Medicare: Thousands of Medicare Part B Providers Abuse the
Federal Tax System (20-MAR-07, GAO-07-587T).
Under the Medicare program, the Department of Health and Human
Services (HHS) and its contractors paid a reported $330 billion
in Medicare benefits in calendar year 2005. Because GAO
previously identified government contractors with billions of
dollars in unpaid federal taxes, Congress requested that we
expand our work in this area to all Medicare providers. This
testimony addresses Medicare physicians, health professionals,
and suppliers for services related to senior health care, who
received about 20 percent of all Medicare payments. Because of
limitations in HHS data, GAO was asked to determine if Medicare
Part B physicians, health professionals, and suppliers have
unpaid federal taxes, and if so, to (1) determine the magnitude
of such debts; (2) identify examples of Medicare physicians and
suppliers that have engaged in abusive, or potentially criminal
activities; and (3) assess HHS efforts to prevent delinquent
taxpayers from enrolling in Medicare and levy payments to pay
delinquent federal taxes. To perform this work, GAO reviewed data
from HHS and the Internal Revenue Service (IRS). In addition, GAO
reviewed policies, procedures, and regulations related to
Medicare. GAO also performed additional investigative activities.
We plan to report on the results of our work related to other
Medicare providers including any needed recommendations later
this year.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-07-587T
ACCNO: A67025
TITLE: Medicare: Thousands of Medicare Part B Providers Abuse
the Federal Tax System
DATE: 03/20/2007
SUBJECT: Debt
Debt collection
Delinquent taxes
Federal taxes
Health care personnel
Health care programs
Internal controls
Investigations into federal agencies
Medicare
Physicians
Program abuses
Waste, fraud, and abuse
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GAO-07-587T
* [1]Summary
* [2]Magnitude of Unpaid Taxes of Medicare Part B Physicians, Hea
* [3]Characteristics of Medicare Part B Physicians, Health Profes
* [4]Unpaid Federal Taxes of Medicare Part B Physicians, Health P
* [5]Examples of Medicare Part B Physicians, Health Professionals
* [6]Physicians, Health Professionals, and Suppliers with Unpaid
* [7]Concluding Comments
* [8]GAO Contacts
* [9]Appendix I: Scope and Methodology
* [10]Data Reliability Assessment
* [11]Appendix II: Medicare Physicians, Health Professionals, and
* [12]Appendix III: Medicare Physicians, Health Professionals, and
* [13]Order by Mail or Phone
Testimony
Before the Permanent Subcommittee on Investigations, Committee on Homeland
Security and Governmental Affairs, U.S. Senate
United States Government Accountability Office
GAO
For Release on Delivery Expected at 2:30 p.m. EST
Tuesday, March 20, 2007
MEDICARE
Thousands of Medicare Part B Providers Abuse the Federal Tax System
Statement of
Gregory D. Kutz, Managing Director
Forensic Audits and Special Investigations
Steven J. Sebastian, Director
Financial Management and Assurance
John J. Ryan, Assistant
Director Forensic Audits and Special Investigations
GAO-07-587T
Mr. Chairman and Members of the Subcommittee:
Thank you for the opportunity to discuss Medicare physicians, health
professionals, and suppliers paid under the Supplemental Medical Insurance
program, also know as Medicare Part B, who have abused the federal tax
system while doing business with the federal government. This testimony
provides the results of our most recent work related to identifying
abusers of the federal tax system. In recent hearings held by this
subcommittee,^1 we testified that federal contractors (Department of
Defense, federal civilian, and General Services Administration
contractors) abused the federal tax system with little consequence. Due to
the significance of the issues raised during those hearings, you asked us
to provide additional information about whether Medicare providers who
were paid by the government for Medicare-related services were engaged in
similar tax abuses. Because of limitations in the data provided to us by
the Department of Health and Human Services (HHS), this testimony will
cover physicians, health professionals, and suppliers who were paid under
Medicare Part B and engaged in tax abuses.^2 We plan to conduct a
subsequent audit and related investigations to determine whether other
Medicare providers, such as hospitals, durable medical equipment
suppliers, and skilled nursing facilities, have abused the federal tax
system while receiving Medicare payments.^3 Any recommendations needed to
address the issues raised in this testimony will be included as part of
our planned subsequent reporting on this area.
^1GAO, Financial Management: Some DOD Contractors Abuse the Federal Tax
System with Little Consequence, [14]GAO-04-414T (Washington, D.C.: Feb.
12, 2004); Financial Management: Thousands of Civilian Agency Contractors
Abuse the Federal Tax System with Little Consequence, [15]GAO-05-683T
(Washington, D.C.: June 16, 2005); and Financial Management: Thousands of
GSA Contractors Abuse the Federal Tax System, [16]GAO-06-492T (Washington,
D.C.: March 14, 2006).
^2For this testimony, we are defining physician, health professional, and
supplier to include the following: (1) Physician to include medicine,
doctor of osteopathy, doctor of dental surgery or dental medicine, doctor
of podiatric medicine, or doctor of optometry, and a doctor of
chiropractic legally authorized to practice by a state in which he/she
performs this function. (2) Health professional to include individuals and
businesses excluding physicians who may deliver covered Medicare services
if the services are incident to a physician's service or if there is
specific authorization in the law. They include nurse practitioners and
physician assistants, qualified clinical psychologists, clinical social
workers, certified nurses, midwives, ambulances, and certified registered
nurse anesthetists. (3) Supplier to include an entity that is qualified to
furnish health services covered by Medicare, other than providers,
physicians, and health professionals. They include ambulatory surgical
centers, independent physical therapists, mammography facilities,
independent occupational therapists, clinical laboratories, and portable
X-ray suppliers. For purposes of this testimony, durable medical equipment
suppliers were excluded, but we plan to examine them in the subsequent
audit.
The specific objectives of this audit and investigation were to determine,
to the extent possible, if physicians, health professionals, and suppliers
who receive Medicare Part B payments have unpaid federal taxes, and if so,
to (1) determine the magnitude of tax debts owed; (2) identify examples of
physicians, health professionals, and suppliers involved in abusive or
potentially criminal activities; and (3) assess HHS efforts to prevent
delinquent taxpayers from enrolling in Medicare and levy Medicare payments
to pay delinquent federal taxes.
To identify the magnitude of physicians, health professionals, and
suppliers with unpaid federal taxes, we obtained and analyzed Internal
Revenue Service (IRS) tax debt data as of September 30, 2005, and obtained
and analyzed the HHS database of Medicare Part B-approved claims paid to
physicians, health professionals, and suppliers for the first 9 months of
calendar year 2005.^4 We matched the list of Medicare physicians, health
professionals, and suppliers with IRS tax debts using the taxpayer
identification number (TIN). To illustrate examples of abuse or potential
criminal activity, based on our data mining, we selected 40 Medicare
physicians and suppliers for a detailed audit and investigation of the
extent and nature of such activity. For these 40 cases, we reviewed copies
of automated tax transcripts and other tax records (for example, revenue
officer's notes) and performed additional searches of criminal, financial,
health care, and public records. For these cases, we also updated the tax
debt amount as of September 30, 2006, to reflect any additional tax
assessments or collections that IRS recorded as of that date. To determine
whether HHS prevents physicians, health professionals, and suppliers who
owe tax debts from enrolling in Medicare or levying Medicare payments to
pay taxes, we examined the HHS regulations, policies, and procedures for
conducting determinations in the enrollment approval process. We also
interviewed officials from HHS, two large HHS Medicare contractors, IRS,
and the Department of Treasury's Financial Management Service (FMS)
concerning any barriers for levying Medicare payments. A more detailed
description of the scope and methodology related to our audit and
investigative work supporting this testimony is provided in appendix I.
^3In addition to Medicare providers, we are also conducting a separate
audit on Medicaid providers who have abused the federal tax system while
receiving Medicaid payments.
^4We requested the approved Medicare Part B claims to physicians, health
professionals, and suppliers for calendar year 2005. HHS was able to
provide us the first 9 months of calendar year 2005 claims by the end of
our review.
We conducted our work from June 2006 through February 2007. Our audit work
was performed in accordance with U.S. generally accepted government
auditing standards. We performed our investigative work in accordance with
standards prescribed by the President's Council on Integrity and
Efficiency.
