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36–076 PDF 2007

S. Hrg. 110–77

MEDICARE DOCTORS WHO CHEAT ON THEIR

TAXES AND WHAT SHOULD BE DONE ABOUT IT

HEARING

BEFORE THE

PERMANENT SUBCOMMITTEE ON INVESTIGATIONS

OF THE

COMMITTEE ON 

HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

MARCH 20, 2007

Available via http://www.access.gpo.gov/congress/senate

Printed for the use of the 

Committee on Homeland Security and Governmental Affairs

(

(II)

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

JOSEPH I. LIEBERMAN, Connecticut, Chairman 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

THOMAS R. CARPER, Delaware 

MARK PRYOR, Arkansas 

MARY L. LANDRIEU, Louisiana 

BARACK OBAMA, Illinois 

CLAIRE MCCASKILL, Missouri 

JON TESTER, Montana 

SUSAN M. COLLINS, Maine 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

NORM COLEMAN, Minnesota 

TOM COBURN, Oklahoma 

PETE V. DOMENICI, New Mexico 

JOHN W. WARNER, Virginia 

JOHN E.SUNUNU, New Hampshire

MICHAEL L. ALEXANDER, Staff Director 

BRANDON L. MILHORN, Minority Staff Director and Chief Counsel 

TRINA DRIESSNACK TYRER, Chief Clerk 

PERMANENT SUBCOMMITTEE ON INVESTIGATIONS 

CARL LEVIN, Michigan, Chairman 

THOMAS R. CARPER, Delaware 

MARK L. PRYOR, Arkansas 

BARACK OBAMA, Illinois 

CLAIRE McCASKILL, Missouri 

JON TESTER, Montana 

NORM COLEMAN, Minnesota 

TOM COBURN, Oklahoma 

PETE V. DOMENICI, New Mexico 

JOHN W. WARNER, Virginia 

JOHN E. SUNUNU, New Hampshire

ELISE J. BEAN, Staff Director and Chief Counsel 

MARK L. GREENBLATT, Staff Director and Chief Counsel to the Minority 

MARY D. ROBERTSON, Chief Clerk 

(III)

C O N T E N T S 

Opening statements: Page 

Senator Levin .................................................................................................... 1

Senator Coleman .............................................................................................. 4

WITNESSES 

TUESDAY, MARCH 20, 2007

Gregory D. Kutz, Managing Director, Forensic Audits and Special Investigations Unit, accompanied by Steven J. Sebastian, Director, Financial Management and Assurance, and John J. Ryan, Assistant Director, Forensic 

Audits and Special Investigations Unit, U.S. Government Accountability 

Office ..................................................................................................................... 8 

Hon. Mark Everson, Commissioner, Internal Revenue Service, U.S. Department of the Treasury ........................................................................................... 17

Hon. Kenneth R. Papaj, Commissioner, Financial Management Service, U.S. 

Department of the Treasury ................................................................................ 19

Leslie V. Norwalk, Acting Administrator, Centers for Medicare and Medicaid 

Services, accompanied by Timothy B. Hill, Chief Financial Officer and 

Director, Office of Financial Management, Centers for Medicare and Medicaid Services, U.S. Department of Health and Human Service ...................... 21

ALPHABETICAL LIST OF WITNESSES

Everson, Hon. Mark: 

Testimony .......................................................................................................... 17

Prepared statement with attachments ........................................................... 79

Hill, Timothy B.: 

Testimony .......................................................................................................... 21

Kutz, Gregory D.: 

Testimony .......................................................................................................... 8

Prepared statement .......................................................................................... 43

Norwalk, Leslie V.: 

Testimony .......................................................................................................... 21

Prepared statement .......................................................................................... 100

Papaj, Hon. Kenneth R.: 

Testimony .......................................................................................................... 19

Prepared statement with attachments ........................................................... 90

Ryan, John J.: 

Testimony .......................................................................................................... 8

Prepared statement .......................................................................................... 43

Sebastian, Steven J.: 

Testimony .......................................................................................................... 8

Prepared statement .......................................................................................... 43

EXHIBITS 

1. U.S. Government Accountability Office (GAO) Report to Congressional 

requesters, TAX ADMINISTRATION—Millions Of Dollars Could Be Collected If IRS Levied More Federal Payments, July 2001, GAO–01–711 ....... 108

