirm internal resource expertise Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 62
What Now? Examine your internal processes Assess potential areas of risk Confirm internal resource expertise Call Crowe Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 63
Question An tax exempt hospital in Georgia is acquired by a for profit hospital in 2010 and reincorporated in Delaware. Delaware has a 5 year dormancy on vendor checks. A no address check from 2009 is reportable to what state? Delaware Georgia Texas Nebraska Final What sup? Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 64
Question An tax exempt hospital in Georgia is acquired by a for profit hospital in 2010 and reincorporated in Delaware. Delaware has a 5 year dormancy on vendor checks. A no address check from 2009 is reportable to what state? Delaware Georgia Texas Nebraska Final What sup? Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 65
Question An third party billing company is handling patient refunds for a physician group. The physician group funds the third party billing company once a month for cutting of checks on the third party bank account? Which entity is responsible for escheatment. Neither entity The physician group Depends on the contract The third party billing company Final What sup? Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 66
Question An third party billing company is handling patient refunds for a physician group. The physician group funds the third party billing company once a month for cutting of checks on the third party bank account? Which entity is responsible for escheatment. Neither entity The physician group Depends on the contract The third party billing company Final What sup? Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 67
Question A Florida patient is discharged from a hospital on 10/1/2006. The primary insurance company pays on 1/2/2007 and the patient makes an overpayment of $9 on 6/8/2007. The account is refunded without a patient request on 9/17/2010 and still outstanding. Florida has a 5 year dormancy with 5/1 report date. When is the check reportable? 5/1/2011 5/1/2012 5/1/2016 Not Reportable Final What sup? Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 68
For more information, contact: Eric Boggs Direct 615.360.5522 Mobile 317.514.4276 eric.boggs@crowehorwath.com Ryan Hartman Direct 615.360.5511 Mobile 602.561.7926 ryan.hartman@crowehorwath.com Crowe Horwath LLP is an independent member of Crowe Horwath International, a Swiss verein. Each member firm of Crowe Horwath International is a separate and independent legal entity. Crowe Horwath LLP and its affiliates are not responsible or liable for any acts or omissions of Crowe Horwath International or any other member of Crowe Horwath International and specifically disclaim any and all responsibility or liability for acts or omissions of Crowe Horwath International or any other Crowe Horwath International member. Accountancy services in Kansas and North Carolina are rendered by Crowe Chizek LLP, which is not a member of Crowe Horwath International. 2015 Crowe Horwath LLP Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 69
Fall Unclaimed Property Cycle The Unique Alternative to the Big Four Corporate 9 Sign reports and remit to appropriate states 2 5 11 Legal entity / department Provide requested data including payee details Review and confirm list of reportable items Record requested journal entries using summary exhibits End 3 Crowe UCP Coordinator 1 Request necessary data using collection template Start 4 Verify items not previously escheated or exempt Perform exemption and dormancy analysis Exempt? No 6 Send applicable due diligence letters 7 Track due diligence responses 8 Create final state reports No Due diligence response? Yes 10 Create final summary exhibits Yes Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 70 Jul Aug Sep Oct Nov Dec
Spring Unclaimed Property Cycle The Unique Alternative to the Big Four Corporate 9 Sign reports and remit to appropriate states at various spring filing deadlines 2 5 11 Legal entity / department Provide requested data including payee details Review and confirm list of reportable items Record requested journal entries using summary exhibits End 3 Crowe UCP Coordinator 1 Request necessary data using collection template Start 4 Verify items not previously escheated or exempt Perform exemption and dormancy analysis Exempt? No 6 Send applicable due diligence letters 7 Track due diligence responses 8 Create final state reports No Due diligence response? Yes 10 Create final summary exhibits Yes Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 71 Dec Jan Feb Mar Apr May Jun
Brief Case Study Medium sized hospital of 400 beds recently audited by third party audit firm Hospital settled in 2010 for $2.2M 75% of the liability related to accounts receivable credit balances Property types included in audit scope: Accounts Receivable Credit Balances Accounts Payable Wages Unapplied Payments Benefits Audit Tax Advisory Risk Performance 2015 Crowe Horwath LLP 72