6% of Medicare Providers Have Not Paid Taxes But Continue To Collect Medicare Payments, According to GAO Report

More than 27,000 Medicare providers, or 6%, owed back taxes totaling more than $2 billion in 2006, but they are still receiving full payments from the program, according to a Government Accountability Office report released on Thursday, the Washington Post reports (Lee, Washington Post, 6/20). For the report, ordered by the Senate Homeland Security Investigations Subcommittee, GAO examined about 436,000 Medicare providers who received payments in 2006 (Yen, AP/St. Paul Pioneer Press, 6/19). Medicare paid out $402 billion in 2006 (Washington Post, 6/20).

GAO found that $896 million, or about half, of the back taxes were from payroll taxes the providers withheld from employees but did not turn over to the Treasury Department. In some cases, the funds were diverted into personal accounts, according to the report (AP/St. Paul Pioneer Press, 6/19). According to the report, $581 million of the owed money was from individual income taxes (Zhang, Wall Street Journal, 6/20). The report did not identify the providers who owed back taxes (Hall, USA Today, 6/20).

The report also found that some nursing homes that owed taxes also had health and safety violations or did not have necessary licensing (AP/St. Paul Pioneer Press, 6/19). GAO said the total back taxes owed are "substantially understated" because the investigation did not include all Medicare providers, including those who did not file tax returns.

Recommendations
GAO made the same recommendation it made as early as 2001: CMS should adopt the Federal Payment Levy Program that would allow the Internal Revenue Service to withhold Medicare payments to providers until the back taxes are paid. Under the levy program, agencies often withhold about 15% of payments to providers. GAO estimates that Medicare would have collected more than $140 million in unpaid taxes in 2006 using this system (Wall Street Journal, 6/20).

The report also said that CMS should enhance screening of Medicare providers and require providers to disclose tax debts. Under federal law, IRS cannot disclose back tax information on providers, even to CMS, without the providers' permission.

The report states, "As federal deficits continue to mount, the federal government must take all effective measures to collect the billions of dollars of unpaid taxes. Because payroll taxes fund the Medicare program, Medicare providers should especially pay their fair share of taxes owed."

CMS Response
CMS officials said that they would consider GAO's recommendation to improve screening. In addition, they said that about 60% of Medicare payments would be subject to the levy system by October. The remaining payments would be subject to the levy system within the next few years.

Investigations Subcommittee Chair Carl Levin (D-Mich.) and ranking member Norm Coleman (R-Minn.) have introduced a bill that would require CMS to use the levy system for all Medicare payments within four years. The House has passed a similar bill (AP/St. Paul Pioneer Press, 6/19).