2. Correspondence from the Permanent Subcommittee on Investigations to 

Leslie V. Norwalk, Acting Administrator, Centers for Medicare and Medicaid Services, Department of Health and Human Services, dated February 1,2 007, regarding the Government Accountability Office’s ongoing 

review of Medicare providers outstanding tax debt ....................................... 142

Page

IV

3. Medicare Benefits 2005, chart prepared by the Permanent Subcommittee 

on Investigations Minority Staff ...................................................................... 144

4. Responses to supplemental questions for the record submitted to The 

Honorable Mark Everson, Commissioner, Internal Revenue Service, Department of the Treasury ................................................................................. 145

5. Responses to supplemental questions for the record submitted to The 

Honorable Kenneth R. Papaj, Commissioner, Financial Management 

Service, Department of the Treasury .............................................................. 151

6. Responses to supplemental questions for the record submitted to Ms. 

Leslie V. Norwalk, Acting Administrator, Centers for Medicare and Medicare Service, Department of Health and Human Services ............................ 153

(1)

MEDICARE DOCTORS WHO CHEAT ON THEIR 

TAXES AND WHAT SHOULD BE 

DONE ABOUT IT 

TUESDAY, MARCH 20, 2007

U.S. SENATE,

PERMANENT SUBCOMMITTEE ON INVESTIGATIONS,

OF THE COMMITTEE ON HOMELAND SECURITY

AND GOVERNMENTAL AFFAIRS, 

Washington, DC. 

The Subcommittee met, pursuant to notice, at 2:30 p.m., in room 

342, Dirksen Senate Office Building, Hon. Carl Levin, Chairman of 

the Subcommittee, presiding. 

Present: Senators Levin, Coleman, and McCaskill. 

Staff Present: Mary D. Robertson, Chief Clerk; John McDougal, 

Detailee, IRS; Guy Ficco, Detailee, IRS; Peggy Gustafson, 

McCaskill staff; Mark L. Greenblatt, Staff Director and Chief 

Counsel to the Minority; Mark D. Nelson, Deputy Chief Counsel to 

the Minority; Sharon Beth Kristal, Counsel to the Minority; 

Clifford C. Stoddard, Jr., Counsel to the Minority; Timothy R. 

Terry, Counsel to the Minority; Jay Jennings, Senior Investigator 

to the Minority; Emily T. Germain, Staff Assistant to the Minority; 

and Robin Landauer (Coburn). 

OPENING STATEMENT OF SENATOR LEVIN 

Senator LEVIN. Good afternoon, everybody. This afternoon, the 

Subcommittee will be looking at a very troubling anomaly—one of 

our Nation’s most important programs, Medicare, a program which 

is indispensable to the health of our citizens, is also a source of significant abuse. 

While the vast majority of health care providers are honest, taxpaying citizens, the focus of today’s hearing is on those health care 

providers who are getting paid with taxpayer dollars under the 

Medicare program while at the same time failing to pay their 

taxes. While stuffing taxpayer dollars into their pockets, they are 

stiffing Uncle Sam by not paying their taxes. 

Federal programs exist to stop this type of abuse. One key program is the Federal Payment Levy Program, which was established 

about 10 years ago to enable the Federal Government to identify 

Federal payments being made to tax deadbeats and authorize the 

withholding of a portion of those taxpayers’ dollars to apply to the 

person’s tax debt. For the past 4 years, under the leadership of 

Senator Coleman, the Subcommittee has been involved in an intensive effort to strengthen the tax levy program in order to withhold 

2

funds from Federal payments made to Federal contractors who 

don’t pay their taxes. 

Past hearings have exposed the fact that there are 27,000 de- fense contractors with $3 billion in unpaid taxes; 33,000 contractors with other Federal agencies who owe $3.3 billion in unpaid tax 

debt; and 3,800 GSA contractors with $1.4 billion in unpaid tax 

debt. Those mind-boggling numbers represent tens of thousands of 

companies putting their hand in the taxpayers’ wallet while dodging billions of dollars of tax obligations. 

To stop this flagrant disregard of tax fairness, the Subcommittee 

has worked hard to identify and fix the many technical problems 

and red tape that have hindered the government’s ability to withhold money from contract payments to apply to the contractors’ tax 

debt. 

