Medicare Accountants approximates 7,000 Medicaid Cost Report 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 Medicare Cost Report and Medicare Cost Report reimbursements that year, according to a new study by the Government Accountability Office and Medicare Cost Report Preparation firms.

This represents about 5.6 percent of the Medicare Cost Reporting 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 Medicare Cost Reports providers, including dentists, home care providers, doctors, hospitals, medical suppliers, and others. These individuals and businesses received a total of $235 million in Medicare Cost Reporting reimbursements while having unpaid taxes of about $26 million. The amount of unpaid federal taxes ranged from approximately $100,000 to over $6 million.

Medicare Accountants approximates 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 Medicare Cost Report Preparation providers with unpaid federal taxes we identified.”

Records reviewed by the Medicare Accountants 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 Medicare Cost Report Preparation 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.”

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 Medicare Cost Report 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 is 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 Medicare Cost Report providers.” While citing operational challenges, the IRS agreed to further explore “opportunities to enhance the collection of unpaid federal taxes.”