Because of the mechanism through which the Recovery  Act increased the federal share of funding for Medicaid through an  increased FMAP, any provider that received Medicaid reimbursements  during 2009 received Recovery Act funds. Federal law does not prohibit providers with unpaid federal taxes from  enrolling in or receiving payments from Medicaid. A  provision of the Taxpayer Relief Act of 1997 authorizes IRS to  continuously levy (typically using an automated process) certain federal  payments made to delinquent taxpayers in order to collect tax debt, but  Medicaid reimbursements have never been collected using this provision  of the law. About 7,000 Medicaid Providers in the Selected States Owed Approximately $791 Million in Federal Tax Debt

Our analysis found that, as of September 30, 2011, about 7,000 Medicaid  providers in the three selected states had approximately $791 million in  unpaid federal taxes from 2009 or earlier. These providers represent about 5.6 percent of the approximately 125,000  Medicaid providers reimbursed by the selected states during 2009. These  7,000 Medicaid providers with unpaid federal taxes received a total of  about $6.6 billion in Medicaid reimbursements during 2009, which included  Recovery Act funds. The amount of unpaid federal taxes we identified  among Medicaid providers is likely understated because the IRS taxpayer  data reflect only the amount of unpaid taxes either reported by the taxpayer  on a tax return or assessed by IRS through its various enforcement  programs, and generally the unpaid federal taxes amount does not include  entities that did not file tax returns or underreported their income. These 40 providers received a total of $235 million in Medicaid  reimbursements. The  amount of unpaid federal taxes associated with these case studies is  about $26 million in total, ranging from approximately $100,000 (the  minimum threshold used to draw our sample) to over $6 million  individually. IRS may levy a taxpayer’s property to satisfy a tax debt, but IRS currently  may only subject Medicaid reimbursements to a onetime levy instead of a  continuous levy, because Medicaid reimbursements are not considered  “federal payments.” We estimate that if IRS were able to continuously  levy Medicaid reimbursements, it could collect from $22 million to $330  million from the three selected states for 2009, depending on the  circumstances of the levy and certain provider behaviors. The states that we  spoke to expressed concerns over the use of continuous levies and also  described problems related to the enforcement of onetime levies. For example, several states  experienced customer service–related challenges when working with IRS  including difficulty using the IRS customer service hotline, difficulty  reaching the IRS revenue officer, or problems with IRS sending levies to  the wrong address. III), IRS concurred with our  recommendation to explore opportunities to enhance collection of unpaid  federal taxes from Medicaid providers and noted that previous efforts  have revealed significant operational challenges. Appendix I: Objectives, Scope, and Methodology

Our objectives were to: (1) determine the magnitude of unpaid federal  taxes owed by Medicaid providers receiving reimbursements during 2009  in selected states, (2) provide examples of Medicaid providers who have  significant unpaid federal taxes, and (3) evaluate opportunities and  challenges related to collecting unpaid federal taxes through a levy  process designed to offset Medicaid reimbursements. Appendix II: Additional Cases of Medicaid Providers with Sizeable Outstanding Federal Tax Debt

The following table provides 30 additional examples of 2009 Medicaid  providers who received American Recovery and Reinvestment Act of  2009 (Recovery Act) funds, with sizeable outstanding federal tax debt.
Why GAO Did This Study

The Recovery Act increased the federal share of Medicaid funding. Federal law does not prohibit providers with tax debt from enrolling in Medicaid, but GAOs prior work found that thousands of Medicaid providers do have unpaid federal taxes. Since any provider who received Medicaid reimbursements during 2009 received Recovery Act funds, GAO was asked to (1) determine the magnitude of unpaid federal taxes owed by Medicaid providers reimbursed during 2009 in selected states; (2) provide examples of Medicaid providers who have sizeable unpaid federal taxes; and (3) evaluate opportunities and challenges related to collecting unpaid federal taxes through a levy process designed to offset Medicaid reimbursements.
GAO compared Medicaid reimbursement information from three states to known IRS tax debts as of September 30, 2009. These states were among those that received the largest portion of Recovery Act Medicaid funding. To provide examples of Medicaid providers who have sizeable unpaid federal taxes, GAO conducted a detailed review of 40 Medicaid providers from the three states that had over $100,000 of federal tax debt. GAOs sample of three states and 40 cases cannot be generalized to all states and all Medicaid providers. GAO also reviewed relevant laws and reports and interviewed federal and state officials.

What GAO Found

About 7,000 Medicaid providers in three selected states (Florida, New York, and Texas) had approximately $791 million in unpaid federal taxes from calendar year 2009 or earlier. This represents about 5.6 percent of the Medicaid providers reimbursed by the selected states during 2009. These 7,000 Medicaid providers with unpaid federal taxes received a total of about $6.6 billion in Medicaid reimbursements during 2009 (including American Recovery and Reinvestment Act of 2009 [Recovery Act] funds). The amount of unpaid federal taxes GAO identified is likely understated because Internal Revenue Service (IRS) taxpayer data reflect only the amount of unpaid taxes either reported on a tax return or assessed by IRS through enforcement; it does not include entities that did not file tax returns or underreported their income.
The 40 Medicaid providers GAO reviewed received a total of $235 million in Medicaid reimbursements (including Recovery Act funds) in 2009 and had unpaid federal taxes of about $26 million through 2010. The amount of unpaid federal taxes ranged from approximately $100,000 to over $6 million. In addition, IRS records indicate that providers in two of GAOs cases are currently, or have previously been, under criminal investigation. For example, in one case a provider was caught participating in a medical billing fraud.
IRS may levy, or seize, a taxpayers property to satisfy a tax debt and, in some instances, is authorized to use an automated process to continuously levy federal payments made to delinquent taxpayers. Medicaid reimbursements have never been continuously levied using this provision of the law because the IRS determined that these reimbursements do not qualify as federal payments. However, if such a process could be used, GAO estimates that IRS could have collected between $22 million and $330 million in the selected states in 2009. States we spoke to expressed concerns about implementing continuous levies, given the challenges they encounter with processing onetime IRS levies. For example, states have had difficulty reaching IRS revenue officers and problems with IRS sending levies to the wrong address.

What GAO Recommends

GAO recommends that IRS explore opportunities to enhance collection of unpaid taxes from Medicaid providers, including the use of continuous levies. IRS agreed with our recommendation.