Today’s hearing highlights still another group of tax-dodging 

Federal contractors taking advantage of honest taxpayers. A study 

prepared by the Government Accountability Office (GAO), at the 

request of the Subcommittee, shows that 21,000 Medicare Part B 

health care providers, including doctors, ambulance companies, and 

medical laboratories, collectively owe about $1 billion in delinquent 

taxes. Together, they represent about 5 percent of all Medicare 

Part B service providers. 

One of the examples we will hear about today is a doctor who collected over $1 million in taxpayer dollars from Medicare last 

year while owing $1 million in back taxes. While not paying his 

taxes, he purchased a $1 million house, a pleasure boat, and he 

bought several nightclubs. In another example, a doctor owes more 

than $400,000 in back taxes but collected more than $100,000 in 

Medicare payments last year and engaged in millions of dollars of 

gambling transactions rather than getting right with the government. In its report, the GAO identifies about 40 such tax dodgers 

who each received $100,000 or more in Medicare service provider 

payments. 

The key Federal agency that oversees Federal Medicare payments is the Centers for Medicare and Medicaid Services (CMS). 

CMS sends its payments on Medicare Part C and D to the Treasury Department for disbursement, and these payments are processed through the Federal Tax Levy Program. But for over 5 years, 

CMS has failed to implement the levy program for Medicare Parts 

A and B, approving countless Medicare payments to countless medical service providers who owe taxes while failing to hold back 

money owed the government for delinquent taxes. When asked by 

the Subcommittee why it declined to implement the tax levy program for Part B, CMS explained that its lawyers thought the statute did not obligate it to participate. 

CMS does not make Part B Medicare payments directly to its 

service providers but to intermediaries who then make the actual 

payments. CMS apparently thought this payment system might be 

too complex, for the tax levy system to handle. It is not too complex 

and the Subcommittee is glad to see that CMS has now had a 

change of heart and apparently agreed to set up procedures to enable these Medicare payments to be screened for possible tax debt. 

Given the 21,000 tax delinquents on Medicare Part B provider roles 

that the GAO has identified, it is long past time for CMS to join 

3

the government-wide tax levy effort. Those 21,000 were identified 

without the ability to pierce the corporate veil, which is an essential step that needs to be taken if we are going to put teeth in this 

program. 

The tax levy program that CMS will be joining is much improved 

since the Subcommittee’s first hearing in 2004. One key advance 

has been the formation of a government-wide interagency task 

force to tackle tax levy problems. Since its formation in 2004, this 

task force has worked with the Subcommittee to resolve a host of 

technical issues to improve tax levy collections from Federal contractors. These improvements include ensuring accurate Taxpayer 

Identification Numbers in the Federal contractor registration data 

base, eliminating a requirement for an IRS agent to be assigned to 

a tax-delinquent contractor before a tax levy could be imposed, and 

issuing earlier tax levy notices to Federal contractors to ensure 

their contract payments are eligible for levy. 

As a result of these and other improvements, tax levy collections have more than doubled over the past 3 years, going from $136 

million in 2004 to nearly $340 million in 2006. Of these totals, tax 

levy collections from Federal contractors have also more than doubled, going from $28 million to $62 million. 

With respect to the Medicare program, CMS has now agreed to 

work with the IRS to set up procedures to screen Medicare Part B 

payments. CMS needs also to screen payments made under other 

parts of the Medicare program. Now, that is just a matter of 

matching the CMS Taxpayer Identification Number, known as a 

TIN, with the IRS Taxpayer Identification Number. 

A separate problem results from the standard practice of doctors 

and other medical professionals of conducting their medical practices through a small corporation or a limited liability company. 

The problem arises from the fact that the professional typically has 

a personal TIN that is different from the TIN held by their professional corporation or limited liability company. Current tax rules 

allow individuals to treat the income earned by such professional 

corporations as either corporate income that gets separately taxed 

or as partnership income that is attributed to the company owners 

and individually taxed. 

Because many professionals choose to report income under their 

personal TINs, if they fail to pay taxes on the income received by 

their professional corporations, they can easily circumvent the tax 

levy process because the individual will appear on the IRS list of 

tax delinquents under one TIN while his or her company will appear on the CMS payment list under a different TIN. There won’t 

be, then, a computer match between the IRS and CMS databases, 

and the IRS will be unable to levy the Medicare payments. 

