oversight

Medicaid: Providers in Three States with Unpaid Federal Taxes Received Over $6 Billion in Medicaid Reimbursements

Published by the Government Accountability Office on 2012-07-27.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

             United States Government Accountability Office

GAO          Report to Congressional Requesters




July 2012
             MEDICAID

             Providers in Three
             States with Unpaid
             Federal Taxes
             Received over $6
             Billion in Medicaid
             Reimbursements




GAO-12-857
                                               July 2012

                                               MEDICAID
                                               Providers in Three States with Unpaid Federal Taxes
                                               Received over $6 Billion in Medicaid
                                               Reimbursements
Highlights of GAO-12-857, a report to
congressional requesters




Why GAO Did This Study                         What GAO Found
The Recovery Act increased the                 About 7,000 Medicaid providers in three selected states (Florida, New York, and
federal share of Medicaid funding.             Texas) had approximately $791 million in unpaid federal taxes from calendar
Federal law does not prohibit providers        year 2009 or earlier. This represents about 5.6 percent of the Medicaid providers
with tax debt from enrolling in                reimbursed by the selected states during 2009. These 7,000 Medicaid providers
Medicaid, but GAO’s prior work found           with unpaid federal taxes received a total of about $6.6 billion in Medicaid
that thousands of Medicaid providers           reimbursements during 2009 (including American Recovery and Reinvestment
do have unpaid federal taxes. Since            Act of 2009 [Recovery Act] funds). The amount of unpaid federal taxes GAO
any provider who received Medicaid             identified is likely understated because Internal Revenue Service (IRS) taxpayer
reimbursements during 2009 received
                                               data reflect only the amount of unpaid taxes either reported on a tax return or
Recovery Act funds, GAO was asked
                                               assessed by IRS through enforcement; it does not include entities that did not file
to (1) determine the magnitude of
unpaid federal taxes owed by Medicaid
                                               tax returns or underreported their income.
providers reimbursed during 2009 in            The 40 Medicaid providers GAO reviewed received a total of $235 million in
selected states; (2) provide examples          Medicaid reimbursements (including Recovery Act funds) in 2009 and had
of Medicaid providers who have                 unpaid federal taxes of about $26 million through 2010. The amount of unpaid
sizeable unpaid federal taxes; and (3)         federal taxes ranged from approximately $100,000 to over $6 million. In addition,
evaluate opportunities and challenges          IRS records indicate that providers in two of GAO’s cases are currently, or have
related to collecting unpaid federal           previously been, under criminal investigation. For example, in one case a
taxes through a levy process designed
                                               provider was caught participating in a medical billing fraud.
to offset Medicaid reimbursements.
GAO compared Medicaid                          Examples of Medicaid Providers with Sizeable Unpaid Taxes
reimbursement information from three
                                                Nature of           Total Medicaid           Known unpaid
states to known IRS tax debts as of             work                reimbursement            federal taxes              Comments
September 30, 2009. These states
                                                Dentist             Over $400,000            Over $200,000              Dentist owes primarily individual income
were among those that received the
                                                                                                                        taxes from the late 2000’s. Recently, the
largest portion of Recovery Act                                                                                         dentist was caught participating in a medical
Medicaid funding. To provide examples                                                                                   billing fraud. After a felony conviction, the
of Medicaid providers who have                                                                                          dentist surrendered his/her license.
sizeable unpaid federal taxes, GAO              Doctor              Over $200,000            Over $500,000              Doctor owes primarily individual income
conducted a detailed review of 40                                                                                       taxes from the 2000’s. IRS tried to levy the
Medicaid providers from the three                                                                                       doctor’s Medicaid payments on several
states that had over $100,000 of                                                                                        occasions, with limited success.
federal tax debt. GAO’s sample of               Medical             Over $1,000,000          Over $6,000,000            Company owes primarily payroll taxes from
three states and 40 cases cannot be             Transport                                                               the late 2000’s. IRS levied company bank
generalized to all states and all                                                                                       accounts and receivables and assessed a
                                                                                                                        trust fund recovery penalty against the
Medicaid providers. GAO also
                                                                                                                        company’s president.
reviewed relevant laws and reports and
interviewed federal and state officials.       Source: GAO analysis of 2009 Medicaid payment records and IRS known tax debts as of 9/30/11.

                                               IRS may levy, or seize, a taxpayer’s property to satisfy a tax debt and, in some
What GAO Recommends                            instances, is authorized to use an automated process to continuously levy federal
                                               payments made to delinquent taxpayers. Medicaid reimbursements have never
GAO recommends that IRS explore
opportunities to enhance collection of
                                               been continuously levied using this provision of the law because the IRS
unpaid taxes from Medicaid providers,          determined that these reimbursements do not qualify as federal payments.
including the use of continuous levies.        However, if such a process could be used, GAO estimates that IRS could have
IRS agreed with our recommendation.            collected between $22 million and $330 million in the selected states in 2009.
                                               States we spoke to expressed concerns about implementing continuous levies,
                                               given the challenges they encounter with processing onetime IRS levies. For
View GAO-12-857. For more information,
contact Richard J. Hillman at (202) 512-6722
                                               example, states have had difficulty reaching IRS revenue officers and problems
or hillmanr@gao.gov.                           with IRS sending levies to the wrong address.
                                                                                                             United States Government Accountability Office
Contents


Letter                                                                                         1
                       Background                                                              4
                       About 7,000 Medicaid Providers in the Selected States Owed
                         Approximately $791 Million in Federal Tax Debt                        7
                       Examples of Medicaid Providers with Sizeable Outstanding Federal
                         Tax Debt                                                             11
                       Increased Levy of Medicaid Reimbursements Would Likely
                         Increase Federal Tax Debt Collection, but Further Study Is
                         Required                                                             17
                       Conclusions                                                            22
                       Recommendations for Executive Action                                   23
                       Agency Comments and Our Evaluation                                     23

Appendix I             Objectives, Scope, and Methodology                                     25



Appendix II            Additional Cases of Medicaid Providers with Sizeable
                       Outstanding Federal Tax Debt                                           29



Appendix III           Comments from the Internal Revenue Service                             35



Appendix IV            Comments from the Centers for Medicare & Medicaid Services             38



Related GAO Products                                                                          42



Tables
                       Table 1: Examples of Medicaid Providers with Sizeable Delinquent
                                Tax Debt                                                      13
                       Table 2: Additional Cases of Medicaid Providers with Sizeable
                                Outstanding Federal Tax Debt                                  29




                       Page i                                                 GAO-12-857 Medicaid
Figures
          Figure 1: Medicaid Providers’ Unpaid Taxes by Tax Type                                    8
          Figure 2: Unpaid Taxes of Medicaid Providers by Year                                      9




          Abbreviations
          BMF                  Business Master File
          CMS                  Centers for Medicare & Medicaid Services
          EIN                  Employer Identification Number
          FMAP                 Federal Medical Assistance Percentage
          FMS                  Financial Management Service
          FPLP                 Federal Payment Levy Program
          IMF                  Individual Master File
          IRS                  Internal Revenue Service
          MCO                  Managed Care Organization
          Recovery Act         American Recovery and Reinvestment Act of 2009
          SRP                  State Reciprocal Program
          SSN                  Social Security Number
          TFRP                 Trust Fund Recovery Penalty
          TIN                  Taxpayer Identification Number


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          Page ii                                                              GAO-12-857 Medicaid
United States Government Accountability Office
Washington, DC 20548




                                   July 27, 2012

                                   The Honorable Max Baucus
                                   Chairman
                                   The Honorable Orrin Hatch
                                   Ranking Member
                                   Committee on Finance
                                   United States Senate

                                   The Honorable Charles Grassley
                                   Ranking Member
                                   Committee on the Judiciary
                                   United States Senate

                                   The Honorable Carl Levin
                                   Chairman
                                   The Honorable Tom Coburn, M.D.
                                   Ranking Member
                                   Permanent Subcommittee on Investigations
                                   Committee on Homeland Security
                                     and Governmental Affairs
                                   United States Senate

                                   Individuals, businesses, and other entities owed the U.S. government
                                   over $350 billion in total unpaid tax assessments, including interest and
                                   penalties, as of September 30, 2011, according to the Internal Revenue
                                   Service (IRS). 1 Because of this and other issues, we have designated
                                   IRS enforcement of the nation’s tax laws as a high-risk issue. 2 In addition,
                                   the American Recovery and Reinvestment Act of 2009 (Recovery Act)
                                   initially provided states with an estimated $87 billion in federal funds for
                                   Medicaid, a federal-state health financing program for certain low-income
                                   individuals, from October 2008 through December 2010, by increasing


                                   1
                                    This figure includes amounts owed by taxpayers who file returns without sufficient
                                   payment as well as amounts assessed through the IRS enforcement process.
                                   2
                                    GAO maintains a program to focus attention on government operations that it identifies
                                   as high risk due to their greater vulnerabilities to fraud, waste, abuse, and
                                   mismanagement or the need for transformation to address economy, efficiency, or
                                   effectiveness challenges. The most recent update of this program was GAO’s 2011 High-
                                   Risk Series: An Update, GAO-11-394T (Washington, D.C.: Feb. 17, 2011).




                                   Page 1                                                               GAO-12-857 Medicaid
federal reimbursement rates for the Medicaid program. Recovery Act
funds were made available to states and the District of Columbia through
an increase to the Federal Medical Assistance Percentage (FMAP), the
rate at which the federal government matches state expenditures for most
Medicaid services. Thus, any provider that received Medicaid
reimbursements during calendar year 2009, by definition, received some
Recovery Act funds. 3 Federal law does not prohibit providers with unpaid
federal taxes from enrolling in or receiving payments from Medicaid.
Further, although IRS can levy, or seize, Medicaid reimbursements to
satisfy a provider’s tax debt, it does not have the authority to do so
continuously using an automated process. Because of the potential that
some Medicaid providers that received Recovery Act funds have unpaid
federal taxes, you asked us to examine this issue.

This report is the third in a series of three reports in response to your
request regarding recipients of federal Recovery Act funds who have
unpaid federal taxes. 4 This report focuses on Medicaid providers who
benefitted from Recovery Act provisions that increased FMAP for
Medicaid. 5 For this report, our objectives were to (1) determine the
magnitude of unpaid federal taxes owed by Medicaid providers receiving
reimbursements during 2009 in selected states; (2) provide examples of
Medicaid providers who have sizeable unpaid federal taxes; and (3)
evaluate opportunities and challenges related to collecting unpaid federal
taxes through a levy process designed to offset Medicaid
reimbursements.




