GAO report: Thousands of Medicare providers abuse federal tax system
Under the Medicare program, CMS and its contractors paid more than $400 billion in Medicare benefits in calendar year 2006, according to the GAO.
The GAO said it was asked to determine if Medicare providers have unpaid federal taxes and, if so:
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 the amount of unpaid taxes owed by Medicare providers, GAO said it 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, as well as performed other investigative activities.
The GAO analysis provided by CMS and IRS indicated that more than 27,000 healthcare providers (approximately 6 percent of all such providers) paid under Medicare during calendar year 2006 had payroll and other agreed-to federal tax debts totaling more than $2 billion. The $2 billion in unpaid tax debts only includes the debts reported on a tax return, or assessed by the IRS through its enforcement programs. The $2 billion figure is understated because some of the 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, according to the GAO.
The GAO 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.
The 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 the money and forward it to the IRS as required by law, the GAO said that these Medicare providers diverted the money for other purposes. Willful failure to remit payroll taxes is a felony under U.S. law.
Furthermore, the GAO found that at the same time, individuals associated with some of the providers used payroll taxes withheld from employees for personal gain. Some of the individuals accumulated substantial wealth and assets, including million-dollar houses and luxury vehicles, while failing to pay their federal taxes, according to the report. 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.
The GAO exemplified one particular, nameless hospital, which has an unpaid tax debt of $15 million, has received $21 million in Medicare payments. The GAO said the owners of the hospital were found liable for submitting false claims to Medicare from another medical business.
The report also found that CMS has not developed a policy to require contractors:
1. To obtain consent for IRS disclosure of federal tax debts; andFurther complicating this issue, the GAO said that in the absence of taxpayer consent—which CMS does not require—federal law generally prohibits the disclosure of taxpayer data to CMS or its contractors.
2. To screen providers for unpaid taxes.
The 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, according to the GAO. However, CMS has not incorporated most of its Medicare payments into the continuous levy program. As a result, for 2006, the government lost opportunities to potentially collect more than $140 million in unpaid taxes, according to the report.
Based on its findings, the GAO recommended that CMS consider issuing guidance to require Medicare contractors to screen prospective Medicare providers for unpaid taxes, including obtaining consent from these providers to disclose federal tax debts. The GAO also recommended that CMS incorporate all Medicare payments into the continuous levy program as expeditiously as possible.
In response to the report, CMS stated that it has taken some actions and is planning other actions to address GAO’s two recommendations.