To fix this problem, CMS could require the taxpayers to supply 

both their individual TINs and the TINs of the companies that receive Medicare payments on their behalf. CMS could also require 

companies, as a condition of participation, to agree to make their 

Medicare payments subject to tax levies for member physicians or 

company owners who accrue those payments as personal income. 

The IRS also needs to change its regulations to allow that type of 

tax levy. If that change in regulations isn’t made, it would be necessary perhaps to change the law to allow this type of business inVerDate 0ct 09 2002 11:15 Jul 11, 2007 Jkt 036076 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 C:\DOCS\36076.TXT SAFFAIRS PsN: PAT
4

come to be levied to satisfy the tax debt of member physicians and 

company owners. 

Additional work is also needed to strengthen the tax levy program as a whole. Right now, for a variety of legal and technical 

reasons, only 45 percent of the tax debt assessed that is still uncollected in 2006 was actually made subject to levy under the Federal 

program. While that percentage is up from 34 percent in 2004, the 

data shows that in 2006, over half of this assessed tax debt, some 

$67 billion, was never activated by the IRS, or as they put it, 

‘‘turned on’’ for actual collection under the tax levy program. Sixtyseven billion dollars is a big number even by Washington standards. That tax debt should be subject to levy for Federal payments. 

The vast majority of Medicare providers render valuable services 

and they pay their taxes. These honest health care providers are 

put at a competitive disadvantage by the Medicare tax cheats. Besides hurting honest businesses, this type of tax dodging hurts our 

country by undermining the fairness of our tax system and by forcing honest taxpayers to make up the shortfall needed to pay for the 

basic Federal protections like health care. When these tax 

delinquents also receive large payments of Federal funds, it adds 

insult to injury. We must force the tax dodgers to pay their tax 

debt, and a key tool is to subject any Federal payments that they 

receive to an effective tax levy program. 

Again, I want to commend Senator Coleman. He has been the 

leader in this effort. It has been a sustained effort, whether he has 

been Chairman or Ranking Member of this Subcommittee. We 

thank him for all the energy that he has put into this effort, for 

his leadership, and we now call upon him for his opening statement. 

OPENING STATEMENT OF SENATOR COLEMAN 

Senator COLEMAN. Thank you, Mr. Chairman, and thank you for 

your kind words. I have been working at the side of a master on 

this issue for a number of years and it has been your passion to 

make sure that those who have taxpayer obligations pay those obligations. The work that you did with folks using offshore companies, 

the super-rich avoiding taxpayer obligations, and the case you continually make as we look at contractors and others, they hurt the 

rest of us. 

In this investigation, we have over 600,000 physicians who are 

part of the system. The 21,000 that have been identified, they are 

hurting the rest. They are hurting those who are paying their obligations. As you have so wisely indicated, it adds insult to injury 

when at the same time the Federal Government is putting money 

in the pockets of tax cheats without having them live up to their 

obligations, and the reality is there is a system in place. It is widely used within the government, and once again which, you have indicated in your opening statement, has produced results. 

We talked about the system as a whole and the increase from 

$139 million collected to $339 million. Just the Defense Department, I believe, the Commissioner of the Internal Revenue Service 

will indicate that since we began the investigation, collections 

under the levy program went from $1 million to $26 million, one 

narrow universe of folks and a significant increase. 

5

Again, I appreciate and thank you for the bipartisan effort and 

the way in which we have done this. 

We do turn our attention today to tax cheats in the Medicare system. In particular, we have found that more than 21,000 doctors 

and related service providers who receive billions of dollars in 

Medicare payments every year owe an estimated $1.3 billion in 

back taxes. 

To make matters worse, $430 million of this outstanding debt is 

composed of unpaid payroll taxes, so that the average worker is out 

there working for these folks. Money is coming out of their paycheck. They are believing that it is being set aside for payroll taxes. 

Instead, it is going into somebody’s pocket. These tax deadbeats 

then are cheating the system by withholding payroll taxes from 

employees’ paychecks but failing to pay those taxes to the government. Instead, they keep the employees’ taxes for their personal 

use. So they are not only cheating the government, they are, in a 

sense, stealing from their own employees, as well, to the tune of 

over $430 million. 

And if that is not bad enough, these tax cheats are not exactly 

paupers. To the contrary, they are living the good life. We will hear 

testimony about 50-foot yachts, multi-million-dollar mansions, vacation homes, million-dollar gambling habits, and personal airplanes, all at the expense of the American taxpayer. Some of these 

tax cheats have been previously convicted for defrauding the government, money laundering, and tax evasion. Some have had hospital privileges revoked, been disciplined by various State medical 

boards, investigated by State Medicaid fraud boards, and some 

have even been previously excluded from Medicare, yet they continue to receive substantial payments from Medicare every year. 