3
 For the purposes of this report, the term “provider” refers to any individual, business, or
other entity that received at least one Medicaid reimbursement (e.g., doctors, hospitals,
home care providers) from at least one of the three selected states.
4
 The first report, GAO, Recovery Act: Thousands of Recovery Act Contract and Grant
Recipients Owe Hundreds of Millions in Federal Taxes, GAO-11-485 (Washington, D.C.:
Apr. 28, 2011), described Recovery Act contractors and grant recipients who received
federal funds while having unpaid federal taxes. The second report, GAO, Recovery Act:
Tax Debtors Have Received FHA Mortgage Insurance and First-Time Homebuyer Credits,
GAO-12-592 (Washington, D.C.: May 29, 2012), described individuals who benefitted from
the Recovery Act’s first-time homebuyer tax credit or increased FHA mortgage insurance
loan limits, or both, while having unpaid federal taxes.
5
 The Recovery Act increased the federal share of Medicaid costs by increasing the federal
matching rate by a minimum of 6.2 percent from October 1, 2008, to December 31, 2010.
Pub. L. No. 111-5, § 5001 (Feb. 17, 2009).




Page 2                                                                  GAO-12-857 Medicaid
To determine the magnitude of unpaid federal taxes owed by Medicaid
providers receiving reimbursements during 2009 in selected states, we
obtained and analyzed annual Medicaid reimbursement information from
the states of New York, Texas, and Florida. We attempted to obtain data
from the state of California, but determined that the data we received were
unreliable for the purposes of this report. We selected these states
because they received the largest portion of the Recovery Act Medicaid
funding. 6 We also obtained federal tax-debt data from IRS as of September
30, 2011. Using the taxpayer identification number (TIN) as a unique
identifier, we electronically matched IRS’s tax debt data to the population of
Medicaid providers. We included only agreed-upon tax debts over $100
from tax year 2009 and earlier to ensure that the provider owed or was
accruing tax debt at the time that the provider received Medicaid funds. Our
analysis determined the magnitude of known unpaid federal taxes owed by
2009 Medicaid providers in only New York, Texas, and Florida and cannot
be generalized to other states or periods.

To provide examples of Medicaid providers who have sizeable unpaid
federal taxes, we selected 20 Medicaid providers with unpaid business taxes
and 20 Medicaid providers with unpaid individual taxes in the three selected
states for detailed examination. These nonrepresentative selections of
providers were chosen by using a random sample of the 113 Medicaid
providers with unpaid business taxes and 26 Medicaid providers with unpaid
individual taxes with at least $100,000 in Medicaid reimbursements during
2009, $100,000 in unpaid federal taxes, and five noncontinuous years of
accumulated unpaid federal taxes in or before 2010. In addition, you asked
us to determine whether the owners and principals of Medicaid providers had
unpaid federal taxes. To do so, we used open-source information to identify
the owners and other principals for 600 randomly selected known Medicaid
providers in Florida, New York, and Texas. We electronically matched these
individuals with IRS’s tax debt data to identify their known unpaid federal
taxes and to confirm their professional relationship with a nondebtor
Medicaid provider. For example, a hospital that served as a Medicaid
provider did not have unpaid federal taxes, but one of its owners or other key
principals did have unpaid federal taxes. For all examples, we reviewed IRS



6
 New York, California, Texas, and Florida reported a combined $126.5 billion (35.1
percent) in Medicaid reimbursements for 2009, of which $12.1 billion was paid with
Recovery Act funds. New York, California, Texas, and Florida accounted for 13.55
percent, 11.74 percent, 6.11 percent, and 5.46 percent of the Recovery Act Medicaid
funds for 2009, respectively.




Page 3                                                             GAO-12-857 Medicaid
             and public records to develop case studies. These case studies are intended
             to illustrate the sizeable amounts of unpaid federal taxes owed by some
             Medicaid providers, are among the most egregious examples of Medicaid
             providers with unpaid federal taxes we identified, and cannot be generalized
             beyond the cases presented.

             To evaluate opportunities and challenges related to collecting unpaid
             federal taxes through a levy process designed to recapture unpaid taxes
             by offsetting subsequent Medicaid reimbursements, we interviewed
             officials from relevant federal agencies and from selected states (chosen
             on the basis of size of their Medicaid programs or their participation in
             federal debt collection programs, or both). 7 We also reviewed applicable
             laws and regulations related to the issues of subjecting Medicaid
             reimbursements to tax levies, including the Department of the Treasury’s
             Federal Payment Levy Program (FPLP). A more detailed description of
             the scope and methodology related to our audit work supporting this
             report is provided in appendix I.

             We conducted this performance audit from July 2010 through July 2012 in
             accordance with generally accepted government auditing standards. 8
             Those standards require that we plan and perform the audit to obtain
             sufficient, appropriate evidence to provide a reasonable basis for our
             audit findings and conclusions based on our audit objectives. We believe
             that the evidence obtained provides a reasonable basis for our findings
             and conclusions based on our audit objectives.


             Medicaid is a federal-state partnership that finances health care for
Background   certain low-income individuals, including children, families, the aged, and
             the disabled. More than 64 million persons were enrolled in the Medicaid
             program for fiscal year 2009. The Centers for Medicare & Medicaid
             Services (CMS) reported combined fiscal year 2009 and 2010 Medicaid
             program spending of $744 billion, $499 billion of which was funded by the
             federal government. 9 The federal government matches most state


             7
              We interviewed officials from California, Florida, Kentucky, Maryland, and Texas.
             8
              Initiation of our review was delayed significantly because California did not comply with
             our request for Medicaid provider payment data for over 8 months. What California
             ultimately provided was not sufficiently reliable for the purposes of our report.
             9
              The Recovery Act increased federal funds for Medicaid for periods including fiscal year
             2009 and 2010.




             Page 4                                                                 GAO-12-857 Medicaid
Medicaid expenditures for covered services according to the FMAP,
which is based on a statutory formula drawing on each state’s annual per
capita income. 10 Because of the mechanism through which the Recovery
Act increased the federal share of funding for Medicaid through an
increased FMAP, any provider that received Medicaid reimbursements
during 2009 received Recovery Act funds. Within broad federal
requirements, each state operates and administers its Medicaid program
in accordance with a CMS-approved state Medicaid plan. These plans
detail the populations served, the services covered, and the methods
used to calculate payments to providers.

Title XIX of the Social Security Act allows considerable flexibility within
the states’ Medicaid plans. Within broad national guidelines established
by federal statutes, regulations, and policies, each state (1) establishes its
own eligibility standards; (2) determines the type, amount, duration, and
scope of services; 11 (3) sets the rate of payment for services; and (4)
administers its own program—including enrollment of providers. Medicaid
policies for eligibility, services, and payment are complex and vary
considerably, even among states of similar size or geographic proximity.
Thus, a person who is eligible for Medicaid in one state may not be
eligible in another state, and the services provided by one state may differ
considerably in amount, duration, or scope from services provided in a
similar or neighboring state.

To receive payment for services or goods provided to beneficiaries from
Medicaid, providers must first enroll in the Medicaid program. To enroll,
providers must submit a Medicaid enrollment application to the state or
the state’s fiscal agents who are responsible for determining whether the
providers meet federal and state requirements for enrollment. The state
or its fiscal agents are responsible for screening the applications on the
basis of CMS and state policies. Once an applicant is deemed eligible by
the state or its fiscal agents, Medicaid providers can submit their claims to
the state for payment. The state is responsible for claims processing and
verifying the claim is accurate, complete, medically necessary, and



10
  The federal share of a state’s Medicaid payments may range from 50 to 83 percent.
11
  All states must provide certain services, such as inpatient and outpatient hospital
services, nursing facility services, and physician services, and may provide additional,
optional services, such as prescription drugs, dental care, and certain home- and
community-based services.




Page 5                                                                 GAO-12-857 Medicaid
covered under the state’s Medicaid plan. After the claim is approved by
the state, it pays the claim.

Federal reimbursement for Medicaid generally begins after a Medicaid
beneficiary receives care from a health care provider such as a hospital,
physician, or nursing home. The state pays the provider from a
combination of state funds and federal funds, the latter of which have
been advanced by CMS each quarter. The state then files a quarterly
expenditure report, in which it claims the federal share of the Medicaid
expenditure as reimbursement for its payment to providers and reconciles
its total expenditures with the federal advance. In addition to
reimbursement for medical services, the state may claim federal
reimbursement for functions it performs to administer its Medicaid
program, such as enrolling new beneficiaries; reviewing the
appropriateness of providers’ claims; and collecting payments from third
parties, which are payers other than Medicaid, such as Medicare, that
may be liable for some or all of a particular health claim. 12

Federal law does not prohibit providers with unpaid federal taxes from
enrolling in or receiving payments from Medicaid. Federal regulations and
policies require the states, as part of their responsibilities for determining
whether the providers meet Medicaid requirements for enrollment, to verify
basic information on potential providers, including whether the providers
meet state licensure requirements and whether the providers are prohibited
from participating in federal health care programs. However, federal
regulations and policies do not require the states to screen these providers
for federal tax delinquency nor do they explicitly authorize the states to
reject the providers that have delinquent tax debt from participation in
Medicaid. Further, federal law generally does not permit IRS to disclose
taxpayer information, including tax debts, unless the taxpayer consents.

IRS may levy a taxpayer’s property to satisfy a tax debt. For instance, IRS
could seize and sell property that a taxpayer holds (such as the
taxpayer’s car, boat, or house), or IRS could seize property that belongs
to the taxpayer but is held by someone else (such as the taxpayer’s
wages, retirement accounts, dividends, bank accounts, licenses, rental
income, accounts receivable, or commissions). Currently, IRS may issue



12
  Federal reimbursements for administrative costs are paid at a different matching
percentage than beneficiary care costs.




Page 6                                                               GAO-12-857 Medicaid
                         a onetime notice of levy to a state Medicaid agency to collect the
                         receivable balance immediately due to a given provider. IRS may then
                         issue additional successive, onetime levies if the proceeds received from
                         the initial levy are not sufficient to satisfy the government’s claim. A
                         provision of the Taxpayer Relief Act of 1997 13 authorizes IRS to
                         continuously levy (typically using an automated process) certain federal
                         payments made to delinquent taxpayers in order to collect tax debt, but
                         Medicaid reimbursements have never been collected using this provision
                         of the law. This is because IRS determined that Medicaid disbursements
                         do not qualify as federal payments and thus may not be subjected to the
                         continuous levy. This decision was based on the nature of the Medicaid
                         reimbursement as a state entitlement, and the considerable operational
                         discretion vested in state agencies in the administration of the Medicaid
                         program, including discretion to create unique eligibility standards for
                         enrollment of providers and to establish criteria for disbursement of funds.