Summary
Thousands of Medicare Part B physicians, health professionals, and
suppliers abused the federal tax system with little consequence.^5
Specifically, our analysis of data provided by HHS and IRS indicates that
over 21,000 Medicare Part B physicians, health professionals and
suppliers^6 had tax debts totaling over $1 billion.^7 This represented
about 5 percent of the number of all Medicare Part B physicians, health
professionals, and suppliers paid during the first 9 months of calendar
year 2005. The unpaid taxes largely consisted of individual income and
payroll taxes.^8 However, our $1 billion estimate of tax debts owed by
Medicare Part B physicians, health professionals, and suppliers is
understated because IRS data does not reflect all amounts owed by
businesses and individuals. Specifically, it does not include amounts (1)
owed by businesses and individuals that have not filed tax returns or that
have failed to report the full amount of taxes due (referred to as
nonfilers and underreporters) and (2) for which IRS has not determined
that specific tax debts are owed. Further, our past audits have also
indicated that IRS records contain coding errors that affect the accuracy
of taxpayer account information--including erroneous exclusion of tax debt
from IRS's collection activities. ^9
5We considered activity to be abusive when a Medicare Part B physician,
health professional or supplier's actions or inactions, though not
illegal, took advantage of the existing tax enforcement and administration
system to avoid fulfilling federal tax obligations and were deficient or
improper when compared with behavior that a prudent person would consider
reasonable.
^6Because some Medicare Part B physicians, health professionals, and
suppliers may do business with other federal agencies, some described in
this report may also have been included in our reports concerning
Department of Defense, General Services Administration, and civilian
federal contractors that abuse the federal tax system.
^7As of September 30, 2006, we estimate that the Medicare Part B providers
had over $1.3 billion in tax debts for tax year 2005 and prior years.
^8Payroll taxes are amounts that employers withheld from employees' wages
for federal income taxes, Social Security, and Medicare as well as the
related employer matching contributions for Social Security and Medicare
taxes. Employers are responsible for remitting payroll taxes to IRS and
are liable for any outstanding balance.
Our audits and investigations detail examples of the extent and nature of
abusive and criminal activity related to the federal tax system by 40
Medicare Part B physicians, health professionals, and suppliers. These 40
cases were paid by Medicare for a variety of services, including
physician, ambulance, laboratory, and imaging services. Many were
established businesses (such as corporations) that owed payroll taxes
withheld for their employees. Rather than fulfill their role as "trustees"
of this money and forward it to IRS as required by law, these physicians,
health professionals, and suppliers diverted the money for other purposes.
These payroll taxes included amounts withheld from employee wages for
Social Security, Medicare, and individual income taxes.^10 In one case, an
ambulance owner paid employees in cash and did not report this income to
the IRS. Although the ambulance owner was convicted for defrauding the
U.S. government, the ambulance company continued to receive Medicare
payments from HHS.
At the same time that they were not paying their federal taxes, many
individuals associated with our 40 cases bought or owned significant
personal assets, including commercial properties, multimillion dollar
homes, and luxury vehicles. One physician gambled millions of dollars at
the same time the individual owed hundreds of thousands of dollars in
federal taxes. Further, several of the case studies involved physicians
who were sanctioned by their state medical boards for, among other things,
drug abuse and substandard care of their patients.
HHS does not have policies in place to prevent physicians, health
professionals, and suppliers who have tax debts from enrolling in and
receiving payments from Medicare. Further, federal law generally prohibits
IRS from disclosing taxpayer data to HHS and its contractors unless the
taxpayer provides consent.^11 HHS has not established a policy to obtain
Medicare applicant's consent to obtain information from IRS to consider in
its Medicare eligibility decision making process. Specifically, HHS has
not developed Medicare regulations or HHS implementing policy to require
HHS or their contractors to (1) screen physicians, health professionals,
and suppliers for unpaid taxes and (2) require contractors to obtain
consent for IRS disclosure of federal tax debts. As a consequence, HHS has
no mechanism to prevent physicians, health professionals, and suppliers
who have tax debts from enrolling in or receiving payments from Medicare.
^9GAO, Financial Management: Some DOD Contractors Abuse the Federal Tax
System with Little Consequence, [17]GAO-04-95 (Washington, D.C.: Feb. 12,
2004); and GAO, Internal Revenue Service: Procedural Changes Could Enhance
Tax Collections, [18]GAO-07-26 (Washington, D.C.: Nov. 15, 2006).
^10Willful failure to remit payroll taxes is a criminal felony offense
while the failure to properly segregate payroll taxes can be a criminal
misdemeanor offense. 26 U.S.C. SS 7202, 7215 and 7512 (b).
Further, HHS has not taken advantage of an available program to collect
tax debts from physicians and other Medicare Part B providers. A provision
of the Taxpayer Relief Act of 1997 authorizes IRS to continuously levy
certain federal payments made to delinquent taxpayers.^12 However, in the
10 years since its passage, HHS has neither participated in the continuous
levy program nor actively participated in a task force dedicated to
improving the program's effectiveness. Thus, no tax debt owed by Medicare
Part B physicians, health professionals, and suppliers has ever been
collected through the continuous levy program.^13 As a result, we estimate
that for the first 9 months of calendar year 2005 alone the federal
government lost opportunities to collect between $50 million to $140
million in unpaid federal taxes because HHS has not worked with IRS to
effectively levy Medicare payments.
^11HHS Medicare contractors screen physicians, health professionals, and
suppliers prior to enrollment into the Medicare program. Medicare
contractors also process and pay the Medicare claims and are reimbursed by
CMS through the Medicare Trust Fund.
^12To improve the collection of unpaid taxes, IRS is authorized to
continuously levy up to 100 percent for federal payments related to goods
and services. To implement this levy authority, IRS, in coordination with
the Department of Treasury's FMS, implemented the Federal Levy Payment
Program (FPLP) in July 2000. The FPLP program utilizes FMS's Treasury
Offset Program (TOP) for the levy of federal payments..
^13To satisfy tax debts, IRS does have the authority to legally seize
property either held by the taxpayer or owned by the taxpayer and held by
a third party. This authority includes the seizure of Medicare receivables
held by Medicare contractors and owed to physicians, health professionals,
and suppliers. However, IRS policy is to use the levy against Medicare
payments for only flagrant cases. Unlike levies from the continuous levy
program, each levy is typically a one-time seizure of property (i.e.,
Medicare receivables) held by Medicare contractors at a specific point of
time and is done on a case-by-case basis based on the particular
circumstances of the case. IRS officials stated that they do not know how
much in tax levies were collected from Medicare payments.
Magnitude of Unpaid Taxes of Medicare Part B Physicians, Health Professionals,
and Suppliers
Our analysis of 2005 data found that over 21,000 physicians, health
professionals, and suppliers^14 who received Medicare Part B payments
during the first 9 months of 2005 had over $1 billion in unpaid federal
taxes as of September 30, 2005.^15 This represents about 5 percent of the
number of Medicare Part B physicians, health professionals, and suppliers
paid during the first 9 months of calendar year 2005. Because the IRS
database does not include amounts owed by taxpayers who have not filed tax
returns and for which IRS has not assessed tax amounts due, the estimated
amount of unpaid federal taxes is understated.
Characteristics of Medicare Part B Physicians, Health Professionals, and
Suppliers' Unpaid Federal Taxes
As shown in figure 1, about 91 percent of the over $1 billion in unpaid
taxes was comprised of federal individual income and payroll taxes. The
other 9 percent of taxes included corporate income, excise, unemployment,
and other types of taxes. Unlike our previous reports and testimonies on
contractors with tax debts, a larger percentage of taxes owed by these
physicians, health professionals, and suppliers was comprised of federal
individual income taxes, which are unpaid amounts that individuals owe on
their personal income. These taxpayers are typically either sole
proprietors or certain limited liability companies that report income
through individual income tax returns.^16
14Our estimate is for Medicare Part B physicians, health professionals,
and suppliers with tax debt applicable to the 2004 tax year and prior
years as of September 30, 2005. To avoid overestimating the amount owed by
Medicare physician and physicians and related suppliers with unpaid tax
debts and to capture only significant tax debts, we excluded (1) tax debts
that have not been agreed to by the tax debtor or affirmed by the court,
(2) tax debts from calendar year 2005, (3) approved Medicare claims less
than $100, and (4) tax debts less than $100.
^15As of September 30, 2006, we estimate that Medicare Part B physicians,
health professionals, and suppliers had over $1.3 billion in tax debts for
tax years 2005 and prior years.
^16Sole proprietors and certain limited liability companies may file
Medicare claims under their Social Security Numbers (SSNs). If these
physicians and related suppliers had employees, they would typically
report the payroll taxes under an employer identification number and not
their SSNs.
Figure 1: Medicare Part B Physicians, Health Professionals, and Suppliers
with Unpaid Federal Taxes (by Tax Type) as of September 30, 2005
As shown in figure 1, Medicare Part B physicians, health professionals,
and suppliers, which are corporations or other kinds of businesses, owed
about $430 million in federal payroll taxes. Employers are subject to
civil and criminal penalties if they do not remit payroll taxes to the
federal government. When an employer withholds taxes from an employee's
wages, the employer is deemed to have a fiduciary responsibility to hold
these amounts "in trust" for the federal government until the employer
makes a federal tax deposit in that amount. To the extent these withheld
amounts are not forwarded to the federal government, the employer is
liable for these amounts, as well as the employer's matching Federal
Insurance Contribution Act contributions for Social Security and Medicare.