Let me share a handful of disturbing examples to kind of build 

on the two that you mentioned in your opening statement. One ambulance company received more than $1 million from Medicare in 

the first 9 months of 2005 and it owed more than $11 million in 

back taxes. One doctor has refused to pay Federal income taxes 

since the 1970s and now owes more than $3 million in unpaid Federal taxes and more than $1 million to another Federal agency. He 

was paid approximately $100,000 in the first 9 months of 2005 by 

Medicare. Apparently, he tried to hide his assets by attempting to 

transfer property to his children. 

Unfortunately, the list goes on and on. Were failing to pay their 

taxes not a sufficient insult to American taxpayers, Medicare doctors, and again I say doctors, this narrow universe of tax cheats, 

not the vast overall majority of doctors working in the system doing 

what they should do, but these tax cheats also owe $33 million in 

child support, $27 million in unpaid student loans, $114 million 

owed to other Federal agencies, and $22 million in unpaid State income taxes. 

All this raises some important questions. The first question is obvious. How did it happen? The best case scenario is that there is 

a disappointing situation of the left hand not knowing what the 

right hand is doing. On the one hand, we have the Centers for 

Medicare and Medicaid Services, which oversees the Medicare program, paying doctors to keep the Medicare program running 

6

1 Exhibit 3 appears in the Appendix on page 144. 

smoothly. On the other hand, we have the IRS trying to recoup 

substantial tax debts from many of these same doctors. 

But that is only the best case scenario. I fear the reality is worse. 

The Federal Government created the Federal Payment Levy Program in 2000 to target government payments to tax deadbeats and 

levy those payments to recover the unpaid taxes. The levy program 

was designed to put an end to this very problem. The Government 

Accountability Office specifically recommended that CMS confer 

with the IRS and FMS to figure out how to get Medicare payments 

into the levy program. That recommendation came 6 years ago, in 

2001. So it is clear that CMS and other agencies have been on notice about this very issue for years, yet CMS still isn’t participating 

in the program. 

As a result, we have lost countless opportunities to levy Medicare 

payments made to tax-delinquent doctors and other suppliers. The 

GAO estimated that if CMS had participated in the levy program, 

the government could have recouped anywhere from $50 to $140 

million from these Medicare tax cheats, and I stress, Mr. Chairman, that we are really dealing with, first, just the 9 months in 

2005, so it is a narrow time period that we could have potentially 

recouped between $50 and $140 million. You have to imagine how 

many hundreds of millions could have been recovered if CMS started participating in the program in 2001, 2002, 2003, 2004, and 

2005. 

The other thing is that we are really dealing with just a small 

portion of Medicare, a portion of Part B. So this narrow slice of the 

Medicare program in a short time frame tells us that there are tens 

of millions, if not hundreds of millions of dollars. The chart being 

put up right now shows that we are dealing with Part B, the subject of the hearing, and it is only a small piece of the Medicare benefit pie.1

So why are we still struggling with this issue 7 years after the 

levy program began and 6 years after GAO’s initial recommendation? Why did CMS wait until February 2007, just a few weeks before this hearing, to take an active interest in joining the levy program? I intend to put those very questions to CMS, IRS, and FMS, 

the Federal agencies involved, and get to the bottom of the problem. 

But we are not in the blame business. We are in the problem 

solving business. The Chairman did, I think, an outstanding job of 

recommending some things that should change. 

The paramount question, then, is how do we fix the mess? Make 

no mistake, these are complex problems, but I have no doubt, Mr. 

Chairman, that we can fix them. We have faced many similar complicated problems throughout this investigation and have overcome 

them one by one. For instance, I talked about when we began the 

DOD investigation, a mere fraction of DOD payments to its contractors were checked for tax debt and making improvements 

seemed daunting. Just 2 years later, I believe 99 percent of all 

DOD payments are now checked for levies and this has led to substantial results as collections from tax-delinquent DOD contractors 

7

have jumped dramatically, as I have indicated, for Fiscal Year 

2003, from $1 million, to more than $26 million in 2006. 