                         Our analysis found that, as of September 30, 2011, about 7,000 Medicaid
About 7,000 Medicaid     providers in the three selected states had approximately $791 million in
Providers in the         unpaid federal taxes from 2009 or earlier. 14 These providers accumulated
                         an additional $59 million in unpaid federal taxes during 2010 and 2011. 15
Selected States Owed     These providers represent about 5.6 percent of the approximately 125,000
Approximately $791       Medicaid providers reimbursed by the selected states during 2009. These
Million in Federal Tax   7,000 Medicaid providers with unpaid federal taxes received a total of
                         about $6.6 billion in Medicaid reimbursements during 2009, which included
Debt                     Recovery Act funds. 16 The amount of unpaid federal taxes we identified
                         among Medicaid providers is likely understated because the IRS taxpayer
                         data reflect only the amount of unpaid taxes either reported by the taxpayer
                         on a tax return or assessed by IRS through its various enforcement


                         13
                          Pub. L. No. 105-34, § 1024 (Aug. 5, 1997), 26 U.S.C. § 6331(h).
                         14
                           These figures include an unknown number of individuals and businesses that have a
                         current installment agreement, have submitted an offer-in-compromise, have declared
                         bankruptcy, or are otherwise in the process of negotiating a payment method for their
                         delinquent taxes.
                         15
                           In addition, we note that approximately 4,200 additional 2009 Medicaid providers in
                         these states accumulated unpaid federal taxes during only 2010 or 2011.
                         16
                           If a provider had more than one associated TIN, each TIN was counted separately for
                         the purposes of this analysis; therefore, we found that an insignificant number of
                         payments (less than 250 providers and $35 million) have been counted multiple times if
                         more than one associated TIN had delinquent federal taxes.




                         Page 7                                                               GAO-12-857 Medicaid
programs, and generally the unpaid federal taxes amount does not include
entities that did not file tax returns or underreported their income.

As shown in figure 1, about 77 percent of the approximately $791 million
in unpaid federal taxes was made up of individual income taxes,
corporate income taxes, and payroll taxes. The other 23 percent of taxes
included excise taxes, miscellaneous penalties, and other types of taxes.

Figure 1: Medicaid Providers’ Unpaid Taxes by Tax Type




Over 40 percent of the unpaid federal taxes owed by Medicaid providers
in these three states were 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 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
Contributions Act contributions for Social Security and Medicare.
Individuals within a business (e.g., corporate officers) may be held
personally liable for the withheld amounts not forwarded and they may be
assessed a civil monetary penalty known as a trust fund recovery penalty
(TFRP). Willful failure to remit payroll taxes can also be a criminal felony



Page 8                                                    GAO-12-857 Medicaid
offense punishable by imprisonment up to 5 years, while the failure to
properly segregate payroll taxes can be a criminal misdemeanor offense
punishable by imprisonment of up to 1 year. 17

A substantial amount of the unpaid federal taxes shown in IRS records as
owed by Medicaid providers have been outstanding for several years. As
shown in figure 2, about 51 percent of the $791 million in unpaid federal
taxes was for tax periods from 2004 through 2007, and approximately 21
percent of the unpaid federal taxes was for tax periods prior to 2004.

Figure 2: Unpaid Taxes of Medicaid Providers by Year




17
  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 general fund of the Treasury. Thus, personal income taxes, corporate income
taxes, and other government revenues are used to pay for these shortfalls to the Social
Security and Medicare trust funds.




Page 9                                                             GAO-12-857 Medicaid
                          Our previous work has shown that as unpaid taxes age, the likelihood of
                          collecting all or a portion of the amount owed decreases. 18 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 reported above does not include all tax
                          debts owed by Medicaid providers due to statutory provisions that give
                          IRS a finite period under which it can seek to collect on unpaid taxes.
                          There is a 10-year statute of limitations beyond which IRS is prohibited
                          from attempting to collect tax debt. Consequently, if the Medicaid
                          providers have unpaid federal taxes from beyond the 10-year statutory
                          collection period, the older tax debt may have been removed from IRS’s
                          records. 19 We were unable to determine whether any tax debt had been
                          removed for these providers on this basis, and if so, the amount that had
                          been removed.


Unpaid Federal Taxes of   Although $791 million in unpaid federal taxes owed by Medicaid providers
Medicaid Providers Is     in the selected states as of September 30, 2011, is a significant amount, it
Likely Understated        likely 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. 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 $450 billion
                          gross tax gap estimated for tax year 2006. 20 As discussed below, some of
                          our case-study examples include individuals and businesses who did not
                          file required accurate tax returns.




                          18
                           GAO, Internal Revenue Service: Recommendations to Improve Financial and
                          Operational Management, GAO-01-42 (Washington, D.C.: Nov. 17, 2000).
                          19
                            Of the $167 million in pre-2004 debt shown in fig. 2, $61 million is for 2000 or earlier,
                          and may therefore be uncollectible.
                          20
                            The annual gross tax gap is the difference between taxes owed and taxes paid on time
                          in a given year. IRS estimated that the gross tax gap for tax year 2006 was $450 billion.




                          Page 10                                                                 GAO-12-857 Medicaid
                          Further, we did not attempt to broadly identify instances where a Medicaid
                          provider owed taxes under a separate TIN from the TIN under which the
                          provider received the Medicaid reimbursements in our calculations of the
                          magnitude of tax debt. For example, if a sole proprietor filed Medicaid
                          claims under his/her business’s Employer Identification Number (EIN), but
                          owed personal income taxes under his/her own Social Security Number
                          (SSN), we would not have been able to match the proprietor’s Medicaid
                          claims to his/her debt. Consequently, the extent of unpaid federal taxes
                          for Medicaid providers may be understated since we may not have had all
                          relevant TINs for each Medicaid provider that owes tax debt. However,
                          we were able to identify several case-study examples of this
                          phenomenon, as discussed below.


California Medicaid       When we reviewed each state’s Medicaid data, we reached the
Provider Data Were        conclusion that the data from New York, Texas, and Florida were
Unreliable                sufficiently reliable for the purposes of our study. However, we
                          determined, through data tests, interviews, and reviews of state audit
                          reports that the Medicaid data from California for 2009 were unreliable.
                          California provided us with $38.4 billion in transactional data, but reported
                          $41.8 billion in Net Expenditures to CMS—a difference of $3.4 billion (8.3
                          percent). When we asked California officials why the amounts in the data
                          they provided did not reconcile to externally published sources, officials
                          told us that they were unable to reconcile the data. We have notified the
                          Health and Human Services Office of Inspector General to take any
                          actions it deems appropriate.


                          We reviewed 40 Medicaid providers with unpaid federal taxes (20 with
Examples of Medicaid      unpaid business taxes and 20 with unpaid individual taxes) and 10
Providers with            additional cases where the provider did not have unpaid federal taxes, but
                          one of its principals had unpaid federal taxes. In each case, the provider
Sizeable Outstanding      received significant reimbursement payments from Medicaid, including
Federal Tax Debt          Recovery Act funds, while having unpaid federal taxes. These case
                          studies are intended to illustrate the sizeable amounts of unpaid federal
                          taxes owed by some Medicaid providers, are among the most egregious
                          examples of Medicaid providers with unpaid federal taxes we identified,
                          and cannot be generalized beyond the cases presented.


Business and Individual   In each of these 40 cases, the provider received significant
Providers with Tax Debt   reimbursement payments from Medicaid (which included Recovery Act
                          funds) while owing at least $100,000 in unpaid federal taxes. In many


                          Page 11                                                    GAO-12-857 Medicaid
cases, IRS records showed abusive or potentially criminal activity related
to the federal tax system. For example, all 20 of the business providers
we reviewed owed delinquent payroll taxes. As discussed previously,
businesses and organizations with employees are required by law to
collect, account for, and transfer income and employment taxes withheld
from employees’ wages to IRS; failure to do so may result in civil or
criminal penalties. We also found instances of providers entering into and
subsequently defaulting on installment agreements with IRS numerous
times or sending IRS bad checks. Thirty of the 40 providers did not file a
tax return or filed late at least one time in the last 10 years. 21

These 40 providers received a total of $235 million in Medicaid
reimbursements. The case-study providers represent a broad range of
provider types such as doctors, dentists, home care providers, hospitals,
durable medical equipment suppliers, and social services providers. The
amount of unpaid federal taxes associated with these case studies is
about $26 million in total, ranging from approximately $100,000 (the
minimum threshold used to draw our sample) to over $6 million
individually. 22 IRS has taken collection or enforcement activities (e.g.,
levying assets, filing federal tax liens, assessing a TFRP) against all 40 of
these recipients. We note that at least 13 of these recipients had
scheduled Medicaid reimbursements subjected to onetime levy by IRS to
pay delinquent taxes on at least one occasion. In one case, IRS collected
hundreds of thousands of dollars from the taxpayer using these levies.

Law enforcement, regulatory bodies, and others have found abusive or
criminal activity related to some of the providers’ medical practices. IRS
records indicate that at least two of the entities are currently, or have
previously been, under criminal investigation. For example, one of the
providers was involved in a large Medicaid fraud scheme. Another
provider was found guilty of improperly prescribing controlled substances.
Other providers took actions that were not overtly criminal, but raised
concerns about the quality of care provided. For example, providers have




21
   We reviewed IRS records for each case and considered the case to have not filed a tax
return or filed late at least one time in the last 10 years if we found evidence that explicitly
described the taxpayer as a late or nonfiler, or if we found evidence that IRS appeared to
file a substitute for return against the taxpayer.
22
  These figures include all known unpaid debts for tax periods through 2010.




Page 12                                                                   GAO-12-857 Medicaid
                                        had actions taken against their professional licenses and have been fined
                                        by state oversight agencies for regulatory violations.

                                        Table 1 highlights 10 Medicaid providers with unpaid federal taxes. Thirty
                                        additional cases can be found in appendix II. We have referred all 40
                                        providers to IRS for further investigation, as appropriate.

Table 1: Examples of Medicaid Providers with Sizeable Delinquent Tax Debt

                      Medicaid reimbursement
Case study and        received and delinquent
type of provider      taxes outstanding                 Comments
Case 1                Medicaid: Over $400,000       •     The dentist primarily owes individual income taxes from the mid-1990s.
Dentist               Taxes: Over $400,000          •     IRS filed federal tax liens against this dentist.
(Individual)                                        •     The dentist filed for bankruptcy in the mid-1990s.
                                                    •     In the mid-1990s, a state licensing agency fined and suspended the
                                                          dentist for actions including improperly prescribing controlled
                                                          substances.
Case 2                Medicaid: Over $400,000       •     The dentist primarily owes individual income taxes from the late 2000s.
Dentist               Taxes: Over $200,000          •     Recently, the dentist was caught participating in a medical billing fraud.
(Individual)                                              After a felony conviction, the dentist surrendered his/her license.
                                                    •     IRS filed federal tax liens against this dentist.
Case 3                Medicaid: Over $100,000       •     The dentist primarily owes individual income taxes from the late 2000s.
Dentist               Taxes: Over $100,000                The dentist’s business also owes over $100,000 in outstanding federal
(Individual)                                              tax debt (not included here) primarily for unpaid payroll taxes.
                                                    •     IRS levied the dentist’s bank accounts on multiple occasions, but only
                                                          received a nominal amount of money. IRS unsuccessfully attempted to
                                                          levy the dentist’s other assets and income sources multiple times.
                                                    •     IRS filed federal tax liens against this dentist.
                                                    •     The dentist attempted to enter an installment agreement with IRS.
                                                          However, IRS could not approve the agreement until all required tax
                                                          returns were filed, which did not happen.
                                                    •     Per IRS records, the dentist spent money on fine dining, trips, spas,
                                                          shopping, and wine while owing substantial tax debt.
                                                    •     The dentist failed to respond to recent IRS attempts at contact. IRS
                                                          records described his behavior as flagrant.
                                                    •     The dentist’s business recently filed for bankruptcy.