Individuals within the business (e.g., corporate officers) may be held
personally liable for the withheld amounts not forwarded and assessed a
civil monetary penalty known as a trust fund recovery penalty.^17 Willful
failure to remit payroll taxes can also be a criminal felony offense
punishable by imprisonment of up to 5 years,^18 while the failure to
properly segregate payroll taxes can be a criminal misdemeanor offense
punishable by imprisonment of up to a year.^19 The law imposes no
penalties upon an employee for the employer's failure to remit payroll
taxes since the employer is responsible for submitting the amounts
withheld. The Social Security and Medicare trust funds are subsidized or
made whole for unpaid payroll taxes by the federal government's general
fund. Thus, personal income taxes, corporate income taxes, and other
government revenues not specifically designated for the trust funds are
used to pay for these shortfalls to the Social Security and Medicare trust
funds.
^1726 U.S.C. S 6672.
^1826 U.S.C. S 7202.
A substantial amount of the unpaid federal taxes shown in IRS records as
owed by Medicare Part B physicians, health professionals, and suppliers
had been outstanding for several years. As reflected in figure 2, about 85
percent of the over $1 billion in unpaid taxes were for tax periods prior
to calendar year 2004, with about 41 percent of the unpaid taxes for tax
periods prior to calendar year 2000.^20
Figure 2: Medicare Part B Physicians, Health Professionals, and Suppliers
with Unpaid Federal Taxes (by Calendar Year) as of September 30, 2005
^1926 U.S.C. S 7215 and 26 U.S.C. S 7512 (b).
^20A "tax period" varies by tax type. For example, the tax period for
payroll and excise taxes is generally one quarter of a year. The taxpayer
is required to file quarterly returns with IRS for these types of taxes,
although payment of the taxes occurs throughout the quarter. In contrast,
for income, corporate, and unemployment taxes, a tax period is 1 year.
Our previous work has shown that as unpaid taxes age, the likelihood of
collecting all or a portion of the amount owed decreases.^21 This is due,
in part, to the continued accrual of interest and penalties on the
outstanding tax debt which, over time, can dwarf the original tax
obligation. The amount of unpaid federal taxes we have identified does not
include all tax debts owed by physicians, health professionals, and
related suppliers due to statutory provisions that give IRS a finite
period under which it can seek to collect on unpaid taxes. Generally,
there is a 10-year statutory collection period beyond which IRS is
prohibited from attempting to collect tax debt.^22 Consequently, if these
physicians, health professionals, and suppliers owe federal taxes beyond
the 10-year statutory collection period, the older tax debt may have been
removed from IRS's records.^23 We were unable to determine the amount of
tax debt that had been removed.
Unpaid Federal Taxes of Medicare Part B Physicians, Health Professionals, and
Suppliers Is Understated
Although over $1 billion in unpaid federal taxes owed by Medicare Part B
physicians, health professionals, and suppliers as of September 30, 2005,
is a significant amount, it understates the full extent of unpaid taxes
owed by these or other businesses and individuals. The IRS tax database
reflects only the amount of unpaid federal taxes either reported by the
individual or business on a tax return or assessed by IRS through its
various enforcement programs. The IRS database does not reflect amounts
owed by businesses and individuals that have not filed tax returns and for
which IRS has not assessed tax amounts due. For example, during our audit,
we identified instances from our case studies in which Medicare Part B
physicians, health professionals, and suppliers failed to file tax returns
for a particular tax period and IRS had not assessed taxes for these tax
periods. Consequently, while these physicians, health professionals, and
suppliers had unpaid federal taxes, they were listed in IRS records as
having no unpaid taxes for that period. Further, our analysis did not
attempt to account for businesses or individuals that purposely
underreported income and were not specifically identified by IRS as owing
the additional federal taxes. According to IRS, underreporting of income
accounted for more than 80 percent of the estimated $345 billion annual
gross tax gap.^24 Consequently, the full extent of unpaid federal taxes
for Medicare Part B physicians, health professionals, and suppliers is not
known.
^21GAO, Internal Revenue Service: Recommendations to Improve Financial and
Operational Management, [19]GAO-01-42 (Washington D.C.: Nov. 17, 2000).
^22The 10-year time may be suspended for a variety of reasons, including
for periods during which the taxpayer is involved in a collection due
process appeal, litigation, or a pending offer in compromise or
installment agreement. As a result, fig. 2 includes taxes that are for tax
periods from more than 10 years ago.
^23For example, IRS wrote off over $350,000 for one of our cases because
those unpaid taxes could no longer be collected by IRS because it reached
its statutory extension period.
In addition to the IRS tax database not reflecting all assessed tax
amounts due, our past audits have also indicated that the IRS tax database
contains coding errors that adversely affect IRS's collection activities.
IRS's collection process is heavily dependent upon its automated computer
system and the information that resides within this system. In particular,
the codes in each taxpayer's account in IRS's tax database are critical to
IRS in tracking the collection actions it has taken against a tax debtor
and in determining what, if any, additional collection actions should be
pursued. For example, IRS uses these codes to identify cases it should
exclude from the continuous levy program,^25 which is an automated method
of collecting tax debt by offsetting certain federal payments made to
individuals and businesses, as well as from other collection actions.
While we did not evaluate the appropriateness of IRS's exclusions for this
testimony, the exclusions are only as good as the codes IRS has entered
into its systems. In our previous work, we found that inaccurate coding at
times prevented IRS collection action, including referral to the
continuous levy program.^26 Specifically, in November 2006, we estimated
that about $2.4 billion in tax debt was erroneously excluded from the
continuous levy program as of September 30, 2005. IRS did not identify and
correct the coding errors we found because it did not sufficiently monitor
the timely updating of the status and transaction codes or the effect of
computer programming changes. In addition, we found that the design of
IRS's policies for monitoring the status of financial hardship cases was
not sufficient to ensure the ongoing accuracy of such designations.^27
Therefore, effective management of these codes is critical because if
these codes are not accurately or appropriately updated to reflect
changing circumstances, cases may be needlessly excluded from collection
action, including the continuous levy program.
^24According to IRS, nonfilers and underpayment of taxes comprised the
rest of the gross tax gap.
^25Each week IRS sends FMS an extract of its tax debt files containing
updated account balances of tax debts that are already in TOP, the new tax
debts that need to be added to TOP, and all taxes in TOP that need to be
removed. FMS sends payment data to TOP to be matched against these unpaid
federal taxes. If there is a match and IRS has updated TOP to reflect that
it has completed all legal notifications, the federal payment is reduced
(levied) to help satisfy the unpaid federal taxes. In addition to federal
tax debts, the TOP database also includes federal nontax debts, state tax
debts, and child support debts.
^26GAO, Financial Management: Some DOD Contractors Abuse the Federal Tax
System with Little Consequence, [20]GAO-04-95 (Washington, D.C.: Feb. 12,
2004); and GAO, Internal Revenue Service: Procedural Changes Could Enhance
Tax Collection, [21]GAO-07-26 (Washington, D.C.: Nov. 15, 2006).
Examples of Medicare Part B Physicians, Health Professionals, and Suppliers
Involved in Abusive and Potentially Criminal Activity Related to the Federal Tax
System
For all 40 cases involving Medicare Part B physicians, health
professionals, and suppliers with outstanding tax debt that we audited and
investigated, we found abusive and/or potentially criminal activity
related to the federal tax system.^28 Of these cases, 25 involved
physicians, health professionals, and suppliers that had unpaid payroll
taxes dating as far back as the early 1990s. Rather than fulfill their
role as "trustees" of this money and forward it to IRS as required by law,
these physicians, health professionals, and suppliers diverted the money
for other purposes. IRS had trust fund recovery penalties in effect for 16
of the 25 business cases at the time of our review. In addition, as
discussed previously, willful failure to remit payroll taxes can be a
criminal felony offense punishable by imprisonment up to 5 years,^29 while
the failure to properly segregate payroll taxes can be a criminal
misdemeanor offense punishable by imprisonment of up to a year.^30 The
other 15 cases involved individuals who had unpaid individual income taxes
dating as far back as the 1970s.
^27IRS grants tax debtors experiencing financial difficulty a hardship
designation that excludes them from the continuous levy program and other
tax collection activities until their income increases. To measure this,
IRS solely uses the income reported on the tax debtor's annual tax
returns. However, IRS does not monitor those tax debtors to ensure they
are filing and paying current taxes. As we reported last year, for 31
financial hardship cases we examined, 24 had ceased to file tax returns.
^28For all cases, we performed searches of criminal, financial, tax, and
public records to determine whether the physicians and suppliers are
involved in other related entities. For each related entity, we determined
whether that entity had Medicare payments for the first 9 months of
calendar year 2005 and had unpaid federal taxes as of September 30, 2005.
In instances where we identified related parties with both Medicare Part B
payments and tax debts, we defined a case study to include those related
entities, and reported on the combined unpaid taxes and combined Medicare
Part B payments for the original individual/business and all the related
entities.