Similarly, we are overcoming problems in getting other Federal 

agencies to participate in the Federal levy program. For instance, 

the U.S. Postal Service and the Army Corps of Engineers have successfully joined the program and their payments will be checked for 

levies beginning in June of this year. 

So we have dealt with thorny problems in the past and I am confident we will have similar success in addressing the problems now 

confronting Medicare payments. In fact, I understand that CMS 

has already expressed a willingness to make changes to lay the 

foundation to ensure that its payments will be checked for levies 

and we will no longer lose opportunities to recover unpaid tax 

debts. I look forward to the testimony from CMS, IRS, and FMS 

on what changes need to be made and what we can do to make 

these changes quickly. 

In closing, I should reiterate our profound appreciation of the 

hard work and dedication of GAO’s Forensic Audits and Special Investigations Unit. They have provided this Subcommittee with invaluable assistance. Our first panel is very familiar to this Subcommittee and to the full Committee. They have done extraordinary work and we are appreciative of that. 

I also recognize the diligence and determination of the Commissioner of the IRS, the Administrator of GSA, the Secretary of Defense, and the Commissioner of the Financial Management Service, 

whose support led to the establishment of the Federal Contractor 

Compliance Task Force. The task force has addressed and resolved 

numerous problems that inhibit the levy process. It is painstaking 

work, but it has shown real tangible results. 

We are also grateful to the Postmaster General and the Commanding General of the Army Corps of Engineers, who have directed their respective agencies to join the Federal Payment Levy 

Program voluntarily. I appreciate all their hard work. I applaud 

their success. I am confident that we can achieve greater success 

as we move forward and I look forward to the testimony today. 

Thank you, Mr. Chairman. 

Senator LEVIN. Thank you. Senator McCaskill, do you have an 

opening comment or two that you would like to make? 

Senator MCCASKILL. I do not. Thank you, Mr. Chairman. 

Senator LEVIN. Thank you. 

Let me now welcome our first panel to this important hearing. 

Gregory Kutz is Managing Director of the Forensic Audits and Special Investigations Unit at the Government Accountability Office. 

Special Agent John Ryan, an Assistant Director with the Forensic 

Audits and Special Investigations Unit, and Steven Sebastian, Director of Financial Management and Assurance, we welcome each 

of you, I think in all cases, back to the Subcommittee. GAO is here 

to testify on the latest information that they have developed pursuant to our request for an investigation of Medicare providers who 

are not paying their taxes. We appreciate the hard work of the 

GAO. As Senator Coleman mentioned, without your work, we could 

not possibly be here and do so many things that we try to do, so 

we are very grateful for that work. 

8

1The joint prepared statement of Mr. Kutz, Mr. Sebastian, and Mr. Ryan appears in the Appendix on page 43. 

Pursuant to Rule VI, all witness who testify before the Subcommittee are required to be sworn and I would ask each of you 

to please stand and raise your right hand. 

Do you solemnly swear that the testimony you are about to give 

to this Subcommittee will be the truth, the whole truth, and nothing but the truth, so help you, God? 

Mr. KUTZ. I do. 

Mr. SEBASTIAN. I do. 

Mr. RYAN. I do. 

Senator LEVIN. Thank you. We will be using a timing system 

today, and please be aware that one minute approximately before 

the red light comes on, you will see your green light change to yellow, which will give you an opportunity to conclude your remarks. 

The written testimony will be made part of the record in its entirety. 

I believe, Mr. Kutz, that you are going to lead off and summarize. 

Mr. KUTZ. Yes. 

Senator LEVIN. Thank you. 

TESTIMONY OF GREGORY D. KUTZ,1 MANAGING DIRECTOR, 

FORENSIC AUDITS AND SPECIAL INVESTIGATIONS UNIT, ACCOMPANIED BY STEVEN J. SEBASTIAN, DIRECTOR, FINANCIAL MANAGEMENT AND ASSURANCE, AND JOHN J. RYAN, 

ASSISTANT DIRECTOR, FORENSIC AUDITS AND SPECIAL INVESTIGATIONS UNIT, U.S. GOVERNMENT ACCOUNTABILITY 

OFFICE 

Mr. KUTZ. Mr. Chairman, Senator Coleman, and Senator 

McCaskill, thank you for the opportunity to discuss Medicare providers with tax problems. 

