The Healthcare Industry Gets a Dose of Unclaimed Property

by Maureen Ferrari 27. February 2017 15:07
Among the many compliance obligations that corporations have, one that can be the most complicated and costly to an organization, if neglected, is unclaimed property compliance. While each state has its own unclaimed property law, and no two laws are exactly alike, every state has the authority to audit the books and records of a holder if the state has “reason to believe” that the holder is not in compliance with the state’s unclaimed property law. States have recently targeted the healthcare industry, including both providers and insurers, for unclaimed property audits. The level of risk for an unclaimed property liability in the healthcare industry can be greater than average due to the unique accounting challenges that may give rise to its occurrence. This includes: · Multiple payors, including the patient, insurer or multiple insurers, Medicare/Medicaid can result in overpayment for services. It is often challenging to determine who is entitled to the refund. · Decentralized accounting systems in large healthcare organizations create risk on an enterprise-wide level, including all affiliates such as outpatient care centers, rehabilitation centers and physician practices. · Accounting adjustments/overpayment for contractual allowances. This can occur when a healthcare provider unknowingly uses an expired contract to estimate and record a receivable. If the incorrect amount is recorded and the payment is larger than the estimate, it will result in a credit. Other causes can be an incorrect billing for service or a miscoding of services provided. · De minimis write offs. Many healthcare institutions have a policy of writing off what they consider to be de minimis credit balances. According to most unclaimed property laws, there are no de minimis amounts of unclaimed property, therefore, any and all amounts are owed to the owner and if the owner cannot be located, they must be reported to the state. · Unapplied cash or other payment is common in the healthcare industry and can occur when they cannot be attributed to a specific patient. · Unclaimed patient accounts and security deposits are a common source of unclaimed property generated by long-term care and assisted living facilities. Recognizing that the healthcare industry is susceptible to unclaimed property liabilities, the states have begun to issue audit notices via their third-party audit firms. States frequently utilize the services of audit firms to represent the state in an audit because they lack the resources or expertise to engage in audits in certain industries. Most often, the audit firms will represent multiple states in the audit, with the state of incorporation taking the lead in the audit. It is not uncommon for unclaimed property audits to go on for years. What can healthcare providers do to minimize exposure? · Have detailed policies and procedures for the handling of inactive and unclaimed accounts. Keep them updated and ensure that the entire enterprise is operating under the same procedures. · Have a record retention policy to support unclaimed property compliance. While the typical record retention period for tax is seven (7) years, unclaimed property record retention should exceed ten (10) years, as that is often the minimum lookback period for an unclaimed property audit. · Ensure that unclaimed property liabilities are addressed in all contracts with third party providers. · Make an unclaimed property compliance review part of your merger and acquisition transactional due diligence. · Be aware of business to business transactions that may be exempt from unclaimed property in some states. · Ensure that transaction details are maintained or systems archived in the event of a system conversion. · Report unclaimed property on an annual basis to all states where a liability exists and ensure that all operating entities are reporting either on their own or as part of a consolidated enterprise-wide report. If your organization has a questionable or inconsistent unclaimed property reporting history, there are things that you can do to get ahead of an audit: · Control your own destiny. Perform a self-assessment to determine liability, state by state. · Take advantage of opportunities to voluntarily comply. Most states have a voluntary compliance/disclosure program that will allow you to report out-of-compliance property penalty and interest free. If you enroll in a voluntary program, you can likely avoid an audit. · Establish policies and procedures that are implemented enterprise-wide. It is important that all entities, divisions and subsidiaries are utilizing the same standards for handling and reporting dormant accounts. · Ensure that unclaimed property compliance is part of your compliance and risk evaluations. Consider hiring an advocate to evaluate your unclaimed property exposure and develop a compliance strategy that is cost effective and time sensitive. A state-specific solution is the best solution, as one size does not fit all when working with the states. Unclaimed Property Advocates, LLC, an affiliate of Urish Popeck & Co., LLC, is a full-service unclaimed property annual reporting and advisory service organization. For more information, please contact Maureen Ferrari Grollman, Managing Partner, at meferrari@upadvocates.com or via telephone at 610-256-7931.

