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

Visible links
  14. file:///home/webmaster/infomgt/d07587t.htm#http://www.gao.gov/cgi-bin/getrpt?GAO-04-414T
  15. file:///home/webmaster/infomgt/d07587t.htm#http://www.gao.gov/cgi-bin/getrpt?GAO-05-683T
  16. file:///home/webmaster/infomgt/d07587t.htm#http://www.gao.gov/cgi-bin/getrpt?GAO-06-492T
  17. file:///home/webmaster/infomgt/d07587t.htm#http://www.gao.gov/cgi-bin/getrpt?GAO-04-95
  18. file:///home/webmaster/infomgt/d07587t.htm#http://www.gao.gov/cgi-bin/getrpt?GAO-07-26
  19. file:///home/webmaster/infomgt/d07587t.htm#http://www.gao.gov/cgi-bin/getrpt?GAO-01-42
  20. file:///home/webmaster/infomgt/d07587t.htm#http://www.gao.gov/cgi-bin/getrpt?GAO-04-95
  21. file:///home/webmaster/infomgt/d07587t.htm#http://www.gao.gov/cgi-bin/getrpt?GAO-07-26
  22. file:///home/webmaster/infomgt/d07587t.htm#http://www.gao.gov/cgi-bin/getrpt?GAO-07-310
  23. file:///home/webmaster/infomgt/d07587t.htm#http://www.gao.gov/cgi-bin/getrpt?GAO-01-711
  31. file:///home/webmaster/infomgt/d07587t.htm#http://www.gao.gov/cgi-bin/getrpt?GAO-07-587t
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