                                        Page 13                                                                 GAO-12-857 Medicaid
                    Medicaid reimbursement
Case study and      received and delinquent
type of provider    taxes outstanding               Comments
Case 4              Medicaid: Over $200,000     •     The doctor primarily owes individual income taxes from throughout the
Doctor              Taxes: Over $500,000              2000s.
(Individual)                                    •     The doctor entered into an installment agreement with IRS and
                                                      subsequently defaulted.
                                                •     IRS records noted that the doctor was “clearly paying personal bills from
                                                      his business checking account.”
                                                •     IRS unsuccessfully attempted to levy the doctor’s bank account and
                                                      other sources. IRS also attempted to levy the doctor’s Medicaid
                                                      payments on several occasions. Some attempts were successful, while
                                                      in other instances the levy arrived at the state Medicaid agency after
                                                      payment had already been made to the doctor. IRS records noted that
                                                      the Medicaid payments were the doctor’s only sizable levy source.
                                                •     The doctor had filed for bankruptcy in the early 2000s.
                                                •     The state Board of Medicine disciplined the doctor for quality of care
                                                      and record-keeping violations.
Case 5              Medicaid: Over $100,000     •     The doctor primarily owes individual income taxes from the early 2000s
Doctor              Taxes: Over $200,000              as well as TFRPs assessed for payroll taxes owed by the doctor’s
(Individual)                                          business.
                                                •     IRS filed federal tax liens against this doctor.
                                                •     The doctor agreed to multiple installment agreements with IRS, but
                                                      defaulted each time. The doctor’s spouse also entered into and
                                                      defaulted on an installment agreement.
                                                •     IRS records stated that the doctor incurs significant expenses for private
                                                      schooling and mortgage payments.
                                                •     IRS found that the doctor sold property to a holding company at a value
                                                      well below market. IRS records expressed concern that the doctor was
                                                      attempting to move the property out of the reach of the government.
                                                •     The responsible state professional board placed restrictions on the
                                                      doctor’s ability to practice.
Case 6              Medicaid: Over $1,000,000   •     The business primarily owes payroll taxes from the late 2000s.
Medical Transport   Taxes: Over $6,000,000      •     IRS levied the business’s bank accounts and receivables multiple times.
(Business)                                            IRS also continuously levied the provider’s Medicare payments.
                                                •     IRS assessed a TFRP against the business’s president.
                                                •     The business entered into an installment agreement with IRS, but
                                                      eventually defaulted for noncompliance with filing requirements. When
                                                      IRS tried to discuss the requirements with the business’s legal
                                                      representative, the representative was described by IRS records as
                                                      uncooperative, interruptive, and insulting toward IRS.
                                                •     IRS considered a seizure of the business’s assets, but for policy
                                                      reasons it was deemed unworkable.




                                      Page 14                                                              GAO-12-857 Medicaid
                    Medicaid reimbursement
Case study and      received and delinquent
type of provider    taxes outstanding               Comments
Case 7              Medicaid: Over $300,000     •     The business primarily owes payroll taxes from the late 2000s.
Medical Transport   Taxes: Over $600,000        •     The business had previously filed for bankruptcy in the early 2000s.
(Business)                                      •     IRS successfully levied the business’s bank accounts and income
                                                      sources. IRS also assessed a TFRP against multiple officers.
                                                •     IRS records expressed concern that the business was routing Medicaid
                                                      claims through an intermediary to avoid an outstanding levy.
                                                •     IRS observed a number of potentially fraudulent activities from the
                                                      business including the omission of income, failure to file and pay taxes,
                                                      tax evasion, and conspiracy to mislead the government. IRS referred
                                                      the case to its Criminal Investigation unit.
Case 8              Medicaid: Over $200,000     •     The nursing business primarily owes payroll taxes from the 2000s. The
Nursing             Taxes: Over $3,000,000            business paid off or successfully pursued abatement of prior delinquent
(Business)                                            taxes from the 1990s after IRS began collection activities.
                                                •     The business claimed the debt was caused by slow timing of
                                                      government payments, but IRS records noted that the business was
                                                      able to stay in business even when enforcement actions eliminated the
                                                      government payments.
                                                •     Per IRS, the business bounced checks, missed agreed-upon voluntary
                                                      payments, and continued accumulating new tax liabilities while
                                                      collection was occurring on older debts. IRS records further noted that
                                                      the business only appeared to submit payments under direct threat of
                                                      seizure.
                                                •     IRS repeatedly levied the business’s Medicaid payments, collecting
                                                      hundreds of thousands of dollars. After the levies, the business reduced
                                                      the amount of work done for Medicaid.
                                                •     The business’s officers, a married couple, purchased a new home while
                                                      their business was accumulating debt. IRS records expressed concern
                                                      that the officers were living above their means and borrowing from the
                                                      business to pay for personal expenses.
                                                •     IRS assessed TFRPs against the business’s officers on multiple
                                                      occasions. IRS eventually referred the case to the Department of Justice.
Case 9              Medicaid: Over $4,000,000   •     The business primarily owes payroll taxes from the early 2000s.
Social Services     Taxes: Over $1,000,000      •     The business attempted to settle the outstanding debt using an offer-in-
(Business)                                            compromise, but IRS rejected it because it was determined to be
                                                      insufficient.
                                                •     The business alleged that it needed to have a large cash reserve under
                                                      state regulations, complicating IRS efforts to enforce collection
                                                      activities.
                                                •     IRS filed federal tax liens against this business.
                                                •     The business’s owner also has a history of outstanding personal tax
                                                      debt primarily for unpaid individual income taxes.




                                      Page 15                                                              GAO-12-857 Medicaid
                   Medicaid reimbursement
Case study and     received and delinquent
type of provider   taxes outstanding                      Comments
Case 10            Medicaid: Over $200,000            •     The business primarily owes payroll taxes from the late 2000s.
Social Services    Taxes: Over $200,000               •     The business claimed the debt was due to a family emergency and the
(Business)                                                  economic downturn.
                                                      •     IRS records noted that the “[business] has established a pattern of
                                                            noncompliance by continuing to fail to make deposits.” IRS also told
                                                            business officers that even though the business was helping the
                                                            community, it didn’t exempt the business from paying payroll taxes.
                                                      •     IRS successfully levied the business’s bank accounts multiple times.
                                                      •     IRS assessed a TFRP against multiple officers, who admitted that other
                                                            creditors were paid while delinquent taxes were accruing. However, IRS
                                                            records noted that the officers had little to no property or income to
                                                            seize. These officers also failed to file their personal tax returns for the
                                                            same period.
                                                      •     The business entered into and subsequently defaulted on multiple
                                                            installment agreements with IRS.
                                    Source: GAO analysis of IRS and Medicaid records.




Examples Where at                   We examined 10 additional cases of individuals who had unpaid federal
Least One Principal                 taxes while appearing to serve as a principal for a Medicaid provider that
Owes Delinquent                     did not have known tax debt. 23 For the principals that we examined, their
                                    known unpaid federal taxes ranged from $4,000 to $1.3 million. These
Personal Taxes
                                    individuals reported to IRS receiving from $30,000 to $300,000 in wages
                                    or other payments from a Medicaid provider, with 8 of the 10 cases
                                    involving total payments exceeding $100,000. The providers they worked
                                    for received from $1,000 to $50 million in Medicaid reimbursements.

                                    In three of these cases, medical professionals submitted their names as
                                    payees to the state Medicaid agency, along with a TIN other than their
                                    personal SSN. In all three cases, this secondary TIN did not have
                                    associated tax debt, but the doctors each had personal tax debt under
                                    their SSNs, ranging from about $20,000 to over $60,000. These doctors
                                    received between $15,000 and $150,000 from Medicaid through their
                                    secondary TIN. In another case, we identified two officers with unpaid


                                    23
                                      Of the 30 cases for whom we requested and received IRS records, we conducted further
                                    examinations when (1) we could confirm the principal’s relationship with the provider, (2)
                                    the provider received at least $100 from Medicaid, (3) the principal in question owed at
                                    least $3,000 in tax debt, and (4) the principal appeared to have a key role in the provider’s
                                    ownership structure or operations, or both (e.g., owners, primary shareholders, officer, or
                                    chairperson).




                                    Page 16                                                                       GAO-12-857 Medicaid
                        federal taxes totaling approximately $370,000 at a nonprofit provider that
                        received over $6 million in Medicaid reimbursements. Each officer
                        reported a salary in excess of $100,000 for 2009. Finally, in one case, we
                        identified a doctor who, according to IRS, “had a history of noncompliance
                        … and avoidance of payment of taxes” resulting in over $1 million in
                        delinquent personal income taxes (including fines and penalties), while
                        the business he/she owned received under $2,000 in Medicaid
                        reimbursements. IRS collected a portion of the outstanding debt by
                        garnishing the doctor’s wages at his company after the doctor defaulted
                        on an installment agreement.


                        Increased levy of Medicaid reimbursements could help IRS collect
Increased Levy of       millions of dollars of unpaid federal taxes owed by Medicaid providers.
Medicaid                IRS may levy a taxpayer’s property to satisfy a tax debt, but IRS currently
                        may only subject Medicaid reimbursements to a onetime levy instead of a
Reimbursements          continuous levy, because Medicaid reimbursements are not considered
Would Likely Increase   “federal payments.” 24 We estimate that if IRS were able to continuously
Federal Tax Debt        levy Medicaid reimbursements, it could collect from $22 million to $330
                        million from the three selected states for 2009, depending on the
Collection, but         circumstances of the levy and certain provider behaviors. Alternatively,
Further Study Is        manual continuous levies (levies that are physically mailed by IRS at its
                        discretion) targeted against providers that owed a significant amount of
Required                tax debt and received large Medicaid reimbursements may represent a
                        lower-cost opportunity to collect unpaid federal taxes. The states that we
                        spoke to expressed concerns over the use of continuous levies and also
                        described problems related to the enforcement of onetime levies.




                        24
                          Federal law allows IRS to use different types of levies and levy programs that vary
                        depending on the type of asset or income stream that IRS is seizing. Generally a levy only
                        applies to possessed properties and existing obligations at the time the levy is issued, but
                        IRS may issue successive levies if the proceeds received from the initial levy are not
                        sufficient to satisfy the government’s claim. However, some levies are continuous from the
                        date a levy is first made until it is released by IRS. Salary, wages, certain federal
                        payments, annuities or pension payments under the Railroad Retirement Act or the
                        Railroad Unemployment Insurance Act, unemployment benefits, workmen’s
                        compensation, and certain public assistance payments all may be levied continuously,
                        although there may be limitations for how much may be levied at one time. 26 U.S.C.
                        § 6331(h).