^2926 U.S.C. S 7202.
^3026 U.S.C. S 7215 and 26 U.S.C. S 7512 (b).
Our review of selected Medicare Part B physicians, health professionals,
and suppliers revealed significant challenges that IRS faces in its
enforcement of tax laws, a continuing high-risk area for IRS.^31 Although
the nation's tax system is built upon voluntary compliance, when
businesses and individuals fail to pay voluntarily, IRS has a number of
enforcement tools, including the use of levies, to compel compliance or
elicit payment. Our review of the 40 physicians, health professionals, and
suppliers found that IRS attempts to work with the businesses and
individuals to achieve voluntary compliance, pursuing enforcement actions
later rather than earlier in the collection process. Our review of IRS
records with respect to our 40 cases showed that IRS did not issue paper
levies to the Medicare contractors to levy the payments of physicians,
health professionals, and suppliers for 28 of our 40 cases. As a result,
most of the physicians, health professionals, and suppliers in our case
studies continued to receive Medicare Part B payments while owing their
federal taxes.
Our investigations revealed that, despite owing substantial amounts of
federal taxes to the IRS, some physicians, health professionals, and
suppliers had substantial personal assets--including multimillion dollar
homes and luxury cars. For example, one physician purchased a house for
over $1 million while his business owed over $1 million in federal taxes.
Another physician purchased a luxury vehicle, paid for partly with cash,
and gambled millions of dollars while owing over $400,000 in taxes.
In addition to failure to pay taxes, our investigations also revealed that
several physicians associated with our case studies received Medicare Part
B payments even though they had significant problems related to the
practice of medicine. Six physicians had been previously excluded from the
Medicare program for such things as professional incompetence, financial
misconduct involving a government-operated program, and failure to pay
health education loans. Further, 13 physicians in our cases had also been
sanctioned by their state medical boards for such things as substandard
care of their patients, drug abuse, abusive prescription writing,
unprofessional conduct, lack of moral character, income tax evasion,
embezzlement, aiding and abetting unlicensed practice, and illegible
patient records.
Table 1 highlights 15 of the 40 cases of Medicare physicians, health
professionals, and suppliers with unpaid taxes. Appendix II provides
details on the other 25 cases we examined. We are referring all 40 cases
we examined to IRS for further collection activity and criminal
investigation, if warranted.
^31GAO, High Risk Series: An Update, [22]GAO-07-310 (Washington, D.C.:
Jan. 2007).
Table 1: Summary Information on Unpaid Federal Taxes and Abusive and
Criminal Activity Related to 15 Medicare Part B Physicians, Health
Professionals, and Suppliers
Medicare
Part B paid
claims for
first 9
Nature of months of Unpaid
work / type calendar federal
Case of entity 2005^a tax^b Description of activity
Case 1 Physician / Over Nearly $1 o Physician has not made
Individual $100,000 million any federal tax payments
since the early 2000s.
o Hospital denied
physician's hospital
privileges due to
substandard care.
o State medical board
investigated physician for
disciplinary action.
o HHS IG had previously
excluded physician from
Medicare program.
o Physician delinquent on
child support.
o In 2 recent years,
physician reported to IRS
over $300,000 and $100,000
in net profit for the
business.
o Physician did not submit
claims to Medicare
contractor, sometimes for
months at a time, to avoid
IRS levies.
o IRS reported tax debts to
TOP for collection action.
Case 2 Physician / Up to Over o IRS generated tax returns
Individual $100,000 $600,000 for the physician for the
late 1990s and early 2000s
because the physician did
not file them. Physician
did not make any tax
payments for those tax
years.
o Physician convicted of
money laundering through
offshore accounts.
o Physician owns a related
business that owes over
$300,000 in taxes.
o Physician recently
submitted compromise offer
to IRS for less than one
half of individual income
taxes owed.
o Physician delinquent on
child support for tens of
thousands of dollars.
o HHS IG had previously
excluded physician from
Medicare program.
Case 3 Ambulance / Over $1 Nearly $11 o IRS assessed trust fund
Business million million recovery penalty against an
officer of the business.
o Business officer owns
several luxury vehicles.
o State Medicaid Fraud Unit
investigating business.
o Law enforcement seized
cash from business.
o Business received
thousands of dollars from
another federal agency over
a 2-year period.
o IRS reported tax debts to
TOP for collection action.
Case 4 Ambulance / Over Over $5 o Owner convicted of
Business $100,000 million defrauding the U.S.
government.
o Owner paid employees in
cash and did not report
their income to IRS.
o Business partially paid
payroll taxes while owner
was in prison. Business
owner stated that the
business officer used
company funds, in part, for
a party. IRS assessed trust
fund recovery penalty on
business officer.
o IRS established repayment
agreement in 2004 with
business for over $3,000
per month with possibility
of increasing payment in
the future.
o Owner owes nearly
$600,000 in individual
income taxes.
Case 5 Imaging / Over $1 Nearly $3 o Tax debt is primarily
Business million million unpaid payroll taxes.
o Business entered into
installment agreement of
about $6,000 a month but
subsequently defaulted for
failure to pay federal tax
deposits.
o Government agency fined
business over $1 million
for substandard work.
o Business lost over
$200,000 in adjudicated
medical malpractice claim.
o IRS recently issued a tax
refund for tens of
thousands of dollars to the
owner. IRS subsequently
filed a trust fund recovery
penalty against the owner,
thus missing an opportunity
to offset the refund
payment.
Case 6 Physician / Over Over $1 o Physician generally has
Individual $100,000 million history of not paying all
taxes owed since the early
1990s.
o In the early 2000s,
physician made compromise
offer of over $200,000 but
the offer was lost by IRS
in the review process.
Physician submitted revised
offer. No decision was made
on the compromise offers by
IRS.
o Physician has not filed
an individual income tax
return or paid any taxes
since early 2000s.
o Over $100,000 of the tax
debt owed by the physician
reached its statutory
collection expiration
period and can no longer be
collected by IRS.
o State medical board
reprimanded physician.
Case 7 Physician / Over Over $2 o Physician's tax debts are
Individual $100,000 million comprised of individual
income tax debt and trust
fund recovery penalty from
another business.
o Physician has extensive
history of not filing
individual income tax
returns or payroll tax
returns from another
business on time.
o Physician offered
installment agreement of
over $10,000 per month but
was rejected by IRS for his
failure to disclose
accounts receivables.
o Owner owns two other
businesses that owe over $1
million in unpaid federal
taxes.
o State medical board
sanctioned physician.
Case 8 Physician / Up to Over o Physician entered into
Individual $100,000 $400,000 installment agreement of
about $10,000 a month but
subsequently defaulted.
o HHS IG had previously
excluded physician from
Medicare program.
o State medical board
placed physician's license
on probation.
o Physician made multiple
large cash deposits
totaling tens of thousands
of dollars. Many of these
transactions were
structured to avoid
mandatory IRS reporting.
o Owner recently purchased
a luxury vehicle paid, in
part, by a large cash
transaction.
o At the same time the
physician was not paying
taxes, the physician made
millions of dollars in
gambling transactions.
o Physician reported about
$500,000 and over $100,000
in net profit for his
physician business in 2
recent years.
o Physician delinquent on
child support for tens of
thousands of dollars.
o IRS reported tax debts to
TOP for collection action.
Case 9 Physician / Up to Over o IRS suspended collection
Individual $100,000 $400,000 action on physician for
financial hardship.
o Hospital revoked
physician's clinical
privileges for substandard
care.
o HHS IG had previously
excluded physician from
Medicare.
o Business owes over
$150,000 to another federal
agency.
Case 10 Physician / Over Nearly o Owner convicted for
Business $100,000 $400,000 filing fraudulent tax
returns. Owner used
business accounts to pay
for personal expenses.
o Owner attempted to
transfer large amounts of
money to a country known
for state-sponsored
terrorism at same time the
business owed taxes.
o Owner owns multiple real
properties, including a
multimillion dollar home.
o Owner's recent reported
income was about $500,000.
o Owner closed business and
paid IRS the asset value of
business, which was
hundreds of thousands of
dollars less than taxes
owed. IRS listed business
as defunct. Owner started
virtually identical
business to get a new
start.
o IRS reported tax debts to
TOP for collection action.
Case 11 Ambulance/ Over $1 Nearly $2 o Business owns several
Business million million ambulance companies owing
tax debts, mostly payroll
taxes.
o Business officer decided
to "grow the business"
instead of paying federal
taxes.
o Business received over
$100,000 from another
federal agency over a
2-year period.
o Business obtained
contract for disaster
relief efforts.
o Business officer
possesses multiple real
properties, including house
on a golf course and luxury
vehicles, while owing
taxes.
o Company filed for
bankruptcy in the 2000s.
o IRS assessed trust fund
recovery penalty against an
officer of the business.
o IRS reported tax debts to
TOP for collection action.
