Magnitude of Unpaid Taxes of Medicare Providers

Our analysis found that over 27,000 Medicare providers had over $2 billion  in unpaid federal taxes as of September 30, 2006. This represented over 6 percent of the approximately  436,000 Medicare providers paid during calendar year 2006. The amount of  unpaid federal taxes we identified among Medicare providers was  substantially understated because (1) we intentionally limited our scope to  providers with agreed-to federal tax debt for tax periods prior to 2006;   (2) the IRS taxpayer data reflected 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 thus the unpaid tax debt amount did  not include entities that did not file tax returns or underreported their  income; and (3) our analysis does not include Medicare providers that  owed taxes under separate TINs from those that received the Medicare  payments. Examples of Medicare Providers Involved in Abusive and Potentially Criminal Activity Related to the Federal Tax System

For all 25 cases involving Medicare providers with outstanding tax debt  that we audited and investigated, we found abusive activity, potentially  criminal activity, or both related to the federal tax system. Rather than fulfill their role as  “trustees” of this money and forward it to IRS as required by law, these  Medicare providers diverted the money for other purposes. In  addition, as discussed previously, willful failure to remit payroll taxes is a  criminal felony offense punishable by imprisonment up to 5 years. As a result, many of the Medicare providers in our case  studies continued to receive Medicare payments while failing to pay their  federal taxes. In addition to failure to pay taxes, our investigations also revealed that  certain Medicare providers had significant quality-of-care and other  problems. For example, several cases involved quality-of-care problems,  including patient neglect, for example, losing track of a patient in the  provider’s care who has not been found and not taking appropriate actions  to prevent a patient’s suicide. Even if such requirements did exist, absent taxpayer consent,  federal law generally prohibits IRS from disclosing taxpayer data, and  consequently, CMS and its contractors have no access to tax data directly  from IRS. In addition, CMS has not fully participated in the continuous  levy program. As a result, the federal  government potentially lost opportunities to collect over $140 million in  unpaid taxes during calendar year 2006. Further, CMS has not implemented a process for continuously levying  payments made by Medicare contractors. Recommendations for Executive Action

We recommend that the Administrator of CMS take the following two  actions:    To enhance program integrity, consider (1) issuing guidance requiring  Medicare contractors to determine to the extent feasible if prospective  Medicare providers (including any Medicare providers that reenroll  into Medicare) have delinquent federal taxes, including obtaining  applicant consent to inquire as to tax debt status from IRS, and   (2) using the results of those inquiries in determining whether to enroll  such providers into the Medicare program. Appendix I: Scope and Methodology

To identify the magnitude of unpaid federal taxes owed by Medicare  providers, we obtained and analyzed the Internal Revenue Service (IRS)  tax debt data as of September 30, 2006. We also obtained and analyzed  calendar year 2006 Medicare payments to providers from the Centers for  Medicare & Medicaid Services (CMS). To identify indications of abuse or potentially criminal activity, we  selected 25 Medicare providers for a detailed audit and investigation.
Why GAO Did This Study

Under the Medicare program, the Centers for Medicare & Medicaid Services (CMS) and its contractors paid over $400 billion in Medicare benefits in calendar year 2006. GAO was asked to determine if Medicare providers have unpaid federal taxes and, if so, to (1) determine the magnitude of such debts, (2) identify examples of Medicare providers that have engaged in abusive or potentially criminal activities, and (3) determine whether CMS prevents delinquent taxpayers from enrolling in Medicare or levies payments to pay taxes. To determine amount of unpaid taxes owed by Medicare providers, GAO compared claim payment data from CMS and tax debt data from the Internal Revenue Service (IRS). In addition, GAO reviewed policies, procedures, and regulations related to Medicare. GAO also performed additional investigative activities.

What GAO Found

Our analysis of data provided by CMS and IRS indicates that over 27,000 health care providers (i.e., about 6 percent of all such providers) paid under Medicare during calendar year 2006 had payroll and other agreed-to federal tax debts totaling over $2 billion. The $2 billion in unpaid tax debts only includes those debts reported on a tax return or assessed by IRS through its enforcement programs. This $2 billion figure is understated because some of these Medicare providers owed taxes under separate tax identification numbers (TIN) from the TINs that received the Medicare payments or they did not file their tax returns. We selected 25 Medicare providers with significant tax debt for more in-depth investigation of the extent and nature of any abusive or potentially criminal activity. Our investigation found abusive and potentially criminal activity, including failure to remit to IRS payroll taxes withheld from their employees. Rather than fulfill their role as "trustees" of this money and forward it to IRS as required by law, these Medicare providers diverted the money for other purposes. Willful failure to remit payroll taxes is a felony under U.S. law. Furthermore, individuals associated with some of these providers at the same time used payroll taxes withheld from employees for personal gain. Some of these individuals accumulated substantial wealth and assets, including million-dollar houses and luxury vehicles, while failing to pay their federal taxes. In addition, some providers received Medicare payments even though they had quality-of-care issues, such as losing track of a patient in their care who has not been found. CMS has not developed a policy to require contractors (1) to obtain consent for IRS disclosure of federal tax debts and (2) to screen providers for unpaid taxes. Further complicating this issue, absent consent by the taxpayer, which CMS does not require, federal law generally prohibits the disclosure of taxpayer data to CMS or its contractors. IRS can continuously levy up to 15 percent of each payment made to a federal payee--for example, a Medicare hospital--until that tax debt is paid. However, CMS has not incorporated most of its Medicare payments into the continuous levy program. As a result, for calendar year 2006, the government lost opportunities to potentially collect over $140 million in unpaid taxes.