An extensive, fast-moving unclaimed property (UP) audit campaign of all forms of health care and health insurance companies — including for-profit, tax exempt, private and state-funded - is being conducted by third-party contract audit firms and the underlying states that hire them.

The audit notification may be from a "typical" UP contract auditor that examines the general ledgers of entities to determine if UP exposure exists beyond what is reported annually. One audit firm in particular, however, may be looking beyond the "typical" general ledger type assessment to property types and billing and reimbursement practices specific to the health insurance and health care industry. This firm previously audited the life insurance business, prompting billions of dollars in UP to be escheated to state governments, state law changes that resulted in significant assessments, and wholesale changes in the UP practices of that industry. This same contract audit firm is now focusing on the health insurance industry.

The type of UP that may be at issue for health care and health insurance companies include the following: accounts payable disbursements or voids, claim-related disbursements or voids, payroll, accounts receivable credit balances, patient and/or provider refunds, rebates, and reimbursements, and securities for public companies. Under this new health care-targeted audit initiative, specific to health insurance companies is Medicare and Medicaid, with an UP examination focus on:

— Billing discrepancies between the amounts state governments are funding health insurance companies for Medicaid and the amounts health insurance companies are dispersing to patients and members
— True-ups of over and under payments and reimbursements between Medicaid and health insurance companies
— Analysis of policies and procedures surrounding the tracking and accounting for enrolled members in Medicaid programs
— Methods utilized to calculate patient reimbursements
— Uncashed settlement checks from class action or mass tort litigation, if applicable.

In addition to the potential for having to remit UP to the states, these audits may expose health insurance or health care companies to reputational risk as the audits will focus on their financial practices, including the financial procedures behind Medicare and Medicaid reimbursement, to increased media, public and political scrutiny as unfair or detrimental to patients, policyholders, consumers, or state-funded health care plans.

Implications

Health care and health insurance companies should consider the risks (financial, reputational and otherwise) posed by this new audit initiative and assess their current unclaimed property reporting and remittance process and make necessary adjustments in advance of a formal audit. Potential risks include:

— A company's accounting, IT and legal resources can be significantly strained, as they try to manage audits and respond to inquiries that can last two years or more and may require compiling financial data and other information that could look back approximately 15 years
— Implementing a response to an UP audit can result in human resource and IT requirements that can often be more burdensome than the financial result of the audit.
— Internal policies and procedures found non-compliant with UP laws and state Medicaid laws will require revision and improvement.

Lastly, property is presumed abandoned until proven otherwise with detailed accounting research, the level of which is often very difficult to reach in third-party audit situations.

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