Bitcoin Ransom Paid to Hackers

by Tim Marshall 7. March 2016 08:27
In a real warning sign about the attractiveness of of healthcare data to cyber criminals, a group of hackers infiltrated a hospital’s network and encrypted its data in order to collect a ransom from the hospital. Hollywood Presbyterian Medical Center employees noticed network issues on Feb. 5th, and it soon became apparent that their network had been infected with malware. Law enforcement and computer experts were contacted immediately, but the network wouldn’t regain full functionality for another 10 days while the ransom demand played out. Interestingly, the hackers demanded their ransom in bitcoin, most likely due to its difficulty to trace. According to hospital CEO Allen Stefanek, it was in the best interest of Hollywood Presbyterian Medical Center to pay the ransom of 40 bitcoins, equivalent to $16,664, to regain unencrypted access to their network. Encryption threats and ransom demands offer another way for the bad guys to profit from cybercrime. And with the proliferation of bitcoin and related technologies, it may become even more difficult to track them down or prosecute. Now that a ransom ploy has succeeded, this can’t help but have the effect of encouraging more ransom-motivated hacks.
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OK, it’s a tax. How will you collect it?

by Kelley Owen 10. July 2012 11:15
  In a 5-4 vote, the Supreme Court has upheld “Obamacare”.  Specifically, the court held that the individual mandate (that portion of the law that requires all Americans to purchase health insurance or pay a “penalty”) is not in reality a “penalty” but rather a tax; and, is therefore a constitutional application of Congress’ power to tax.   The court acknowledged that the mandate “is plainly designed to expand health insurance coverage,” and noted that “taxes that seek to influence conduct are nothing new” – case in point, taxing of cigarettes.  And, the court reasoned, the mandate does not make the failure to buy health insurance a violation of the law.  It merely requires a payment to the IRS for such failure.  However, the IRS may find itself hard pressed to actually collect this “tax”.  The tax has no criminal or civil penalties for failure to pay and no interest accrues.  And in essence, the only way for the IRS to actually collect the “tax” is to take it out of any refund that the taxpayer may have coming due.  So, if taxpayers manage their withholdings so there is no balance due from the IRS, the IRS has no way to enforce collection. The individual mandate is just one aspect of the Affordable Care Act.   The overall effect of the law on businesses, both large and small, on individuals, both rich and poor, must now be ferreted out and implemented before the many deadlines come due.  Stay tuned…..  
Categories: Tax

US Supreme Court Upholds Tax Provisions of the Patient Protection and Affordable Care Act