Case 12 Physician / Up to Nearly o Owner owes over $400,000
Business $100,000 $400,000 in individual income taxes.
o Owner owns an expensive
house, liquor
establishment, and a plane
while owing taxes.
o IRS has not assessed
trust fund recovery penalty
for the payroll tax debts
because owner owes large
individual income taxes
liabilities that would make
the collection of trust
fund recovery penalty
unlikely.
o IRS reported tax debts to
TOP for collection action.
Case 13 Physician / Over Nearly $2 o Tax debt is primarily
Business $100,000 million unpaid payroll taxes.
o Business entered into
installment agreement of
about $20,000 a month but
subsequently defaulted.
o IRS assessed trust fund
recovery penalty against
owner. IRS erroneously
placed the account in
taxpayer claim status for
about 9 months suspending
certain collection
activities. During this
time, the owner was able to
purchase a house for over
$1 million and receive a
tax refund on his personal
taxes for thousands of
dollars.
o Owner receives income
from a tobacco farm.
o Physician lost over $1
million in adjudicated
medical malpractice claims.
Case 14 Physician / Up to Nearly $1 o Tax debt is primarily
Business $100,000 million unpaid payroll taxes.
o Business has history of
entering into installment
agreements with IRS and
defaulting on those
agreements.
o Owner transferred
properties worth over $2
million to his spouse while
IRS was pursuing collection
efforts.
o Owner leases luxury car
while owing taxes.
o IRS has not assessed
trust fund recovery penalty
for the payroll tax debts
because business is a sole
proprietor and, thus, owner
is personally liable for
the payroll taxes.
o IRS reported tax debts to
TOP for collection action.
Case 15 Physician / Over $1 Over $1 o Tax debt is primarily
Business million million unpaid payroll taxes.
o Owner recently submitted
compromise offer to IRS for
about one fourth of taxes
owed to be paid over 2
years. The amount to be
paid would cover the trust
fund recovery penalty
assessed on the business
owner.
o Owner's recent reported
income was about $500,000.
o Owner owns million dollar
house, a pleasure boat, and
several night clubs while
owing taxes.
Source: GAO's analysis of IRS, FMS, Medicare claims, public, and other
records.
Notes: Dollar amounts are rounded. A Medicare physician, health
professional, or supplier can submit claims using either an Employer
Identification Number (EIN) or Social Security Number (SSN). In our
testimony, any entity submitting a claim with an EIN is referred to as a
business, and any entity submitting a claim with an SSN is referred to as
an individual.
aMedicare Part B payments are physician, health professional, and supplier
claims approved by HHS for payment for the first 9 months of calendar year
2005.
bUnpaid tax amount as of September 30, 2006.
The following provides detailed information on three of the cases we
examined.
o Case 1: Although in 2 recent years, the physician's business
reported a net income of over $300,000 and $100,000, respectively,
the physician has not made any federal tax payments to IRS. In
addition, the physician has been delinquent in child support
during this time. As a result, the physician's spouse had to sell
the residence because the spouse could not afford the house. A
hospital revoked the physician's hospital privileges for
substandard care and the state medical board also investigated the
physician. The physician received over $100,000 in Medicare Part B
payments for the first 9 months of calendar year 2005.
o Case 2: A physician was convicted of money laundering through
offshore accounts. In addition to owing over $600,000 in federal
individual income taxes, the physician owes tens of thousands of
dollars in delinquent child support and also owns a related
business that owes over $300,000 in federal taxes. Even though
owing significant debts, the physician owns several residential
properties, including an overseas house. HHS paid the physician
nearly $100,000 in Medicare Part B payments during the first 9
months of calendar year 2005.
o Case 4: An ambulance business owner paid employees in cash and
did not report this income to IRS. The ambulance business owner
was convicted and incarcerated for defrauding the U.S. government.
While the owner was in prison, a business officer used company
funds to purchase property for the business officer instead of
paying the federal payroll taxes to IRS. In 2004, the business
negotiated and is paying on a repayment agreement of about $3,000
per month. These monthly payments are substantially less than the
interest that would accrue on the debt. HHS paid the ambulance
company over $100,000 in Medicare Part B payments during the first
9 months of calendar year 2005.
Physicians, Health Professionals, and Suppliers with Unpaid Taxes
Are Not Prohibited from Enrolling or Receiving Payments from
Medicare
HHS does not prevent physicians, health professionals, and
suppliers with tax debts from enrolling in or receiving payments
from the Medicare program. HHS has not developed Medicare
regulations or HHS implementing policy to require HHS or their
contractors to (1) screen physicians, health professionals, and
suppliers for unpaid taxes and (2) require contractors to obtain
consent for IRS disclosure of federal tax debts. However, because
HHS has not participated in the continuous levy program, no tax
debts owed by these physicians, health professionals and suppliers
are being collected through the program. As a result, the federal
government lost opportunities to collect between $50 million and
$140 million in unpaid taxes in the first 9 months of calendar
year 2005.^32
HHS Medicare contractors are responsible for screening physicians,
health professionals, and suppliers prior to enrollment into the
Medicare program. However, as part of the screening process,
neither HHS policies nor HHS regulations require Medicare
contractors to consider tax debts or tax-related abuses of
prospective physicians, health professionals, and suppliers.
Medicare contractors are also not required to conduct any criminal
background checks on these individuals. Medicare contractors are
required to review the HHS Office of Inspector General (OIG)
exclusion list and the General Services Administration (GSA)
debarment lists; however, these lists do not include all
individuals or businesses who have abused the federal tax
system.^33 The basis of exclusion of certain individuals and
entities from participation in Medicare programs is made by
statute.^34 The statute provides for both mandatory and permissive
exclusions. Mandatory exclusions are confined to health-related
criminal offenses while permissive exclusions concern primarily
non-health-related offenses. The Federal Acquisition Regulation
cites conviction of tax evasion as one of the causes for
debarment; indictment on tax evasion charges is cited as a cause
for suspension. Consequently, the deliberate failure to remit
taxes, in particular payroll taxes, while a felony offense, will
likely not result in an individual or business being debarred or
suspended unless there is an indictment or conviction of the
crime. Moreover, while a felony offense, the deliberate failure to
remit taxes, in particular payroll taxes, will likely not result
in an individual or entity being placed on the Medicare exclusion
or GSA debarment lists unless the taxpayer is convicted.
Even if an individual or entity is convicted of tax evasion or
other tax-related crime, the individual or business still may not
be placed on the Medicare exclusion or GSA debarment lists. To be
placed on these lists, federal agencies must identify those
individuals and businesses and provide them with due process. As
part of the due process, the agency must make a determination as
to whether the exclusion or debarment is in the government's
interest. None of the 40 cases that we investigated, including
those involving a conviction for tax-related crimes, are currently
on the Medicare exclusion or GSA debarment lists.
Further complicating HHS decision making on the consideration of
tax debts for Medicare, federal law does not permit IRS to
disclose taxpayer information, including tax debts, to HHS or
Medicare contractor officials unless the taxpayer consents.^35 HHS
has not established a policy to obtain Medicare applicants'
consent to obtain tax information from IRS to consider in its
Medicare eligibility decision making process. Thus, certain tax
debt information can only be discovered from public records if IRS
files a federal tax lien against the property of a tax debtor^36
or a record of conviction for tax offense is publicly
available.^37 Consequently, HHS officials and their contractors do
not have ready access to information on unpaid tax debts to
consider in making decisions on physicians, health professionals
and suppliers.
Further, HHS has not established policy to participate in the IRS
continuous levy program, thus preventing IRS from capturing at
least a portion of the Medicare payments made to physicians,
health professionals, and suppliers that owe tax debts. As stated
earlier, federal law allows IRS to continuously levy federal
vendor payments up to 100 percent until the tax debt is paid.^38
IRS has implemented this authority by creating a continuous levy
program that utilizes FMS's Treasury Offset Program system. In
July 2001, we reported that HHS did not have plans to participate
in the continuous levy program and we recommended that the
Commissioners of IRS and FMS work with HHS to develop plans to
include Medicare payments in the continuous levy program.^39 In
July 2006, IRS began to pursue HHS participation in the continuous
levy program through the Federal Contractor Tax Compliance (FCTC)
Task Force, a multiagency group dedicated to improving the
continuous levy process.^40 In response to IRS's request, HHS
began to participate in the FCTC Task Force meetings in February
2007.
If HHS had previously worked with IRS to levy Medicare Part B
payments, we estimate, using the conservative 15 percent rate that
FMS uses to levy civilian contractors,^41 the federal government
could have collected about $50 million in unpaid federal taxes for
the first 9 months of calendar year 2005. Using the 100 percent
rate authorized by law, the federal government could have
collected approximately $140 million. These estimates were based
on debt information IRS has reported to TOP as of September 30,
2005.
