The healthcare industry has long been a target of unclaimed property audits. Healthcare companies, including hospitals, emergency medical facilities, health insurers, and pharmaceutical companies, have historically been a lucrative source of unclaimed property for states due to complexities surrounding the seemingly evasive costs of services. The additional confusion of which entity or individual is required to pay for those services further contributes to the problem.
Consider a patient who visits a medical center for an annual physical. That patient will likely receive a letter from the medical center that simply identifies the costs of services. The patient, now confused, pays this “bill.” The medical center then submits an invoice to a health insurer. Under the terms of the patient’s insurance coverage, the health insurer pays the medical center in full. The medical center has now been paid twice for the same services and has an unclaimed property issue.
This relatively simple example demonstrates just one of an infinite number of scenarios that create unclaimed property headaches for companies in the healthcare industry. Changes in technology have only added to the complexity and likelihood of unclaimed property exposure. For these reasons, states have historically viewed the healthcare industry as “low hanging fruit” for unclaimed property audits.
More recently, consolidation within the healthcare industry created additional unclaimed property exposure. A buyer generally inherits the unclaimed property exposure of any companies purchased—particularly in a stock acquisition—and states often attempt to assess an acquired entity’s unclaimed property liability against the buyer. Acquisitive companies in the healthcare industry should, therefore, ensure that a company has been compliant with all unclaimed property filings before any purchases. Likewise, selling companies that have not historically complied with unclaimed property filings should take measures to reduce exposure.
A buyer’s due diligence almost certainly creates larger unclaimed property exposure than a company could negotiate through a state-operated voluntary disclosure agreement (VDA) program. Most VDAs offer benefits such as limited look-back periods and penalty and interest relief. Companies that proactively obtain professional assistance also have the opportunity to reconcile potential unclaimed property to further reduce exposure. As such, a selling company should consult with unclaimed property professionals to determine the best course to limit unclaimed property exposure.
For more information on this topic, or to learn how Baker Tilly tax specialists can help, contact our team.
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.