                        Page 17                                                               GAO-12-857 Medicaid
IRS Cannot Currently        IRS may issue a onetime notice of levy to a state Medicaid agency to
Continuously Levy           collect the receivable balance immediately due to a given provider, to the
Medicaid Reimbursements     extent the provider owes federal taxes. However, IRS can only collect
                            funds that are due to the provider at the moment that the levy is received
to Collect Unpaid Federal   by the state Medicaid agency. To the extent the initial levy does not
Taxes                       collect the full amount of unpaid federal taxes due, IRS must issue
                            subsequent onetime levy notices to collect a provider’s Medicaid
                            reimbursements due from the state Medicaid agency. In comparison,
                            continuous levies are active until IRS agrees to release the levy and if
                            allowed to apply to Medicaid payments can be automatically applied to
                            any future requests for Medicaid reimbursement without additional levy
                            notices. For example, one mechanism that IRS uses to implement
                            continuous levies is an automated system referred to as the Federal
                            Payment Levy Program (FPLP). Through FPLP, IRS collected $614
                            million in fiscal year 2011 and has collected over $3.26 billion since it was
                            implemented in 2000 (including collection of Medicare payments made
                            after fiscal year 2008). 25 Under the FPLP, each week IRS sends the
                            Department of the Treasury’s Financial Management Service (FMS) an
                            extract of its tax debt files. These files are uploaded into the Treasury
                            Offset Program. 26 FMS sends payment data to this offset program to be
                            matched against unpaid federal taxes. If there is a match and IRS has
                            updated the weekly data sent to the offset program to reflect that it has
                            completed all statutory notifications, any federal payment owed to the
                            debtor is reduced (levied) to help satisfy the unpaid federal taxes.

                            Current federal law does not allow IRS to subject Medicaid
                            reimbursements to continuous levy. At a 2007 hearing held by the Senate
                            Homeland Security & Governmental Affairs Committee, IRS and
                            Department of the Treasury officials testified that the FPLP could not be
                            used to offset Medicaid reimbursements because such payments do not
                            meet the criteria established to be considered “federal payments.” In


                            25
                             The Medicare Improvements for Patients and Providers Act of 2008, enacted by
                            Congress in July 2008, requires CMS to take all necessary steps to participate in the
                            FPLP as soon as possible. Pub. L. No. 110-275, § 189 (July 15, 2008).
                            26
                              The Treasury Offset Program is an automated process administered by the Department
                            of the Treasury’s FMS in which certain federal payments are withheld or reduced (offset)
                            to collect delinquent tax and nontax debts owed to federal agencies, including IRS. For the
                            FPLP, FMS matches federal payments to the tax-debt records sent to it by IRS, and when
                            a match occurs, FMS offsets (levies) the federal payments and transmits the amount
                            levied to IRS to reduce the tax debtor’s outstanding debt and sends the residual to the
                            debtor.




                            Page 18                                                              GAO-12-857 Medicaid
                          addition, they noted that, unlike Medicare payments, which are disbursed
                          by the federal government, Medicaid reimbursements to providers are
                          issued by the states, introducing additional legal and operational
                          complexities not present under Medicare. A joint task force of IRS, CMS,
                          and Department of the Treasury officials studied the matter, and
                          concurred with the IRS assertion that since Medicaid is not a “federal
                          payment” it cannot be subject to continuous levy. The task force
                          considered, but did not conduct, a comprehensive cost-benefit analysis
                          considering the potential impact of a change in legislation defining
                          Medicaid as a “federal payment.” Since a comprehensive study was not
                          conducted, the full costs associated with implementing a continuous levy
                          program for Medicaid payments are unknown. Several bills have since
                          been introduced that would add Medicaid to the definition of “federal
                          payment,” but none have become law. 27


Estimates Show            For the 7,000 delinquent Medicaid providers we identified in three states,
Implementing Continuous   if there had been such an automated continuous levy system in place, we
Levy on Medicaid          estimate that between $22 million and $55 million could have been
                          collected to offset unpaid federal taxes in 2009. 28 These estimates
Reimbursements Could
                          exclude providers who are identified by IRS as currently precluded from
Allow IRS to Collect      continuous levy for statutory or policy reasons. Cases excluded from the
Additional Tax Debt       FPLP for statutory reasons include those with tax debt that had not
                          completed IRS’s notification process, or tax debtors who filed for
                          bankruptcy protection or other litigation, who agreed to pay their tax debt
                          through monthly installment payments, or who requested to pay less than
                          the full amount owed through an offer in compromise. Cases excluded
                          from the FPLP for policy reasons include those tax debtors whom IRS
                          has determined to be in financial hardship, those filing an amended
                          return, certain cases under criminal investigation, and those cases in
                          which IRS has determined the specific circumstances of the cases
                          warrant excluding it from the FPLP.




                          27
                            Tax Gap Act of 2011, S. 1289, 112th Cong. (2011); Tax Gap Act of 2010, S. 3795,
                          111th Cong. (2010); Medicaid Levy Enhancement Act, S. 2843, 110th Cong. (2008);
                          Medicaid Levy Enhancement Act, H.R. 5764, 110th Cong. (2008).
                          28
                            We compared the outstanding tax debt to the Medicaid reimbursements received in
                          2009 for tax modules that were listed as actively referred to FMS for FPLP collections, per
                          IRS.




                          Page 19                                                               GAO-12-857 Medicaid
The low-end estimate presumes each Medicaid reimbursement to be
levied at a 15 percent rate; the high-end estimate presumes a 100
percent levy rate. 29 However, this estimate does not account for potential
changes in provider participation after receipt of a notice of levy. For
instance, officials at one state we spoke to noted that it had seen
individual providers discontinue services after a levy of a large portion of
an expected reimbursement. Under ideal circumstances (i.e., 100 percent
levy with no statutory or policy exclusions and no decrease in provider
participation), the absolute maximum that IRS could have offset for these
7,000 providers in 2009 would be about $330 million. These estimates do
not account for the potential costs associated with implementing a large-
scale automated continuous levy program for Medicaid reimbursements.
Because such an estimate is not currently available, while potential for
extensive collections may exist, further study would be required to
determine the feasibility of a large-scale automated collection program.

Alternatively, if federal law permitted continuous levy of Medicaid
payments, manual continuous levies (levies that are physically mailed by
IRS at its discretion) targeted against only high-reimbursement, high-debt
Medicaid providers may represent an opportunity to cost-effectively
increase federal tax collections. We found that a small number of
providers owed a significant amount of unpaid federal taxes and received
large Medicaid reimbursements. Specifically, 32 providers each received
over $1 million in Medicaid reimbursements and had over $1 million in
total unpaid federal taxes. 30 All five of the states we spoke with already
have processes to enforce onetime levies on Medicaid reimbursements
on behalf of IRS and several enforce continuous levies on other state
payments. These existing processes could potentially be adapted to
handle enhanced onetime or manual continuous levy programs targeted
at high-reimbursement, high-debt Medicaid providers with lesser




29
  Congress authorized IRS to collect delinquent tax debt by continuously levying up to 15
percent of certain federal payments made to tax debtors in the Taxpayer Relief Act of
1997. Subsequent legislation increased the maximum allowable levy amount to 100
percent for payments to federal contractors and other vendors for goods or services sold
or leased to the federal government.
30
  The cumulative 2009 Medicaid payments received by these 32 providers were about
$310 million and the cumulative unpaid federal taxes were about $241 million.




Page 20                                                              GAO-12-857 Medicaid
                             investment by state and federal entities than a continuous levy of all
                             providers. 31


Selected States Expressed    It is not clear what effect a large-scale systematic program for
Concerns about the Effects   continuously levying Medicaid reimbursements would have on Medicaid
of Continuous and            provider participation. When we asked selected states how current
                             onetime federal levy or continuous state levy activities affect provider
Onetime Levies               participation, four of the five states told us that they did not believe that
                             their current levy activities had a broad effect on Medicaid provider
                             participation. However, these states also noted that it would be difficult to
                             judge based on the infrequency with which such levies are occurring. One
                             state suggested that providers could begin billing in another state where
                             payments are not offset, or that they may change their TIN to avoid
                             levies. As noted previously, one state did note that it had seen individual
                             providers discontinue services after a levy of a large portion of an
                             expected reimbursement. Two of the states also mentioned that they levy
                             Medicaid reimbursements for the collection of state debts without seeing
                             a broad effect on provider participation.

                             Several of the states we spoke with described a trend towards using
                             Managed Care Organizations (MCO) to administer Medicaid benefits. 32
                             Since states pay the MCO instead of the provider that performs the
                             services, the only entity that the state could enforce an IRS levy against
                             would be the MCO. This would limit the population of Medicaid providers
                             eligible for a levy to MCOs and to providers who are paid directly by the
                             state. The states expressed concern over the idea of levying Medicaid


                             31
                               The states we spoke to also showed support for the Department of the Treasury’s State
                             Reciprocal Program (SRP) as another tool for coordinating federal and state debt-
                             collection efforts. SRP allows participating states to submit state debtor information to
                             federal collection programs for offset in exchange for using equivalent state collection
                             programs to collect for federal debts. However, SRP specifically excludes federal tax
                             debts due to disclosure issues, and therefore could not be used as an alternative
                             automated continuous levy program at this time. In addition, there is no legal authority to
                             use the SRP to levy any state payments to collect federal delinquent tax debts. Some
                             states we spoke to also had implemented state-level automated continuous levy
                             programs, similar to FPLP, which are used to process Medicaid reimbursements to offset
                             state debts, though these systems would likely require further upgrades in order to
                             interface directly with federal systems.
                             32
                               An MCO is a health care provider or group of medical service providers who contract
                             with insurers or self-insured employers to provide a wide variety of managed health care
                             services to enrolled individuals through participating panel providers.




                             Page 21                                                               GAO-12-857 Medicaid
              reimbursements to pay an MCO’s debt when the reimbursement is truly
              meant for services provided by treating providers that have no association
              with the MCO’s tax debt.

              The states also expressed concerns related to the existing process for the
              enforcement of IRS onetime levies. For example, several states
              experienced customer service–related challenges when working with IRS
              including difficulty using the IRS customer service hotline, difficulty
              reaching the IRS revenue officer, or problems with IRS sending levies to
              the wrong address. Another state commented that IRS does a poor job of
              releasing levies in a timely manner, especially for uncollectible levies. One
              state noted that it had concerns with applying a levy when the provider
              name or TIN in the state’s Medicaid provider database doesn’t exactly
              match what is provided by IRS. For example, the state explained that
              associating a Medicaid reimbursement with an appropriate tax debtor can
              be a challenge since the state’s system may include more than one TIN for
              a given provider. Should IRS expand levy collection efforts for Medicaid,
              increased centralized coordination with states could ease the process.


