By Dan Schulte, J.D.
MDA Legal Counsel
From the June 2011 issue of the Journal
Question: From time to time I have overpayments on my books. These overpayments arise from either an insurer paying in full for treatment that is not completed or payments mistakenly made in amounts higher than billed. This happens infrequently, the amounts are small, and it is a nuisance to deal with. What is my legal responsibility with an overpayment when I cannot locate the patient or the patient refuses to respond to my inquiries?
Answer: First, if the overpayment is the result of an amount you received from an insurer or dental plan, you should check the terms of your contract (assuming you participate with the insurer or dental plan) to determine your responsibility. I assume that returning an overpayment to insurers or dental plans is not problematic since they should be easy to locate and willingly receive the money back.
Locating individual patients can sometimes be problematic. This is especially true if you perform a review to determine whether overpayments exist only as part of closing the books at the end of the year and you have not seen or otherwise heard from a patient in months. They may have moved, died, etc. Your legal responsibility in this case is contained in Michigan’s Uniform Unclaimed Property Act (the "UUPA"). This UUPA governs "dormant" property. Property is considered dormant if the owner of the property does not take any action to obtain or reclaim his property for three years (one year in the case of court deposits and municipal bond interest). Property is defined broadly and includes uncashed checks, accounts receivable, credit balances, and insurance policy benefits. The overpayments you are holding on behalf of patients are credit balances and would be considered property under the UUPA. These credit balances become dormant if you have not heard from the patient seeking a refund for three years.
The UUPA requires the holder of unclaimed property to send a notice to the property owner (at his or her last known address) between 60 and 365 days before the property is considered dormant. This means that a dental office with a patient credit balance more than two years old must send a written notice informing the patient of the credit balance and that the office would like to return the funds to his/her last known address.
Once the credit balance becomes dormant according to the UUPA (after three years) you are required to report and remit the dormant funds to the state of Michigan. The report is due to the state of Michigan on July 1 of each year with respect to property reaching dormant status as of the previous March 31. The state of Michigan makes reporting software available as well as paper forms at www.michigan.gov/unclaimedproperty. The website also includes a "Manual for Reporting Unclaimed Property" that details the specific requirements of the UUPA.
There are penalties for a failure to comply with the UUPA. The Michigan Department of Treasury has the authority to audit your books for the previous 10 years looking for unclaimed property. A failure to file the report and remit the unclaimed dormant property by July 1 when required will result in you having to pay interest at a rate of 1 percent over prime per month. In addition to the interest, penalties may be levied equal to 25 percent of the value of the property not timely reported and remitted.
The best practice is to at least annually carefully review your books and records and identify any overpayments. You then should age the overpayments appropriately so that once they become 2 years old you can send (and keep a record of sending) the required notice. When they reach 3 years old, you should make the report and remit the funds to the state of Michigan.