Approximately 7,000 Medicaid providers in three selected states—Florida, New York, and Texas—had an estimated $791 million in unpaid federal taxes from 2009 or earlier, but nonetheless received about $6.6 billion in Medicaid reimbursements that year, according to a new study by the Government Accountability Office.
Like what you see? Click here to sign up for Accounting Today's daily newsletter to get the latest news and behind the scenes commentary you won't find anywhere else.
This represents about 5.6 percent of the Medicaid providers reimbursed by the selected states during 2009. The report noted that the amount of unpaid federal taxes that the GAO identified is probably understated because taxpayer data from the Internal Revenue Service reflects only the amount of unpaid taxes either reported on a tax return or assessed by the IRS through enforcement. It does not include entities that did not file tax returns or underreported their income.
The GAO report also profiled 40 Medicaid providers, including dentists, home care providers, doctors, hospitals, medical suppliers and others. These individuals and businesses received a total of $235 million in Medicaid reimbursements, while having unpaid taxes of about $26 million. The amount of unpaid federal taxes ranged from approximately $100,000 to over $6 million.
These 40 cases, according to the report, show “the sizable amounts of unpaid federal taxes owed by some Medicaid providers, are among the most egregious examples of Medicaid providers with unpaid federal taxes we identified.”
Records reviewed by the GAO indicate that two of the providers reviewed by GAO investigators are currently, or were previously, under criminal investigation. One example of criminal behavior was a provider caught in a medical billing fraud scam. Another company was found guilty of “improperly prescribing controlled substances.”
Other providers profiled in the report took actions that were not illegal, but raised the suspicions of state regulatory agencies and others. For example, providers reviewed by the GAO have had their professional licenses revoked and have been fined by state oversight agencies for regulatory violations. One provider was disciplined by the state Board of Medicine for “quality of care and record-keeping violations.”
The GAO report was requested by Senators Tom Coburn, R-Okla., the ranking Republican member of the Senate Permanent Subcommittee on Investigations; Carl Levin, D-Mich., who chairs the subcommittee; Charles Grassley, R-Iowa, a member of the Senate Finance Committee; Max Baucus, D-Mont., who chairs the Finance Committee; and Orrin Hatch, R-Utah, ranking Republican member of the Finance Committee.
“GAO found that thousands of health care providers billing the Medicaid program were also tax cheats,” said Coburn in a statement. “People who cheat on their taxes show a clear disregard for the law so they might be more likely to defraud Medicaid, or even harm patients. GAO’s findings raise serious questions about steps that need to be taken to improve the integrity of the Medicaid program.”
Coburn, who is also a medical doctor, has introduced the Medicare and Medicaid Fighting Fraud and Abuse to Save Taxpayer Dollars Act (S.1251), also known as the FAST Act, a Senate proposal to crack down on fraud in federal health care programs.
“It is outrageous that heath care providers who cheat on their taxes are getting paid with taxpayer dollars through the Medicaid program,” said Levin. “The federal government ought to prohibit health care providers with unpaid taxes from enrolling in Medicaid, allow continuous levies on health care providers’ Medicaid payments to recover unpaid taxes, and authorize tax levies on Medicaid payments to Managed Care Organizations whose doctors or other principals are tax delinquent.”
More than 40 percent of the unpaid federal taxes owed by providers found in the investigation were from payroll taxes. Employers could be subject to civil and criminal penalties if they do not pay these payroll taxes.
The report also found 32 providers each received over $1 million in Medicaid reimbursements and each had over $1 million in total unpaid taxes. These providers combined to receive $310 million from Medicaid, while having $241 million in delinquent taxes.
The GAO investigators also found instances of providers entering into IRS payment plans and defaulting numerous times, or sending bad checks to the IRS. In addition, 75 percent of the providers reviewed did not file a tax return or file late at least once in the last decade.
Wining and Dining
One dentist profiled by the GAO owed over $100,000 in federal taxes, but nonetheless continued to spend money on “fine dining, trips, spas, shopping and wine.” Another couple bought a new home while their Medicaid business accumulated a $3 million tax debt.
More than 77 percent of the taxes owed by the 7,000 Medicaid providers came from payroll and individual and corporate tax. In addition, 72 percent of the taxes owed have been owed for more than five years, since 2007. The longer the IRS takes to collect taxes owed to the federal government, the odds grow that the tax revenue with never be collected.
The report showed that the IRS attempted to collect taxes from all 40 of the Medicaid health care providers who were examined in detail, but the IRS was often stymied due to hidden assets, broken commitments, or legal or corporate maneuvers taken by the providers to avoid paying their tax debts.
GAO investigators attempted to include the state of California in the report by obtaining Medicaid data from California, but determined that the data was unreliable for the purpose of the report and removed them from the analysis.
The report found that current federal law does not prohibit Medicaid providers who owe federal taxes from participating in Medicaid or receiving Medicaid payments. In addition, the report found that the IRS is limited to issuing a one-time tax levy to collect the unpaid taxes owed to the federal government. If the payment does not cover the tax debt owed, then the IRS has to issue another levy. Medicaid payments have never been continuously levied because they are not considered or do not qualify as “federal payments” under federal law.
If the IRS had a continuous levy authority for Medicaid, it could have collected between $22 million and $330 million from tax cheats from the three states studied, according to the report.
The report recommends that the IRS “explore further opportunities to enhance collections of unpaid federal taxes from Medicaid providers.” While citing operational challenges, the IRS agreed to further explore “opportunities to enhance collection of unpaid federal taxes.”