5 Compliance Risks Lurking in Your Patient Credit Balance File

Patient credit balances—overpayments from patients or insurance companies—are an unavoidable part of the healthcare revenue cycle. While they may seem like a simple accounting issue, unresolved credit balances can expose your organization to significant compliance and financial risks. Ignoring them is not an option. Here are five of the most common compliance risks hiding in your patient credit balance file.

1. Violations of the False Claims Act (FCA)

The False Claims Act is a federal law that imposes liability on anyone who "knowingly" makes a false claim to the government. This includes a "reverse false claim," which is when a provider knowingly retains an overpayment from a government program like Medicare or Medicaid.

If a provider identifies a credit balance from a government payor and fails to investigate and refund it within 60 days, they could be held liable under the FCA. The penalties are severe, including fines of up to three times the amount of the overpayment, plus additional civil penalties for each false claim. This risk is amplified if your organization has a pattern of neglecting credit balances, which could be interpreted as "deliberate ignorance" or "reckless disregard" of your obligations.

2. Breach of State and Federal Refund Timelines

Both state and federal laws dictate specific timeframes for issuing refunds. For Medicare and Medicaid, providers must report and return overpayments within 60 days of identifying them. However, state laws can vary for commercial payors and patient overpayments. For example, some states may require refunds to be issued within 30 days.

Failing to meet these deadlines not only puts you at risk of fines but can also lead to audits and investigations. It's not enough to simply have a credit balance process; you must have one that is timely and adheres to the specific requirements of each payor type.

3. Misappropriation of Funds and Escheatment Laws

What happens when you can't locate a patient to issue a refund? Holding on to uncashed checks or unclaimed credit balances can lead to its own set of legal headaches. Every state has escheatment laws (also known as unclaimed property laws) that require companies to turn over unreturned funds to the state after a specified period.

Failure to properly manage this process and report unclaimed funds can result in hefty penalties. Without a clear policy and diligent efforts to locate and refund patients, your organization could be seen as misappropriating funds, further increasing your legal and financial exposure.

4. The Risk of Over-Refunding

It's not just about what you fail to refund—it's also about what you refund incorrectly. Many credit balance vendors are paid by payors to find and return overpayments. This creates a conflict of interest, as their incentive is to refund as much as possible, regardless of whether the money is truly owed.

This can lead to over-refunding, where your organization returns money that was a legitimate payment or an underpayment in disguise. The result is a loss of revenue and a misrepresentation of your financial position, all because your vendor's loyalty is to the payor, not to you.

5. Damaged Patient and Payor Relationships

Compliance is not just about avoiding legal trouble; it's also about building trust. A disorganized or delayed credit balance process can have a direct impact on your reputation. When patients wait months for a small refund, it erodes their trust and can lead to a negative patient experience. Similarly, a pattern of delayed or inaccurate refunds to commercial payors can strain relationships and impact future contract negotiations.

By proactively managing your credit balances, you're not only mitigating legal and financial risks but also demonstrating a commitment to ethical and transparent financial practices. This protects your organization's reputation and builds lasting trust with both patients and partners.