As you both mentioned, we have previously testified that government contractors were abusing the Federal tax system with little 

or no consequence. At your request, we have expanded our investigation of tax abuse to Medicare and Medicaid providers. Today’s 

testimony is the first installment of our work on Medicare and 

Medicaid. My testimony has two parts: First, our findings related 

to Medicare physicians and other suppliers; and second, key policy 

and program issues. 

First, we found that over 21,000, or 5 percent, of Medicare Part 

B physicians, health professionals, and other suppliers had over $1 

billion of unpaid Federal taxes. Note that our analysis was limited, 

as you mentioned, to 9 months of 2005 data. The scope of our investigation was limited due to problems receiving accurate and reliable data from the Centers for Medicare and Medicaid Services. 

The data we did receive represents about 20 percent of total Medicare disbursements. 

To put a face on this issue, we investigated 40 case studies, including physicians and ambulance, imaging service, and laboratory 

businesses. For all 40 cases, we found abusive and potentially 

criminal activity related to the Federal tax system. Twenty-five of 

9

1 Chart referred to appears in the Appendix on page 00. 

2 Chart referred to appears in the Appendix on page 00. 

our case studies were businesses that had unpaid payroll taxes. 

Willful failure to remit payroll taxes to the IRS is a felony. 

For the first 9 months of 2005, these 40 providers received $16 

million of Medicare payments while owing $59 million of Federal 

taxes. The individuals associated with these case studies have 

made a career out of failing to pay their Federal taxes. Some of the 

schemes used to avoid paying taxes include non-filing of tax returns and under-reporting of income, paying employees in cash, 

closing the entity with tax debt and opening up another entity with 

a similar name at the same address, and transferring millions of 

dollars of property to other family members and offshore accounts 

to avoid IRS collections. 

The individuals involved with these cases have accumulated substantial personal wealth while at the same time failing to pay their 

Federal taxes. The posterboard shows examples of luxury homes 

and vehicles owned by these individuals along with a $400,000 

yacht.1 Other interesting assets include a tobacco farm, expensive 

paintings and antiques, a liquor store, an airplane, and nightclubs. 

Our current and past investigations have shown that failure to 

pay Federal taxes isn’t the only problem these individuals have. 

Let me use the posterboard to walk you through five other themes 

from our case studies.2

The first is professional practice problems. We found physicians 

denied hospital privileges due to substandard care. We also found 

many State medical board license suspensions and sanctions. 

Second, substantial other debt. At least 23 of our case studies 

had unpaid State taxes. Other defaulted on student and other Federal loans. 

Third, prior convictions, including money laundering, income tax 

evasion, and obtaining controlled substances by means of deception. 

Fourth, suspicious cash transactions. One physician had millions 

of dollars of gambling transactions. Another physician attempted to 

transfer large amounts of cash to a country known for state-sponsored terrorism. 

Fifth, deadbeat parents who had substantial delinquent child 

support payments. 

If you walked in partway through my presentation, you might 

have assumed that I was talking about America’s most wanted 

criminals rather than Medicare providers, which leads to my second point. What is being done to address this problem? 

There are many policy and program issues here, but I will focus 

on two. The first is the one that you have spoken about the most 

here, which is the back end of the process, the collection of unpaid 

taxes through tax levy. Your oversight of contractors with tax problems has led to improvements in debt collection. We estimate that 

your oversight and positive actions by the IRS and FMS have resulted in hundreds of millions of dollars of increased collections 

through tax levy. Your similar oversight is needed for Medicare 

Part B providers because there is no continuous tax levy program. 

10

As you mentioned, we estimate that for 9 months, between $50 and $140 million could have been collected from these providers, 

the little sliver that Senator Coleman talked about, through continuous levy. Why aren’t these payments being levied? The second 

panel needs to answer that question. 

The second aspect I wanted to explore was the front end of the 

process. Our work across the government has shown that fraud 

prevention is the most efficient and effective means to minimize 

fraud, waste, and abuse. We found that very little is being done to 

prevent even the most egregious Medicare providers from doing 

business with the Federal Government, although it is hard to believe the 40 cases I just described received $16 million of payments 

from Medicare in 2005. 

In conclusion, the good news is that the vast majority of Medicare physicians and providers are paying their Federal taxes. However, our work has shown that thousands of these providers have 

taken advantage of the opportunity to avoid paying over $1 billion 

of Federal taxes. These tax cheats have an unfair advantage compared to the vast majority of physicians and other suppliers that 

do pay their Federal taxes. 