Concluding Comments
Thousands of Medicare Part B physicians, health professionals, and
suppliers have failed in their responsibility to pay federal taxes
they owe as individuals and businesses residing and conducting
business in this nation. Further our case studies demonstrate that
physicians and other medical service providers with federal tax
debts can receive Medicare Part B payments while engaging in
abusive and potentially criminal activity. In addition, our case
studies determined that some physicians who abused the federal tax
system are also not providing quality care to all of their
patients. Additionally, because HHS has failed to participate in
the continuous levy process since its authorization in 1997, the
federal government has missed the opportunity to collect hundreds
of millions of dollars in unpaid taxes from Medicare Part B
physicians, health professionals, and suppliers. The federal
government cannot afford to leave millions of dollars in taxes
uncollected each year in the current environment of federal
deficits, nor can it continue to permit physicians, health
professionals, and suppliers that have abused the federal tax
system from participating in the Medicare program.
^32The $50 million estimate is based on 15 percent rate that FMS uses to
levy civilian contractors. The $140 million estimate is based on the 100
percent rate authorized by law.
^33The OIG exclusion list provides information on health care providers
that are excluded from participation in Medicare, Medicaid, and other
federal health care programs because of criminal convictions related to
Medicare or state health programs or other major problems related to
health care (e.g., patient abuse or neglect). The GSA debarment list
provides information on individuals or entities that are debarred,
suspended, or otherwise excluded from participating in any other federal
procurement or nonprocurement activity. Federal agencies can place
individuals or entities on the GSA debarment list for a variety of reasons
including fraud, theft, bribery, and tax evasion.
^3442 U.S.C. S 1320a-7.
^3526 U.S.C. S 6103.
^36For example, 8 of the 40 cases for which we performed detailed audit
and investigation did not have federal tax liens filed against them. See
app. III for federal and state tax liens by each case.
^37Under section 6321 of the Internal Revenue Code, IRS has the authority
to file a lien upon all property and rights to property, whether real or
personal, of a delinquent taxpayer.
^38Of the 40 cases that we performed detailed review, IRS reported 16 of
them for continuous levy.
^39GAO, Tax Administration: Millions of Dollars Could Be Collected If IRS
Levied More Federal Payments, [23]GAO-01-711 (Washington, D.C.: July 20,
2001).
^40To address issues raised by our February 12, 2004, report and
testimony, this multiagency task force was established to help improve the
continuous levy program. The task force includes representatives from the
Department of Defense (DOD), Defense Finance and Accounting Service, IRS,
FMS, General Services Administration, Office of Management and Budget, and
Department of Justice. As a result of the actions undertaken by the task
force, IRS reported collecting millions in taxes through the improvements
in the continuous levy program.
^41In October 2004, Congress passed the American Jobs Creation Act 2004,
Pub. L.108-357, 118 Stat 1418 codified as amended in scattered sections of
26 U.S.C., to increase the maximum continuous levy from 15 percent to up
to 100 percent of payments to contractors with unpaid taxes. The act
specifically increased the continuous levy on payments to vendors for
"goods and services" sold or leased to the government. According to IRS,
the legal language, which specified that goods and services be subject to
the 100 percent levy provision, excludes real estate, such as rent
payments, from the new levy requirement. Because civilian agencies'
payment systems cannot separately identify real estate transactions from
other contractor payments, FMS could not implement the new law for
civilian payments and continues to levy payments at 15 percent.
Mr. Chairman and Members of the Subcommittee, this concludes our
statement. We would be pleased to answer any questions that you or
other members of the committee may have at this time.
GAO Contacts
For further information about this testimony, please contact
Gregory Kutz at (202) 512-7455 or [email protected] or Steve Sebastian
at (202) 512-3406 or [email protected] . Contacts points for our
Offices of Congressional Relations and Public Affairs may be found
on the last page of this testimony.
Appendix I: Scope and Methodology
To identify the magnitude of unpaid taxes owed by Medicare Part B
physicians, health professionals and suppliers, we requested from
Department of Health and Human Services (HHS) the related Medicare
Part B claims data for calendar year 2005.^1 HHS was only able to
provide us these data for the first 9 months of calendar year 2005
by the end of our review. We also obtained and analyzed the
Internal Revenue Service (IRS) unpaid assessment data as of
September 30, 2005. We matched the Medicare claim data to the IRS
unpaid assessment data using the taxpayer identification number
(TIN) field. To avoid overestimating the amount owed by Medicare
Part B physicians, health professionals, and suppliers with unpaid
tax debts and to capture only significant tax debts, we excluded
from our analysis tax debts and paid claims meeting specific
criteria to establish a minimum threshold in the amount of tax
debt and in the amount of paid claims to be considered when
determining whether a tax debt is significant. The criteria we
used to exclude tax debts are as follows:
o tax debts that IRS classified as compliance assessments or memo
accounts for financial reporting,^2
o tax debts from calendar year 2005 tax periods, and
o Medicare Part B physicians, health professionals, and suppliers
with total unpaid taxes and Medicare Part B paid claims of less
than $100.
The criteria above were used to exclude tax debts that might be
under dispute or generally duplicative or invalid, and tax debts
that are recently incurred. Specifically, compliance assessments
or memo accounts were excluded because these taxes have neither
been agreed to by the taxpayers nor affirmed by the court, or
these taxes could be invalid or duplicative of other taxes already
reported. We excluded tax debts from calendar year 2005 tax
periods to eliminate tax debt that may involve matters that are
routinely resolved between the taxpayer and IRS, with the taxes
paid or abated within the current year. We further excluded tax
debts and Medicare Part B paid claims of less than $100 because
they are insignificant for the purpose of determining the extent
of taxes owed.
To identify examples of abuse or potentially criminal activity, we
selected 40 Medicare Part B physicians, health professionals, and
suppliers with federal tax debts for detailed audit and
investigation. The 40 cases were chosen using a nonrepresentative
selection approach based on our judgment, data mining, and a
number of other criteria. Specifically, we narrowed the 40 cases
with unpaid taxes based on the amount of unpaid taxes, number of
unpaid tax periods, amount of payments reported by Medicare Part
B, and indications that owner(s) might be involved in multiple
companies with tax debts.
We obtained copies of automated tax transcripts and other tax
records (for example, revenue officer's notes and certain
individual tax returns) from IRS, and reviewed these records to
exclude physicians and suppliers that had recently paid off their
unpaid tax balances and considered other factors before reducing
our number of case studies to 40. We performed additional searches
of criminal, financial, and public records. In cases where record
searches and IRS tax transcripts indicate that the owners or
officers of a business are involved in other related entities^3
that have unpaid federal taxes, we also reviewed records of the
related entities and the owner(s) or officer(s), in addition to
the original business we identified. For each related entity, we
determined whether that entity had Medicare Part B payments for
the first 9 months of calendar year 2005 and had unpaid federal
taxes as of September 30, 2005. We updated the tax debt amount as
of September 30, 2006, to reflect any additional tax assessments
or collections that have occurred. In instances where we
identified related parties that had both Medicare Part B payments
and tax debts, our case studies included those related entities,
combining unpaid taxes and combined Medicare Part B payments for
the original individual/business as well as all related entities.
To determine the extent to which HHS officials and their
contractors are required to consider tax debts or other criminal
activities in the enrollment of physicians, health professionals,
and suppliers into Medicare, we examined Medicare regulations and
HHS policies and procedures for enrollment. We also discussed
policies and procedures used to enroll physicians, health
professionals, and suppliers into Medicare with officials from two
Medicare contractors. As part of these discussions, we inquired
whether HHS and their contractors specifically consider tax debts
or perform background investigations to determine whether
prospective physicians, health professionals, and suppliers are
qualified before their enrollment to Medicare is granted.
To determine the extent to which HHS levies Medicare Part B
payments to physicians, health professionals, and suppliers owing
tax debts, we examined the statutory and regulatory authorities
that govern the continuous levy program to determine whether any
legal barriers exist. We also interviewed officials from HHS, two
Medicare contractors, IRS, and Department of Treasury's Financial
Management Service (FMS) officials as to any operational
impediments for the continuous levy of provider payments to pay
federal tax debts.
To determine the potential levy collections on the first 9 months
of calendar year 2005, we used 15 percent and 100 percent of the
total paid claim or total tax debt amount reported to TOP per IRS
records, whichever is less. To be conservative, we used the 15
percent rate that FMS uses to levy civilian contractors. A gap
will exist between what could be collected and the maximum levy
amount calculated because (1) tax debts in TOP may not be eligible
for immediate levy because IRS has not completed due process
notifications, and (2) IRS may remove tax debts from the levy
program because the taxpayer filed for bankruptcy, negotiated an
installment agreement, or some other action which made the
taxpayer ineligible for the levy program.
Data Reliability Assessment
To determine the reliability of the IRS unpaid assessments data,
we relied on the work we performed during our annual audits of
IRS's financial statements. While our financial statement audits
have identified some data reliability problems associated with the
coding of some of the fields in IRS's tax records, including
errors and delays in recording taxpayer information and payments,
we determined that the data were sufficiently reliable to address
this report's objectives. Our financial audit procedures,
including the reconciliation of the value of unpaid taxes recorded
in IRS's masterfile to IRS's general ledger, identified no
material differences.