by Steven Sodini 9. July 2012 09:35
In a landmark 5 to 4 decision on June 28, 2012, the US Supreme Court upheld President Obama’s signature healthcare laws, the Patient Protection and Affordable Care Act (PPACA) and the Health Care and Education Reconciliation Act (HCERA).  Included in these controversial healthcare reform packages are a number of individual and business tax provisions, which have also been upheld by this decision. On the individual side, the PPACA increased the threshold to claim itemized deductions for unreimbursed medical expenses from 7.5% of adjusted gross income (AGI) to 10% of AGI for tax years beginning after December 31, 2012.  However, the Act provided an exception from the increased threshold for individuals who are age 65 and older before the close of the tax year.  The Act also increased the additional tax on distributions made after December 31, 2010 from health savings accounts (HSA’s) not used for qualified medical expenses from 10% to 20%. In addition, for tax years beginning after December 31, 2012, an additional .9% medicare tax is imposed on earned income (ie, wages and self-employment income) of individuals with earnings more than $200,000 (married couples filing jointly with earnings more than $250,000 and married couples filing separately with earnings more than $125,000).  Furthermore, the PPACA also imposes a 3.8% medicare contribution tax on unearned income for tax years beginning after December 31, 2012, which is imposed on the lesser of an individual’s net investment income for the tax year or their modified AGI in excess of $200,000 ($250,000 for married joint filers and $125,000 for married separate filers) (note that this additional tax is completely separate from any rate increase in the dividend tax rate that could result from the expiration of the Bush-era tax cuts on December 31, 2012).  Net investment income is defined by the PPACA as the excess of the sum of gross income less any otherwise allocable deductions from interest, dividends, annuities, royalties, and rents (unless any of these are derived in the ordinary course of a trade or business), income from any passive trade or business, and capital gains.  However, there are also important some important exceptions to the net investment income definition, including municipal bond interest, withdrawals from certain types of retirement plans, certain types of life-insurance proceeds, and income from an active trade or business.  Modified AGI (MAGI) is similar to AGI for most individuals, but can include addbacks for several above-the-line deductions, as well as withdrawals from certain types of retirement plans.  Thus, be aware that withdrawals from certain types of retirement plans can be simultaneously excluded from the definition of net investment income and added back as part of the MAGI calculation.   In addition, in the case of a gain on a home sale, which is normally excluded from taxation for most taxpayers, the gain itself could still result in a increase in the taxpayer’s MAGI, which could also end up triggering the additional 3.8% tax.  Finally, the PPACA included some miscellaneous tax provisions applicable to individuals.  The adoption credit became refundable for 2010 and 2011 (and the limit was increased to $13,360 for 2011).  The Act also subjected amounts paid for indoor tanning services after June 30, 2010 to a 10% excise tax.  In addition, Internal Revenue Code (IRC) Section 105(b) was amended to extend the exclusion from gross income for medical care reimbursements under an employer-provided accident or health plan to any employee’s child who has not reached age 27 by the end of the tax year.  The definition of child for this purpose also includes adopted children, step children, and foster children. On the business side, the PPACA created temporary IRC Section 45R, for the small employer health insurance tax credit for the tax years from 2010 through 2013, which is capped at 35% of health insurance premiums paid by small business employers (25% for small tax-exempt employers).  This credit increases to 50% for small business employers (35% for small tax-exempt employers) by 2013, but for 2014 and 2015, an employer must participate in an insurance exchange (outlined separately in the PPACA) in order to claim the credit, and the credit is scheduled to expire after 2015.  Note that other modifications and restrictions on the credit may also apply in a given tax year as well which are not discussed here. In addition, for tax years beginning after December 31, 2012, the PPACA limits contributions to health flexible spending accounts (FSA’s) to $2,500, which will be adjusted annually for inflation going forward.  The definition of medical expenses under health FSA’s was also modified after December 31, 2010 to included only prescription medications and insulin.  On June 7, 2012, the US House of Representatives approved the Health Care Cost Reduction Act of 2012, which among other things would re-expand the definition to include over-the-counter medications and would also modify the current “use it or lose it” rules for FSA’s to allow reimbursements of up to $500 of unused balances (which would then be included as income in the year of receipt).  However, it is unclear at this time whether the US Senate will take action on this legislation. Finally, the PPACA included some miscellaneous tax provisions applicable to businesses.  The PPACA allows for the establishment of a simple cafeteria plan for small businesses that meet certain criteria.  It also provides a 28% subsidy of covered prescription drug costs to employers that sponsor group health plans with drug benefits to retirees.  In addition, the HCERA also codified the “economic substance doctrine”, so that a transaction after March 30, 2010, is treated as having economic substance only if the transaction changes in a meaningful way, the taxpayer’s economic position and the taxpayer has a substantial business purpose for the transaction.  This includes a 20% penalty on most transactions that do not meet this test and a 40% penalty on all undisclosed transactions.  Furthermore, employer-sponsored healthcare coverage that exceeds a threshold amount ($10,200) is scheduled to be subject to a 40% excise tax, beginning in 2018.  Finally, for tax years beginning on or after January 1, 2011, the PPACA requires employers to report the aggregate cost of applicable employer-sponsored healthcare coverage on an employee’s Form W-2.  This reporting was optional for 2011, but although it is no longer optional for 2012, there are exceptions for small business filers.
Categories: Tax