Sometimes, too much of a good thing creates a problem. In the modern hospital business office, that headache is often known as a “credit balance.”  With technology, the ultimate tool and weapon, medical providers are under increased pressure from state and federal governments to track overpayments. These overpayments, resulting in credit balances, come from all payors, as well as patients. Failing to properly resolve these on-the-books credit balances could have dire consequences, including allegations of fraud.

While not new to the healthcare finance world, credit balances remain a nuisance that must be dealt with by the business office. These balances reflect overpayments for providers’ services. They often occur when errors in patient visit records cause payment and adjustment transactions to accumulate in patient accounting systems.

Before the modern age of the computer and internet, providers worried little about credit balances. However, provider complacency has no place today with increasing rates of Medicare overpayment audits, commercial payor contractual reviews, and state governments’ unclaimed property audits. Providers have no choice but to focus their attention on credit balances by implementing a game plan to review, report and resolve them.

The sheer complexity of revenue management in healthcare leads to these overpayments. A typical health service for a single patient may be comprised of a high number of transactions performed by multiple providers and payors. Now, with multiple services, a single patient account from a provider may quickly can accumulate charges, adjustments and payments. This account becomes complicated when there are then more adjustments and reimbursements before the account’s balance is resolved months or years after the initial services were provided.

Adding extra pressure to the healthcare provider are the razor-thin margins and decreasing payments now being received. Provider business offices are highly motivated to collect payment for services. However, few providers are excited to commit full-time employees to researching and resolving credit balances. It is painful for a business to spend money in-house just so it can send money out the door.

Even more discouraging is how tricky and complicated working credit balances can be for a provider. To do it right, comprehensive credit balance management requires exhaustive reporting, as well as ongoing account review.

So why should a provider even bother?

To start with, there are the patient complaints to state agencies, unclaimed property penalties and interest, and even contractual requirements buried in the pages of payor agreements. If those were not enough reason, providers are now required by law to resolve credit balances in a timely manner. Under the Affordable Care Act (ACA), healthcare providers must report and return Medicare and Medicaid overpayments within 60 days of the credit balance’s identification. Failure to comply puts the provider at extreme risk of prosecution for fraud under the False Claims Act.

But wait, there’s more. The Centers for Medicare & Medicaid Services (CMS) requires that the process of reporting and repaying Medicare overpayments be done on a quarterly basis. CMS requires providers to include any known credit balances in its Medicare Credit Balance Report (see Form CMS-838). The provider must submit this report, along with a full payback of the overpayments, to CMS quarterly.

In the 20^th century, the provider’s patient accounting system could overlook credit balances for years without fear of harsh repercussions. Patients began this seismic shift with the demand for answers on credit balances, often demanding the overpayment be refunded to them or applied to current balances for other accounts the patient had with the provider.

Some providers, in an effort to stem this rising tide of patient outcry, simply stopped displaying credit balances on the patient statements. Other healthcare providers implemented patient-friendly customer service policies to address patient overpayments as well as issue refunds when requested by the patient.

Like sharks smelling blood in the water, states became aware of the gold mine of credit balances sitting in many health systems computer bases. Having simple audits allowed states to capitalize on the hard-to-miss credits by pursuing them as unclaimed property. States hired third-party auditors to review providers’ financial books with the full authority to go hard after these accounts. The states were motivated to pursue the healthcare industry as modern technology dried up their old unclaimed property revenue hunting grounds. Now, more than 500 hospitals across the United States are defending unclaimed property audits by states. Since 2014, this number of hospital audits has nearly doubled.

With the ACA in its back pocket, CMS began aggressively pursuing overpayments to healthcare providers. At first, the ACA allowed for a 10-year, look-back period on Medicare credit balance reporting. After much outcry from providers, that time frame was mercifully shortened to six years in a CMS final rule.

Still, there remained disagreement about the ACA’s requirement to return identified overpayments. The issue went before the U.S. District Court for the Southern District of New York in Kane v. Healthfirst, Inc., et al., in which the court considered the reverse false claims clause of the False Claims Act and its implications for providers that knowingly conceal or improperly avoid or decrease an obligation to a governmental entity. The Kane v. Healthfirst opinion relates to how you would interpret the identification of overpayments as referenced in the ACA’s 60-day overpayment rule. That rule says that any provider that knowingly fails to report and return an identified overpayment within 60 days is in violation of the False Claims Act and may be subject to a penalty for each claim. The ruling provided clarity by suggesting that a provider is responsible for returning overpayments to Medicare once it has reasonable knowledge of the existence of the overpayment.

Unfortunately for providers, it is not only Medicare credit balances that pose significant risk to healthcare organizations. Patient and commercial insurance credit balances can be extremely risky as well, even with provider compliance programs in place. All 50 states as well as several U.S. territories have unclaimed property reporting requirements that include credit balance accounts and outstanding refunds.

Many healthcare providers have a process to identify and report unclaimed property to the state. Unfortunately, many providers have a process of examining only outstanding payroll and accounts payable remittances, but overlook patient refunds and active credit balances in the patient accounting system.

Making it even more of a headache is the fact that many providers report unclaimed property only to the state in which the provider operates, failing to note the state of the last known address for the unclaimed property owner, such as the patient or payor. If this address is unknown, unclaimed property reporting requirements necessitate that  the credit balance be turned over to the reporting entity’s state of incorporation, rather than its state of operation. These details are critical because unclaimed property reporting requirements do vary by state.

Variances in state requirements include dormancy periods, due diligence requirements, report dates and statutory exemptions. For example, the dormancy period for credit balances and credit refunds ranges from three to five years, depending on the state. Most states begin calculating the aging period from the overpayment date or the refund-request date. Other states age the unclaimed property from the date of service or date of discharge. However, unless the patient prepaid for more services than were received, the credit balance should never date back to the discharge day.

So what to do?

Have a plan and execute it. Healthcare provider managers should consult with the provider’s tax and/or finance department to determine the appropriate course of action if there are significant, aged credit balances on the books. Inaction will only be more costly down the road.