              Available data indicate that the vast majority of Medicaid providers appear
Conclusions   to fully pay their federal taxes. However, our work has shown that in 2009
              about 7,000 Medicaid providers in three states had delinquent federal taxes
              while receiving billions of dollars in Medicaid reimbursements, including
              Recovery Act funds. Even though Medicaid providers are relied on to
              deliver significant medical services to those most in need, payment of
              billions of federal dollars to those who do not pay their fair share of federal
              taxes raises questions about the integrity and fairness of the tax system.
              Our cases provide illustrative examples where IRS was able to, in some
              instances, collect delinquent taxes by using onetime levies on Medicaid
              reimbursements, but the process is highly inefficient. While current federal
              law does not permit the continuous levy of Medicaid payments, our
              estimates suggest that expanded use of levies against Medicaid providers,
              specifically an aggressive automated program, has the potential to help
              IRS collect millions of dollars of unpaid federal taxes, though the effect on
              provider participation is largely unknown. Enhanced onetime or manual
              continuous levy programs targeted at high-reimbursement, high-debt
              Medicaid providers could also potentially yield increased tax collections.
              Given that we found over $6 billion of payments made to tax delinquent
              Medicaid providers in just three states, a more rigorous review of the
              potential costs and financial benefits of implementing enhanced continuous
              and other levies of Medicaid payments is warranted.



              Page 22                                                     GAO-12-857 Medicaid
                      We recommend that the Commissioner of Internal Revenue do the
Recommendations for   folllowing:
Executive Action
                      •   Explore further opportunities to enhance collection of unpaid federal
                          taxes from Medicaid providers. This should include conducting a cost-
                          benefit analysis of the implementation of a continuous levy program
                          and expanded use of levies against providers with large Medicaid
                          payments and significant unpaid federal taxes. Where appropriate,
                          IRS should seek legislation to modify existing law to allow for more
                          efficient collection of outstanding tax debts from Medicaid providers
                          (i.e., consider taking steps to modify 26 U.S.C. § 6331(h)(2)). In
                          addition, IRS should coordinate with CMS and FMS as necessary in
                          exploring these opportunities.


                      We provided a draft of our report to IRS, CMS, and FMS for review and
Agency Comments       comment. In its written comments (see app. III), IRS concurred with our
and Our Evaluation    recommendation to explore opportunities to enhance collection of unpaid
                      federal taxes from Medicaid providers and noted that previous efforts
                      have revealed significant operational challenges. Similarly, in its written
                      comments (see app. IV), CMS noted that the structure of the Medicaid
                      program (wherein the federal government does not have a direct
                      relationship with providers or pay them directly) provides a programmatic
                      basis for excluding Medicaid from the levy program, and may result in
                      significant challenges to the implementation of an FPLP-style levy
                      expansion. CMS further noted that any potential legislation related to the
                      collection of outstanding tax debts from Medicaid providers may impact
                      the basic structure of the Medicaid program. FMS provided technical
                      comments by e-mail, which were incorporated into this report. Both CMS
                      and FMS noted that they are prepared to coordinate with IRS in exploring
                      opportunities to enhance levy collections from Medicaid providers. We
                      recognize the challenges expressed by IRS and CMS, and are
                      encouraged by the willingness of all parties to work in coordination toward
                      an enhanced Medicaid provider levy program that is beneficial to all
                      affected agencies.




                      Page 23                                                  GAO-12-857 Medicaid
As agreed with your offices, unless you publicly release this report’s
contents earlier, we plan no further distribution of it until 6 days from its
date. At that time, we will send copies of this report to interested
congressional committees, the Secretary of the Treasury, the
Commissioner of the Financial Management Service (FMS), the
Commissioner of Internal Revenue, the Acting Administrator of the Centers
for Medicare & Medicaid Services (CMS), and other interested parties.

The report is also available at no charge on the GAO website at
http://www.gao.gov. If you have any questions concerning this report,
please contact Richard J. Hillman at (202) 512-6722 or
hillmanr@gao.gov. Contact points for our Offices of Congressional
Relations and Public Affairs may be found on the last page of this report.




Richard J. Hillman
Managing Director
Forensic Audits and Investigative Service




Page 24                                                    GAO-12-857 Medicaid
Appendix I: Objectives, Scope, and
              Appendix I: Objectives, Scope, and
              Methodology



Methodology

              Our objectives were to: (1) determine the magnitude of unpaid federal
              taxes owed by Medicaid providers receiving reimbursements during 2009
              in selected states, (2) provide examples of Medicaid providers who have
              significant unpaid federal taxes, and (3) evaluate opportunities and
              challenges related to collecting unpaid federal taxes through a levy
              process designed to offset Medicaid reimbursements.

              To determine the magnitude of unpaid federal taxes owed by Medicaid
              providers in selected states receiving reimbursements during 2009, we
              obtained and analyzed annual Medicaid reimbursement information from
              the states of New York, Texas, and Florida. We attempted to obtain data
              from the state of California, but the data we received were determined to
              be unreliable for the purposes of this report. We selected these states
              because they received the most American Recovery and Reinvestment
              Act of 2009 (Recovery Act)–related Medicaid money. 1

              We also obtained federal tax debt data from Internal Revenue Service
              (IRS) as of September 30, 2011. To determine the extent to which
              Medicaid providers in the selected states who received payment in 2009
              had unpaid federal taxes, we used the taxpayer identification number
              (TIN) as a unique identifier and electronically matched IRS’s tax debt data
              to the population of Medicaid providers. 2 We included only those unpaid
              federal taxes from 2009 and before to eliminate tax debt that may involve
              matters that are routinely resolved between the taxpayers and IRS, with
              the taxes paid or abated within a short time. To avoid overestimating the
              amount owed by Medicaid providers with unpaid federal taxes and to
              capture only significant unpaid federal taxes, we excluded from our
              analysis tax debts meeting specific criteria to establish a minimum
              threshold in the amount of tax debt to be considered when determining
              whether a tax debt is significant. The criteria we used to exclude tax debts
              are as follows:




              1
               New York, California, Texas, and Florida reported a combined $126.5 billion (35.1
              percent) in Medicaid reimbursements for 2009, of which $12.1 billion was paid with
              Recovery Act funds. New York, California, Texas, and Florida accounted for 13.55
              percent, 11.74 percent, 6.11 percent, and 5.46 percent of the Recovery Act Medicaid
              funds for 2009, respectively.
              2
               For the purposes of this report, the term “provider” refers to any individual, business, or
              other entity that received at least one Medicaid reimbursement (e.g., doctors, hospitals,
              home care providers) from at least one of the three selected states.




              Page 25                                                                 GAO-12-857 Medicaid
Appendix I: Objectives, Scope, and
Methodology




•   unpaid federal taxes IRS classified as compliance assessments or
    memo accounts for financial reporting, 3

•   unpaid federal taxes from 2010 and 2011 tax periods, and

•   recipients with total unpaid federal taxes of $100 or less.

The criteria above were used to exclude unpaid federal taxes that might be
under dispute or generally duplicative or invalid, and unpaid federal taxes
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 known unpaid
federal taxes from 2010 and 2011 tax periods to both eliminate tax debt
that may involve matters that are routinely resolved between the taxpayers
and IRS with the taxes paid or abated within a short time, and tax debts
accrued after the Medicaid reimbursement period under review. We
excluded tax debts of $100 or less because they are insignificant for the
purpose of determining the extent of known taxes owed by Medicaid
providers. Using these criteria, we identified about 7,000 Medicaid
providers with known unpaid federal taxes. Our final estimate of tax debt
may include some debt that is covered under an active IRS installment plan
or beyond normal statutory limits for debt collection. Our analysis
determined the magnitude of known unpaid federal taxes owed by 2009
Medicaid providers in only New York, Texas, and Florida and cannot be
generalized to other states or periods.

To provide examples of Medicaid providers who have significant unpaid
federal taxes, we selected 20 Medicaid providers with unpaid federal
taxes in the IRS Business Master File (BMF) and 20 Medicaid providers
with unpaid federal taxes listed in the IRS Individual Master File (IMF) for
a detailed review. These nonrepresentative selections of providers were
chosen by using a random sample of the 113 entities in the BMF and 26
individuals in the IMF with at least $100,000 in Medicaid reimbursements



3
 Compliance assessments are unpaid assessments for which neither the taxpayer nor a
court has affirmed that the taxpayer owes amounts to the federal government. Memo
accounts are balance-due accounts in IRS records that should not be reported in any of
the three unpaid assessment categories of taxes receivable, compliance assessments or
write-offs (e.g., fraudulent/frivolous assessments, assessments clearly made in error, and
others).




Page 26                                                              GAO-12-857 Medicaid
Appendix I: Objectives, Scope, and
Methodology




during 2009, $100,000 in outstanding unpaid federal taxes, and 5 years of
accumulated unpaid federal taxes (noncontinuous) in or before 2010. In
addition, we also used open-source information to identify the Social
Security Number (SSN) for owners and other principals for 600 randomly
selected known Medicaid providers in the selected states (a random
selection of 200 per state for New York, Texas, and Florida). We
electronically matched these individuals with IRS’s tax debt data to
identify their outstanding tax debts and to confirm their professional
relationship with a nondebtor Medicaid provider. For these providers, we
reviewed IRS and public records to develop 10 additional case studies.
These 50 case studies serve to illustrate the sizeable amounts of taxes
owed by some Medicaid providers, are among the most egregious
examples of Medicaid providers with unpaid federal taxes, and cannot be
generalized beyond the cases presented.

To evaluate opportunities and challenges related to collecting unpaid
federal taxes through a levy process designed to offset Medicaid
reimbursements, we interviewed officials from relevant federal agencies
and from selected states (chosen based on the size of their Medicaid
programs or their participation in federal debt-collection programs, or
both). 4 We also reviewed applicable laws, regulations, and reports related
to the issues of subjecting Medicaid reimbursements to tax levies,
including the Federal Payment Levy Program.

We conducted this audit from July 2010 through July 2012. 5 We
performed this audit in accordance with generally accepted government
auditing standards. Those standards require that we plan and perform the
audit to obtain sufficient, appropriate evidence to provide a reasonable
basis for our audit findings and conclusions based on our audit objectives.
We believe that the evidence obtained provides a reasonable basis for
our findings and conclusions based on our audit objectives.




4
 We interviewed officials from California, Florida, Kentucky, Maryland, and Texas.
5
 Initiation of our review was delayed significantly because California did not comply with
our request for Medicaid provider payment data for over 8 months. What California
ultimately provided was not sufficiently reliable for the purposes of our report.