For HHS's Medicare claims history and FMS's TOP databases, we
interviewed HHS and FMS officials responsible for their respective
databases. In addition, we performed electronic testing of
specific data elements in the databases that we used to perform
our work.
Based on our discussions with agency officials, review of agency
documents, and our own testing, we concluded that the data
elements used for this testimony were sufficiently reliable for
our purposes.
We conducted our audit work from June 2006 through February 2007
in accordance with U.S. generally accepted government auditing
standards, and we performed our investigative work in accordance
with standards prescribed by the President's Council on Integrity
and Efficiency.
^1Physician claim data consists of all Part B claims processed for
physicians, health professionals, and suppliers by Medicare contractors
excluding durable medical equipment. As such, durable medical equipment
will be reviewed in the subsequent audit.
^2Under federal accounting standards, unpaid assessments require taxpayer
or court agreement to be considered federal taxes receivables. Compliance
assessments and memo accounts are not considered federal taxes receivable
because they are not agreed to by taxpayers or the courts.
^3We define related entities as entities that share common owner(s) or
officer(s), a common TIN, or a common address.
Appendix II: Medicare Physicians, Health Professionals, and
Suppliers with Unpaid Taxes
This appendix presents summary information on the abusive or
potentially criminal activity associated with 25 of our 40 case
studies.^1 Table 2 summarizes the abuse or potentially criminal
activity related to the federal tax system for these 25
physicians, health professionals, and suppliers that also received
Medicare Part B payments in 2005. The cases involving businesses
primarily involved unpaid payroll taxes.
Table 2: Summary Information on Other Medicare Part B Physicians, Health
Professionals and Suppliers with Unpaid Federal Taxes
Medicare Part
B paid claims
for first 9
Nature of work months of Unpaid
/ type of calendar federal
Case entity 2005^a tax^b Description of activity
Case 16 Medical Imaging Up to Nearly o Tax debt is primarily
/ Business $100,000 $900,000 unpaid payroll taxes
covering over 15 tax
periods. For most of
these tax periods,
business made no tax
payments.
o IRS assessed trust
fund recovery penalty
against the owner of the
business.
o Business filed for
bankruptcy in 2000s.
o State agency
investigated and closed
business for negligent
services.
o IRS reported tax debts
to TOP for collection
action.
Case 17 Physician / Up to Over o Tax debt is individual
Individual $100,000 $100,000 income tax debt owed
from the mid 2000s.
o IRS recently levied
over $200,000 in
investments that paid
off individual income
taxes owed from the late
1990s to the early
2000s.
o State medical board
suspended physician's
license.
o Physician filed for
bankruptcy in 2000s.
Case 18 Physician / Up to Over o Physician has not
Individual $100,000 $400,000 filed tax returns to the
IRS since late 1990s.
o State medical board
reprimanded physician.
o HHS IG had previously
excluded physician from
Medicare program.
Case 19 Physician / Over Over o Physician's tax debt
Individual $100,000 $400,000 is largely comprised of
individual income taxes
owed for tax years in
the 1990s.
o HHS IG had previously
excluded physician from
Medicare program.
o State medical board
suspended physician's
license.
o Physician owes over
$100,000 to another
federal agency.
Case 20 Physician / Up to Over $3 o Physician has
Individual $100,000 million generally refused to pay
federal income taxes
since 1970s.
o Physician is a tax
protester.
o Physician attempted to
convey residential
property to children to
prevent foreclosure by
IRS.
o Over $350,000 of tax
debt owed by the
physician reached its
statutory collection
expiration period and
can no longer be
collected by IRS.
o Physician owes over $1
million to another
federal agency.
Case 21 Physician / Up to Nearly o Physician offered
Individual $100,000 $900,000 installment agreement of
about $1,000 a month.
o Physician did not make
federal income tax
payments for several
years in 2000s.
o State medical board
suspended physician's
license.
o Physician was
convicted of income tax
evasion.
Case 22 Ambulance / Over Nearly o Business offered
Business $100,000 $700,000 installment agreement of
about $20,000 a month
but was rejected by IRS
because taxpayer did not
stay current with either
making required payroll
tax deposits or filing
required payroll tax
returns.
o Business officer
admitted to using tax
money for another
business.
o IRS is investigating
business for abusing
filing requirements.
o IRS is in the process
of assessing trust fund
recovery penalty for the
payroll tax debts.
Case 23 Physician / Over Nearly $3 o IRS revenue officer
Individual $100,000 million noted that taxpayer used
compromise offers to
delay collection
efforts.
o State medical board
suspended physician's
license.
o Physician is under
investigation for
illegally transferring
assets so that IRS
cannot seize them.
o IRS reported tax debts
to TOP for collection
action.
Case 24 Physician / Over Over $1 o Physician's tax debt
Individual $100,000 million is largely comprised of
individual income taxes
owed for tax years in
the 1990s. Physician
also owes a trust fund
recovery penalty for
over $100,000.
o Physician stated that
he did not pay taxes
because of purchase of
businesses and payment
of children's college
education.
o Physician owns house
near a country club
worth over $500,000
while owing taxes.
o Physician's recent
reported income was over
$500,000.
o IRS reported tax debts
to TOP for collection
action.
Case 25 Physician / Over Over $2 o Tax debt is primarily
Business $100,000 million unpaid payroll taxes.
o Owner claimed that
taxes were not paid
because Medicare and
Medicaid were slow in
paying claims.
o Owner owns
multimillion dollar
house, as well as
paintings, antiques, and
other collectibles worth
hundreds of thousands of
dollars while business
owed taxes.
o Owner recently closed
business and started a
new company. At about
the same time, the
business owner paid over
$1 million in trust fund
recovery penalty
payments to pay off the
personal assessment.
However, even with these
payments, business still
owes over $2 million in
unpaid taxes.
Case 26 Ambulance/ Over $1 Nearly $2 o Tax debt is primarily
Business million million unpaid payroll taxes.
o Business has generally
not made any federal tax
deposits since
mid-2000s. Owner stated
that tax returns were
not filed because owner
did not have the money
to pay payroll taxes.
o Multiple federal and
state tax liens totaling
nearly $2 million filed
against the business.
o Business received
thousands of dollars
from another federal
agency over a 2-year
period.
o IRS is in the process
of assessing trust fund
recovery penalty for the
payroll tax debts.
o IRS reported tax debts
to TOP for collection
action.
Case 27 Physician / Over Over $1 o Tax debt is primarily
Business $100,000 million unpaid payroll taxes.
o Owner owes over
$600,000 in individual
income taxes.
o IRS classified account
as a financial hardship.
o Owner owns $2 million
dollar house.
o Owner made large cash
withdrawals totaling
hundreds of thousands of
dollars during the time
little or no payroll
taxes were paid to IRS.
o State medical board
sanctioned physician.
o IRS has not assessed
trust fund recovery
penalty for the payroll
tax debts because
business is a sole
proprietor and thus is
personally liable for
the payroll taxes.
Case 28 Ambulance / Over Over $1 o Tax debt is primarily
Business $100,000 million unpaid payroll taxes.
o Business under court
order to pay IRS tens of
thousands per month.
o Owner owns another
business that owes over
$400,000 in payroll
taxes.
o IRS assessed trust
fund recovery penalty
against the owner of the
business.
o Business obtained
contract for disaster
relief efforts.
o Owner stated that
taxes were not paid
because of higher
gasoline prices and
insurance.
Case 29 Physician / Over Over $1 o Tax debt is primarily
Business $100,000 million unpaid payroll taxes.
o IRS assessed trust
fund recovery penalty
against the owner of the
business.
o Hospital suspended
physician's clinical
privileges for
substandard care.
o State medical board
sanctioned owner.
Case 30 Physician / Over Over $1 o Tax debt is unpaid
Business $100,000 million payroll taxes.
o Business made no tax
payments since early
2000s and has not filed
a tax return since
mid-2000s.
o Owner owns about
$900,000 in real
property.
o IRS has not performed
assessment for trust
fund recovery penalty
related to payroll tax
debts.
o IRS reported tax debts
to TOP for collection
action.
Case 31 Physician / Over Over $1 o Tax debt is primarily
Business $100,000 million unpaid payroll taxes.
o IRS assessed trust
fund recovery penalty
against the owner of the
business.
o IRS filed federal tax
liens totaling nearly $1
million against the
business.
o Owner owns a
million-dollar house and
luxury car while owing
taxes.
o Physician delinquent
on student loans for
tens of thousands of
dollars.
