Some Medicaid Providers Owe Back Taxes

Some of those identified in a government report even live in luxury, residing in million-dollar homes, driving high-dollar vehicles and withdrawing tens of thousands of dollars from casinos.

The Senate Permanent Subcommittee on Investigations planned to explore ways the government can collect the unpaid taxes when it takes up a report Wednesday by the Government Accountability Office, the investigative arm of Congress.

"Those people who are deadbeats have to pay their taxes," Sen. Norm Coleman, R-Minn., said Tuesday. The panel's top Republican, he had requested the report.

The GAO looked at doctors, hospitals and other Medicaid providers in seven states -- California, Colorado, Florida, Maryland, New York, Pennsylvania and Texas. Medicaid is the federal-state partnership that provides health coverage to about 55 million poor people.

The report noted that federal law does not prevent health care providers who owe back taxes from enrolling in Medicaid. It said that officials from the Centers for Medicare and Medicaid Services, the federal agency that administers the program, said such a requirement could make it harder for states to provide health care to poor people.

The GAO said that if the IRS had a system to levy part of the Medicaid payments, it could have collected between $70 million and $160 million last year. But the IRS does not consider Medicaid payments to be "federal payments," and so they are not subject to continuous levy, said Fred Schindler, the agency's director of collection policy. That's because the payments are made by states, he said.

Coleman said he planned to press IRS and CMS officials to come up with a way to levy taxes on providers who owe taxes.

"These people are supposed to be providing health care service for the poor," he said in a telephone interview Tuesday. "And they're ripping off the system to line their pockets."

CMS spokesman Jeff Nelligan said in an e-mail statement that goals of the GAO investigation "were based on big misconceptions about the authority and responsibilities of the Medicaid program." He said a misconception was that CMS was in a position to review provider tax records.

In a letter responding to a draft of the report, CMS acting administrator Kerry Weems complained that the "implication is that there is some direct correlation between owing taxes and being a Medicaid provider."

The GAO responded: "Our report clearly states that the vast majority of Medicaid providers are paying their taxes."

The report found that 56 percent of the unpaid taxes were payroll taxes, 31 percent were individual income taxes, and the remaining 13 percent included corporate income, excise, unemployment and other taxes.

The GAO highlighted several egregious cases, including a Medicaid provider who had been convicted for failing to pay taxes owed by several nursing homes. While the nursing homes owed $14 million in unpaid taxes, the report said, its owner had purchased a 10,000-square foot home now valued at more than $2 million -- and spent tens of thousands of dollars furnishing it with crystal chandeliers, a 132-piece set of Haviland Bavarian porcelain china and oriental rugs.

"While owing taxes, the owner also went on vacations to Hawaii and gambling trips to Las Vegas and Reno, Nev.," the report said. "Court records also indicate that while in Hawaii, the owner bought a $16,000 Rolex watch, the day before one of the required federal tax deposits was due."

The report followed a similar one in March that found that doctors and other health care providers were still receiving government checks for treating Medicare patients, even while owing more than $1 billion in back taxes.