Page 27                                                                GAO-12-857 Medicaid
                   Appendix I: Objectives, Scope, and
                   Methodology




                   For the IRS unpaid assessments data, we reviewed the work we
Data Reliability   performed during our annual audit of IRS’s financial statements and used
Assessment         a copy of the financial record file reviewed under that audit. While our
                   financial statement audits have identified some data reliability problems
                   associated with tracing IRS’s tax records to source records and including
                   errors and delays in recording taxpayer information and payments, these
                   reliability issues are not relevant to our review. On the basis of the
                   extensive testing for accuracy, existence, completeness, and timeliness
                   of relevant variables, we determined that the IRS data were sufficiently
                   reliable to address this report’s objectives. 6

                   For the selected states’ Medicaid reimbursement databases from New
                   York, Florida, and Texas, we interviewed officials in the selected states
                   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. On the basis of our discussions with agency officials,
                   review of agency documents, and our own testing, we concluded that the
                   data elements used for this report were sufficiently reliable for our
                   purposes. We did not include data received from California because we
                   were unable to conclude that the data elements we intended to use were
                   sufficiently reliable for our purposes. We reached this conclusion because
                   we were unable to reconcile the total balance of Medicaid
                   reimbursements to the amount of reimbursements published in the state’s
                   quarterly expense report filed with CMS. 7 When we asked California
                   officials why the amounts in the data they provided did not reconcile
                   externally published sources, officials told us that they were unable to
                   reconcile the data.




                   6
                    GAO, Financial Audit: IRS’s Fiscal Years 2011 and 2010 Financial Statements,
                   GAO-12-165 (Washington, D.C.: Nov. 10, 2011).
                   7
                    We compared the amount of total payments listed in files sent to us by California officials
                   to the annual Net Expenditures Reported for 2009 on the CMS-64 Quarterly Expense
                   Report and found a $3.4 billion difference.




                   Page 28                                                                GAO-12-857 Medicaid
Appendix II: Additional Cases of Medicaid
                                        Appendix II: Additional Cases of Medicaid
                                        Providers with Sizeable Outstanding Federal
                                        Tax Debt


Providers with Sizeable Outstanding Federal
Tax Debt
                                        The following table provides 30 additional examples of 2009 Medicaid
                                        providers who received American Recovery and Reinvestment Act of
                                        2009 (Recovery Act) funds, with sizeable outstanding federal tax debt.

Table 2: Additional Cases of Medicaid Providers with Sizeable Outstanding Federal Tax Debt

                    Medicaid reimbursement
Case study and      received and delinquent
type of provider    taxes outstanding             Comments
Case 11             Medicaid: Over $200,000       •  The dentist owes primarily individual income taxes from the 1990s and
Dentist             Taxes: Over $400,000             2000s.
(Individual)                                      •  The dentist has submitted multiple offers in compromise which were
                                                     cancelled after that dentist failed to make the payments required by the
                                                     agreement or failed to comply with filing requirements.
                                                  •  Per Internal Revenue Service (IRS) records, the dentist “may be using
                                                     [offers in compromise] to delay collection.”
Case 12             Medicaid: Over $200,000       •   The dentist owes primarily individual income taxes from throughout the
Dentist             Taxes: Over $300,000              2000s.
(Individual)                                      •   IRS records noted that the “Taxpayer appears to have history of changing
                                                      business entities and keeping assets out of his/her personal name.”
                                                  •   The dentist attempted to negotiate an offer in compromise with IRS multiple
                                                      times, but IRS rejected the offers due to compliance issues or because the
                                                      proposed payments were insufficient considering the dentist’s wages and
                                                      assets.
                                                  •   IRS successfully levied a portion of the dentist’s Medicaid payments. IRS
                                                      unsuccessfully attempted to levy the dentist’s assets and other receivables.
                                                  •   IRS filed federal tax liens against this dentist.
Case 13             Medicaid: Over $100,000       •   The dentist owes primarily individual income taxes from the early 2000s.
Dentist             Taxes: Over $200,000          •   IRS filed federal tax liens against this dentist.
(Individual)                                      •   The dentist filed for bankruptcy in the mid-2000s.

Case 14             Medicaid: Over $300,000       •   The dentist owes primarily individual income taxes from the late 2000s.
Dentist             Taxes: Over $200,000          •   The dentist has missed multiple deadlines for filing tax returns.
(Individual)                                      •   Per IRS records, the dentist owned waterfront property and luxury motor
                                                      vehicles.
                                                  •   The dentist filed for bankruptcy in the mid-1990s.
Case 15             Medicaid: Over $100,000       •   The doctor owes primarily individual income taxes from throughout the
Doctor              Taxes: Over $900,000              2000s.
(Individual)                                      •   IRS filed federal tax liens against this doctor.

Case 16             Medicaid: Over $200,000       •   The doctor owes primarily individual income taxes from the late 2000s.
Doctor              Taxes: Over $200,000          •   The doctor failed to file tax returns for multiple years.
(Individual)                                      •   IRS unsuccessfully attempted to levy the doctor’s bank accounts.
                                                  •   The doctor filed for bankruptcy in the late 2000s.
                                                  •   The doctor’s medical business was dissolved involuntarily by state officials.
                                                      The business also owes outstanding tax debt.




                                        Page 29                                                                GAO-12-857 Medicaid
                                       Appendix II: Additional Cases of Medicaid
                                       Providers with Sizeable Outstanding Federal
                                       Tax Debt




                   Medicaid reimbursement
Case study and     received and delinquent
type of provider   taxes outstanding             Comments
Case 17            Medicaid: Over $200,000       •  The business owes primarily payroll taxes from throughout the 2000s.
Durable Medical    Taxes: Over $300,000          •  The business went years without filing necessary tax returns.
Equipment Provider                               •  IRS records noted that the business appeared to be filing delinquent returns
(Business)                                          piecemeal as a delaying tactic.
                                                 •  IRS assessed a trust fund recovery penalty (TFRP) against one of the
                                                    company’s officers.
                                                 •  The business’ owner was previously involved with another business that
                                                    also failed to pay withheld payroll taxes to IRS.
                                                 •  GAO’s review found that the business appears to be using multiple TINs,
                                                    names, and Medicaid ID Numbers to bill Medicaid and accumulate payroll
                                                    taxes. We found nominal 2009 Medicaid payments and over $600,000 in
                                                    debt associated with one of these alternate identities.
Case 18            Medicaid: Over $700,000       •   The business owes primarily payroll taxes from the early 2000s.
Home Care Provider Taxes: Over $1,000,000        •   GAO’s review found that the business appears to be using multiple TINs
(Business)                                           and Medicaid ID Numbers, but the same name and National Provider
                                                     Identification number to bill Medicaid and accumulate payroll taxes. The
                                                     provider billed a state Medicaid agency using a different TIN for an
                                                     additional amount in excess of $700,000 (not included in the figure above).
                                                     This second TIN also had over $900,000 in outstanding tax debt.
                                                 •   IRS filed federal tax liens against this company.
Case 19            Medicaid: Over $3,000,000     •   The business owes primarily payroll taxes from the late 2000s.
Home Care Provider Taxes: Over $1,000,000        •   According to IRS records, the business’s officers told IRS that they were
(Business)                                           unaware of the total outstanding tax balances due. They said they used
                                                     payroll processing companies to manage the company’s payroll.
                                                 •   The business missed multiple return filings over the course of several years.
                                                 •   The business entered into and defaulted on an installment agreement.
                                                 •   IRS filed federal tax liens against this business.
                                                 •   IRS recently began pursuing assessed a TFRP against the business’s
                                                     responsible officers.
Case 20            Medicaid: Over $200,000       •   The business owes primarily payroll taxes from throughout the 2000s.
Home Care Provider Taxes: Over $600,000          •   Per IRS records, the business appears to lose money each month; its only
(Business)                                           stated sources of revenue are government funded.
                                                 •   The business was not compliant with filing and deposit requirements for
                                                     payroll taxes.
                                                 •   IRS filed federal tax liens against this business.
                                                 •   The owner of this business is also one of the cases listed in this report.




                                       Page 30                                                               GAO-12-857 Medicaid
                                          Appendix II: Additional Cases of Medicaid
                                          Providers with Sizeable Outstanding Federal
                                          Tax Debt




                   Medicaid reimbursement
Case study and     received and delinquent
type of provider   taxes outstanding                Comments
Case 21           Medicaid: Over $300,000           •  The business owes primarily payroll taxes from the late 2000s.
Home Care Provide Taxes: Over $100,000              •  The business entered into an installment agreement with IRS and
(Business)                                             subsequently defaulted.
                                                    •  IRS successfully levied the business’s bank account and an insurance
                                                       company.
                                                    •  IRS moved to assess a TFRP against the company’s sole officer, but
                                                       ceased the collection activity after the officer showed significant hardship.
                                                    •  IRS filed federal tax liens against this business.
                                                    •  The business is currently noncompliant with filing and deposit requirements.
                                                       IRS records noted that the business recently bounced checks and missed a
                                                       meeting with IRS.
                                                    •  A state regulatory body fined the home care provider for violations related
                                                       to the quality of care.
Case 22            Medicaid: Over $600,000          •   The taxpayer owes primarily individual income taxes from throughout the
Home Care Provider Taxes: Over $100,000                 2000s.
(Individual)                                        •   The taxpayer’s businesses also have tax issues, including owing payroll
                                                        taxes and the improper use of the same EIN for multiple businesses. The
                                                        taxpayer also failed to file required informational returns for a charity that
                                                        he/she runs.
                                                    •   The taxpayer entered into and defaulted on an installment agreement.
Case 23            Medicaid: Over $600,000          •   The hospital owes primarily payroll taxes from the late 2000s.
Hospital           Taxes: Over $500,000             •   A hospital representative told IRS that the services it provides are in limited
(Business)                                              supply in its service area.
                                                    •   IRS assessed a TFRP against responsible company officers.
                                                    •   IRS filed federal tax liens against this hospital.
                                                    •   The hospital filed for bankruptcy in the late 2000s.
Case 24            Medicaid: Over                   •   The hospital owes primarily payroll taxes and miscellaneous penalties from
Hospital           $100,000,000                         the late 2000s.
(Business)         Taxes: Over $200,000             •   The hospital filed for bankruptcy twice during the 2000s.
                                                    •   IRS records show IRS appears to have initiated a TFRP investigation,
                                                        which ceased when the underlying debts were paid.
Case 25            Medicaid: Over $200,000          •   The taxpayer owes primarily individual income taxes from the early 2000s.
Management         Taxes: Over $300,000             •   The taxpayer admitted to IRS that he/she simply failed to comply with all
(Individual)                                            filing and payment requirements.
                                                    •   The taxpayer’s business owed payroll taxes and IRS considered assessing
                                                        a TFRP, but decided against it because of the taxpayer’s minimal income
                                                        and lack of assets available for seizure.
                                                    •   This individual’s business is also one of the cases listed in this report.
Case 26            Medicaid: Over $200,000          •   The taxpayer owes primarily individual income taxes from the early 2000s.
Management         Taxes: Over $100,000             •   The taxpayer has missed multiple deadlines for filing tax returns.
(Individual)                                        •   IRS filed federal tax liens against this individual.