Case 32 Physician / Over Over $900 o Tax debt is primarily
Business $100,000 thousand unpaid payroll taxes,
with business only
making one tax payment
since the early 2000s.
o IRS assessed trust
fund recovery penalties
against owner for this
business and several
other businesses
totaling over $1
million.
o Owner received about
$90,000 in interest
payments in one year
from a company he owned
that also owed federal
taxes.
o Owner owns several
partnerships involved in
medical services and
land properties.
o Physician served on
the Board of Directors
of a publicly held
company.
o IRS went to court to
enforce summons order
against business owner.
o Owner was investigated
for check fraud.
Case 33 Physician / Over Over o Tax debt is primarily
Business $100,000 $300,000 unpaid payroll taxes.
o Business sought to
establish installment
agreement with IRS for
taxes owed but was
rejected because
business was not current
of tax deposits.
o Owner claims taxes
were not paid when
business lost health
contracts after hiring a
noncertified doctor.
o Owner owns several
real estate properties
worth nearly $4 million
including residence
worth over $1.5 million.
o IRS assessed trust
fund recovery penalty
against owner for the
payroll tax debts.
o IRS reported tax debts
to TOP for collection
action.
Case 34 Physician / Over Nearly o Business recently
Business $100,000 $800,000 established installment
agreement with IRS for
taxes owed and agreed to
future increases.
o Owner was convicted of
obtaining controlled
substances by means of
deception.
o IRS is in process of
assessing trust fund
recovery penalty for the
payroll tax debts.
Case 35 Physician / Over Over $2 o Physician was
Individual $100,000 million convicted of tax evasion
after transferring funds
overseas.
o Physician lost over
$500,000 in adjudicated
medical malpractice
claims.
Case 36 Physician / Over Over $1 o Physician offered to
Individual $100,000 million compromise the debt for
over $200,000 in 2004
but was rejected by IRS.
o Physician reported
individual annual income
to IRS for over $250,000
in mid-2000s.
o Physician owns
residence worth over
$800,000 while owing
taxes.
o IRS reported tax debts
to TOP for collection
action.
Case 37 Physician / Over Over o Tax debt is primarily
Business $100,000 $600,000 unpaid payroll taxes.
o Owner owns other
multiple business
entities owing
approximately $500,000
in federal taxes. Owner
also personally owes
over $1 million in
individual income taxes.
o IRS went to court to
enforce summons order
against business owner.
o State medical board
sanctioned owner.
o IRS assessed trust
fund recovery penalty
against the owner of the
business.
o IRS reported tax debts
to TOP for collection
action.
Case 38 Physician / Up to Over o Tax debt is primarily
Business $100,000 $200,000 unpaid payroll taxes.
o IRS assessed trust
fund recovery penalty
against business owner.
o State medical board
sanctioned owner.
o Both the business and
the owner filed for
bankruptcy in the 2000s.
Case 39 Medical Over Over o Tax debt is primarily
Laboratory/ $100,000 $600,000 unpaid payroll taxes.
Business o Business owner
possesses multiple real
properties, as well as
several luxury vehicles
and boats while business
owed taxes.
o Business owner
received multiple tax
refunds in 2000s
totaling tens of
thousands of dollars
because no trust fund
recovery penalty was
assessed against owner.
In addition, business
owner received $1
million dollar cash
settlement.
Case 40 Physician/ Over Over o Tax debt is primarily
Business $100,000 $800,000 unpaid payroll taxes.
For several tax periods,
business made no tax
payments.
o Owner owns multiple
real properties,
including residence,
worth over $500,000
while owing taxes.
o Owner lost over
$250,000 in adjudicated
medical malpractice
claim.
o IRS plans to assess
trust fund recovery
penalty for the payroll
tax debts if the
business does not fully
repay tax debts.
o IRS reported tax debts
to TOP for collection
action.
^1Table 1 in the main portion of this testimony provides data on 15
detailed cases.
Source: GAO's analysis of IRS, FMS, HHS, public, and other records.
Notes: Dollar amounts are rounded. A Medicare physician, health
professional, or supplier can submit claims using either an Employer
Identification Number (EIN) or Social Security Number (SSN). In our
testimony, any entity submitting a claim with an EIN is referred to as a
business, and any entity submitting a claim with an SSN is referred to as
an individual.
aMedicare Part B payments are physician, health professional, and supplier
claims approved by HHS for payment for the first 9 months in calendar year
2005.
bUnpaid tax amount as of September 30, 2006.
Appendix III: Medicare Physicians, Health Professionals, and Suppliers
With Federal and State Tax Liens
This appendix summarizes the extent to which Medicare physicians, health
professionals, and suppliers have federal or state liens filed against
their property. As discussed previously, certain tax debt information can
only be discovered from public records, such as credit reports, if IRS
files a federal tax lien against the property of a tax debtor. Of the 40
cases, 31 had federal tax liens filed by the Internal Revenue Service and
23 had tax liens filed by the states. Table 3 provides a summary of the
federal or state tax liens filed for all 40 cases.
Table 3: Summary of Federal and State Tax Liens Against Medicare Part B
Physicians, Health Professionals, and Suppliers with Unpaid Taxes
e study eral tax lien? e tax lien?
No
No
Ye
Ye
No
No
No
Ye
Ye
Ye
Ye
No
No
No
No
Ye
Ye
No
Ye
Ye
Ye
Ye
Ye
Ye
Ye
Ye
Ye
No
Ye
Ye
No
No
Source: Public records.
(192187)
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Highlights of [31]GAO-07-587T , a testimony before the Permanent
Subcommittee on Investigations, Senate Committee on Homeland Security and
Governmental Affairs, U.S. Senate
March 20, 2007
MEDICARE
Thousands of Medicare Part B Providers Abuse the Federal Tax System
Under the Medicare program, the Department of Health and Human Services
(HHS) and its contractors paid a reported $330 billion in Medicare
benefits in calendar year 2005. Because GAO previously identified
government contractors with billions of dollars in unpaid federal taxes,
the Subcommittee requested that we expand our work in this area to all
Medicare providers. This testimony addresses Medicare physicians, health
professionals, and suppliers for services related to senior health care,
who received about 20 percent of all Medicare payments.
Because of limitations in HHS data, GAO was asked to determine if Medicare
Part B physicians, health professionals, and suppliers have unpaid federal
taxes, and if so, to (1) determine the magnitude of such debts; (2)
identify examples of Medicare physicians and suppliers that have engaged
in abusive, or potentially criminal activities; and (3) assess HHS efforts
to prevent delinquent taxpayers from enrolling in Medicare and levy
payments to pay delinquent federal taxes.
To perform this work, GAO reviewed data from HHS and the Internal Revenue
Service (IRS). In addition, GAO reviewed policies, procedures, and
regulations related to Medicare. GAO also performed additional
investigative activities. We plan to report on the results of our work
related to other Medicare providers including any needed recommendations
later this year.
Over 21,000 of the physicians, health professionals, and suppliers (i.e.,
about 5 percent of all such providers) paid under Medicare Part B during
the first 9 months of calendar year 2005 had tax debts totaling over $1
billion. This $1 billion figure is understated because some of these
Medicare health care providers have understated their income and/or not
filed their tax returns.
We selected 40 Medicare physicians, health professionals, and suppliers
with high tax debt for more in-depth investigation of the extent and
nature of any related abusive or potentially criminal activity. Our
investigation found abusive and potentially criminal activity, including
failure to remit to IRS individual income taxes and/or payroll taxes
withheld from their employees. Rather than fulfill their role as
"trustees" of this money and forward it to IRS, they diverted the money
for other purposes. Willful failure to remit payroll taxes is a felony
under U.S. law. Further, individuals associated with some of these
providers used payroll taxes withheld from employees for personal gain
(e.g., to purchase a new home) or to help fund their businesses. Many 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 physicians received Medicare payments
even though they had serious quality-of-care issues, including license
reprimands and prior suspensions from state medical boards, revocations of
hospital privileges, and previous exclusions from the Medicare program.
Examples of Medicare Health Care Provider Abusive and Criminal Activity
HHS payments
Type of business Unpaid tax debt received Description of activity
Physician Physician convicted of
Over $600 money laundering through
thousand Up to $100,000 use of offshore accounts.
Physician Hospital denied
physician's hospital
Nearly $1 privileges due to
million Over $100,000 substandard care.
Ambulance Owner convicted for
defrauding the U.S.
Over $5 million Over $100,000 government.
Source: GAO analysis of IRS, HHS, public, and other records.
HHS has not issued Medicare regulations or policies requiring Medicare
contractors to consider tax debts in making a decision about whether to
enroll a physician, health professional, or supplier into Medicare.
Further, HHS has not established a policy to obtain taxpayer consent to
obtain tax information from IRS as part of its Medicare eligibility
decision-making process.
IRS can continuously levy up to 100 percent of each payment made to a
federal payee--for example, a Medicare physician--until that tax debt is
paid. However, HHS is not participating in the continuous levy program and
thus the government has not collected unpaid taxes from Medicare payments.
In the first 9 months of calendar year 2005, we estimate that the
government lost opportunities to collect between $50 million and $140
million by not participating in the continuous levy program.
References
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