                                          Page 31                                                                 GAO-12-857 Medicaid
                                       Appendix II: Additional Cases of Medicaid
                                       Providers with Sizeable Outstanding Federal
                                       Tax Debt




                   Medicaid reimbursement
Case study and     received and delinquent
type of provider   taxes outstanding             Comments
Case 27            Medicaid: Over $100,000       •  The nurse owes primarily individual income taxes from throughout the
Nurse              Taxes: Over $100,000             2000s.
(Individual)                                     •  IRS filed federal tax liens against this nurse.
                                                 •  IRS attempted to levy the nurse’s bank account and Medicaid payments in
                                                    the late 2000s with negative results.
                                                 •  The nurse missed multiple deadlines for filing tax returns.
                                                 •  IRS records noted that IRS recently decided that the debt could not be
                                                    collected due to hardship.
Case 28            Medicaid: Over $100,000       •   The nurse owes primarily individual income taxes from the 2000s.
Nurse              Taxes: Over $100,000          •   IRS filed federal tax liens against this nurse.
(Individual)                                     •   IRS successfully levied the nurse’s bank account and a portion of the
                                                     nurse’s Medicaid payments.
                                                 •   The nurse submitted an offer in compromise in the late 2000s, but IRS
                                                     rejected the offer because of the nurse’s failure to remain current with
                                                     estimated tax payments.
                                                 •   The nurse filed for bankruptcy in the early 2000s.
Case 29            Medicaid: Over $100,000       •   The nurse primarily owed individual income taxes from the mid 2000s.
Nurse              Taxes: Over $100,000          •   The nurse failed to file tax returns in a timely manner.
(Individual)                                     •   IRS filed federal tax liens against this nurse.
                                                 •   The nurse passed away in 2010.
                                                 •   IRS successfully levied the nurse’s bank account after her death.
Case 30            Medicaid: Over $1,000,000     •   The business owes primarily payroll taxes from throughout the 2000s.
Nursing            Taxes: Over $400,000          •   IRS observed that the company had a history of financial problems,
(Business)                                           specifically instances of bounced checks and a bankruptcy filing in the early
                                                     2000s.
                                                 •   IRS assessed TFRPs against an officer.
                                                 •   IRS levied the business’s bank accounts.
                                                 •   IRS filed federal tax liens against the company.
                                                 •   IRS records noted that this business claimed to have closed, but a new
                                                     business offering similar services began operating in the same location.
Case 31            Medicaid: Over $2,000,000     •   The business owes primarily payroll taxes from the late 2000s.
Nursing            Taxes: Over $200,000          •   IRS assessed a TFRP against an officer, who also failed to file personal
(Business)                                           income tax returns.
                                                 •   IRS levied the business’s bank accounts and other assets multiple times to
                                                     help collect outstanding tax debt.
                                                 •   The business entered into and ultimately defaulted on multiple installment
                                                     agreements. IRS did not allow the business to enter into a third installment
                                                     agreement because of the prior defaults. The business recently submitted
                                                     an offer in compromise which was rejected due to compliance issues.




                                       Page 32                                                               GAO-12-857 Medicaid
                                       Appendix II: Additional Cases of Medicaid
                                       Providers with Sizeable Outstanding Federal
                                       Tax Debt




                   Medicaid reimbursement
Case study and     received and delinquent
type of provider   taxes outstanding             Comments
Case 32            Medicaid: Over $100,000       •  The psychologist owes primarily individual income taxes from the late
Psychologist       Taxes: Over $100,000             2000s.
(Individual)                                     •  Per IRS records, the psychologist had significant alimony and child support
                                                    payments and purchased two expensive vehicles while accruing the tax
                                                    debt. The psychologist also paid for private schooling for his/her children.
                                                 •  The psychologist had a current installment agreement combining personal
                                                    tax debt and tax debts of his/her business.
                                                 •  IRS filed federal tax liens against this psychologist.
                                                 •  The psychologist filed for bankruptcy in the late 1990s.
Case 33            Medicaid: Over $100,000       •  The social services business owes primarily payroll taxes from the late
Social Services    Taxes: Over $700,000             2000s.
(Business)                                       •  IRS assessed multiple TFRPs against the business’s officers beginning in
                                                    the late 1990s for prior debts.
                                                 •  IRS levied the business’s bank accounts and income sources (including
                                                    Medicaid payments) multiple times.
                                                 •  The social services business entered into and subsequently defaulted on
                                                    multiple installment agreements with IRS.
                                                 •  IRS filed federal tax liens against this business.
                                                 •  IRS records stated that this business “does not have a very good record of
                                                    meeting [his/her] commitments.”
Case 34            Medicaid: Over $100,000       •   The taxpayer owes primarily individual income taxes from throughout the
Social Services    Taxes: Over $300,000              1990s and 2000s.
(Individual)                                     •   IRS filed federal tax liens against this individual.
                                                 •   The taxpayer filed for bankruptcy multiple times in the 1990s and 2000s.
Case 35            Medicaid: Over $200,000       •   The business owes primarily payroll taxes from throughout the 2000s.
Social Services    Taxes: Over $300,000          •   The business’s owner also owes self-employment taxes.
(Business)                                       •   IRS assessed a TFRP against responsible parties.
                                                 •   IRS unsuccessfully attempted to levy the business’s bank accounts, but
                                                     successfully levied the business’s Medicaid payments.
                                                 •   The business entered into an installment agreement, made payments under
                                                     it for over 2 years, and defaulted on it.
Case 36            Medicaid: Over $1,000,000     •   The business owes primarily payroll taxes from the late 2000s.
Social Services    Taxes: Over $300,000          •   IRS assessed a TFRP against multiple officers.
(Business)                                       •   IRS filed federal tax liens against this business.




                                       Page 33                                                              GAO-12-857 Medicaid
                                       Appendix II: Additional Cases of Medicaid
                                       Providers with Sizeable Outstanding Federal
                                       Tax Debt




                   Medicaid reimbursement
Case study and     received and delinquent
type of provider   taxes outstanding               Comments
Case 37            Medicaid: Over $200,000         •  The business owes primarily payroll taxes from throughout the 2000s.
Social Services    Taxes: Over $100,000            •  IRS levied the business’s bank account multiple times as well as the
(Business)                                            business’s Medicaid payments. IRS records noted that the “state will not
                                                      honor a continuous levy so levy will be required daily” in regard to the levy
                                                      of state payments.
                                                   •  The business entered into and subsequently defaulted on multiple
                                                      installment agreements. The business submitted an offer in compromise,
                                                      but IRS rejected it as insufficient in consideration of the business’ ability to
                                                      pay.
                                                   •  IRS assessed a TFRP against the president of the business, who also
                                                      owed personal taxes.
                                                   •  IRS filed federal tax liens against this business.
Case 38            Medicaid: Over $400,000         •  The business owes primarily payroll taxes from the late 2000s.
Social Services    Taxes: Over $100,000            •  IRS noted that the business was filing late tax returns and made insufficient
(Business)                                            deposits to cover expected payroll taxes due.
                                                   •  IRS issued multiple levies against multiple sources including the business’s
                                                      bank, Medicaid payments, and other business associates.
                                                   •  The business entered into and subsequently defaulted on an installment
                                                      agreement. The business appeared to fully pay prior tax debts through an
                                                      earlier installment agreement.
                                                   •  IRS filed federal tax liens against this company.
Case 39            Medicaid: Over $600,000         •  The business owes primarily payroll taxes from the late 2000s.
Therapy            Taxes: Over $300,000            •  IRS successfully levied the business’s bank account multiple times.
(Business)                                         •  IRS filed federal tax liens against this company.
                                                   •  IRS recently delayed an installment agreement because the business was
                                                      noncompliant with current tax filings and payments.
Case 40            Medicaid: Over $800,000         •  The taxpayer owes primarily individual income taxes from the early 2000s.
Therapy            Taxes: Over $300,000            •  The taxpayer went over a decade without filing or paying taxes.
(Individual)                                       •  The taxpayer did not agree with the assessed taxes once the returns were
                                                      filed and stated that the tax amount should be substantially reduced.
                                       Source: GAO analysis of IRS and Medicaid records.




                                       Page 34                                                                   GAO-12-857 Medicaid
Appendix III: Comments from the Internal
              Appendix III: Comments from the Internal
              Revenue Service



Revenue Service




              Page 35                                    GAO-12-857 Medicaid
Appendix III: Comments from the Internal
Revenue Service




Page 36                                    GAO-12-857 Medicaid
Appendix III: Comments from the Internal
Revenue Service




Page 37                                    GAO-12-857 Medicaid
Appendix IV: Comments from the Centers for
              Appendix IV: Comments from the Centers for
              Medicare & Medicaid Services



Medicare & Medicaid Services




              Page 38                                      GAO-12-857 Medicaid
Appendix IV: Comments from the Centers for
Medicare & Medicaid Services




Page 39                                      GAO-12-857 Medicaid
Appendix IV: Comments from the Centers for
Medicare & Medicaid Services




Page 40                                      GAO-12-857 Medicaid
Appendix IV: Comments from the Centers for
Medicare & Medicaid Services




Page 41                                      GAO-12-857 Medicaid
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             Medicare: Thousands of Medicare Part B Providers Abuse the Federal
             Tax System. GAO-07-587T. Washington, D.C.: March 20, 2007.

             Internal Revenue Service: Procedural Changes Could Enhance Tax
             Collections. GAO-07-26. Washington, D.C.: November 15, 2006.

             Tax Debt: Some Combined Federal Campaign Charities Owe Payroll and
             Other Federal Taxes. GAO-06-887. Washington, D.C.: July 28, 2006.




             Page 42                                                 GAO-12-857 Medicaid
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           Tax Debt: Some Combined Federal Campaign Charities Owe Payroll and
           Other Federal Taxes. GAO-06-755T. Washington, D.C.: May 25, 2006.

           Financial Management: Thousands of GSA Contractors Abuse the
           Federal Tax System. GAO-06-492T. Washington, D.C.: March 14, 2006.

           Financial Management: Thousands of Civilian Agency Contractors Abuse
           the Federal Tax System with Little Consequence. GAO-05-683T.
           Washington, D.C.: June 16, 2005.

           Financial Management: Thousands of Civilian Agency Contractors Abuse
           the Federal Tax System with Little Consequence. GAO-05-637.
           Washington, D.C.: June 16, 2005.

           Financial Management: Some DOD Contractors Abuse the Federal Tax
           System with Little Consequence. GAO-04-414T. Washington, D.C.:
           February 12, 2004.

           Financial Management: Some DOD Contractors Abuse the Federal Tax
           System with Little Consequence. GAO-04-95. Washington, D.C.:
           February 12, 2004.

           Debt Collection: Barring Delinquent Taxpayers From Receiving Federal
           Contracts and Loan Assistance, GAO/T-GGD/AIMD-00-167, Washington,
           D.C.: May 9, 2000.

           Unpaid Payroll Taxes: Billions in Delinquent Taxes and Penalty
           Assessments Are Owed. GAO/AIMD/GGD-99-211. Washington, D.C.:
           August 2, 1999.

           Tax Administration: Federal Contractor Tax Delinquencies and Status of
           the 1992 Tax Return Filing Season. GAO/T-GGD-92-23. Washington,
           D.C.: March 17, 1992.




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           Page 43                                                GAO-12-857 Medicaid
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