With respect to our 40 case studies, the question I have is how 

bad does the behavior of Medicare providers need to be for them 

to be barred from doing business with the Federal Government. I 

find it hard to believe that the hard-earned money we collect from 

honest American taxpayers is being used to bankroll these tax 

deadbeats. 

Mr. Chairman, that ends my statement. Special Agent Ryan, Mr. 

Sebastian, and I look forward to your questions. 

Senator LEVIN. Thank you very much, Mr. Kutz. 

First of all, I think you have already made it clear that you have 

looked at only some of the Medicare Part B payments. You have 

not looked at other types of Medicare payments that have also not 

been made subject to tax levy, is that correct? 

Mr. KUTZ. That is correct. We have looked at about 20 percent 

of Medicare, it appears. 

Senator LEVIN. All right. And so is it fair to make an assumption 

that perhaps the other parts of the problem would be 80 percent 

of the problem and you have looked at 20 percent of it? 

Mr. KUTZ. We don’t know for sure, but it could be, because in 

some of the other work we have done, for example one of the most 

egregious offenders for our civilian contractor work was nursing 

homes, and so we do believe there is going to be a lot of other tax 

problems here. 

Senator LEVIN. And nursing homes were not included in your review? 

Mr. KUTZ. That is correct. 

Senator LEVIN. Is it also true that, for instance, people who sell 

durable medical equipment, like wheelchairs, are not included? 

Mr. KUTZ. That was excluded from the Part B data we received. 

Senator LEVIN. All right. In matching the records of CMS against 

those of the IRS, you found 21,000 doctors, approximately, and 

other Medicare Part B providers that owed over $1 billion of back 

taxes. Now, these 21,000 cases are where the CMS TIN and the 

IRS TIN, the Taxpayer Identification Number, match? 

11

Mr. KUTZ. Correct. The TIN that was being paid by CMS 

matched the unpaid assessment file at IRS. 

Senator LEVIN. All right. So the 21,000 providers that you identified where there is a match clearly understates, does it not, the 

problem or the numbers that are out there, because it does not include non-filers and it does not include under-reported amounts so 

far, right? 

Mr. KUTZ. Correct. 

Senator LEVIN. Now, doesn’t it also omit taxes that are assessed 

against the individual doctors or physicians of medical corporations 

that have elected to be taxed as partnerships? 

Mr. KUTZ. That would be correct, or businesses, and there would 

be hundreds of thousands of physicians that would not be providing 

billing information like that. They would be excluded from these 

numbers. 

Senator LEVIN. All right. So the larger part of the problem probably is where there is no match possible under the current system 

because different Taxpayer Identification Numbers are provided? 

Mr. KUTZ. Yes. 

Senator LEVIN. All right. Now, have you talked to CMS or the 

IRS about that issue, and how they are going to correct that or how 

Congress needs to correct that? 

Mr. KUTZ. Well, I think we are trying to crawl before we can 

walk and so we actually would like to see a levy program first, so 

we have not gotten to that advanced of a discussion. We would like 

to see a levy program first of all for the ones that match. We are 

not even anywhere close to having a levy program for what we 

would call the low-hanging fruit——

Senator LEVIN. All right. 

Mr. KUTZ [continuing]. Let alone the more sophisticated types of 

analysis needed. But you are right. There is a lot more money on 

the table than just the analysis we showed today. 

Senator LEVIN. Why has the low-hanging fruit not been picked? 

Mr. KUTZ. You are going to have to ask the second panel that. 

Senator LEVIN. Well, we are going to. I am sure we are all looking forward to that. [Laughter.] 

But in the meantime, I am sure you talked to them about it, as 

well. What were the reasons they gave? 

Mr. KUTZ. Well, as I think Senator Coleman mentioned, we had 

recommended in 2001, and probably before that also, that IRS and 

FMS work with CMS to make this happen. The Federal Contractor 

Task Force has been meeting now for several years as a result, I 

believe in many respects, of your oversight. CMS has not participated in that until February 2007. So I don’t know if they were invited or whether they decided not to show up or what the case may 

be, but they have not participated in that until about the time you 

called this hearing. 

Senator LEVIN. But you have talked to CMS as part of your investigation? 

Mr. KUTZ. Yes. 

Senator LEVIN. I am sure you have asked them what the reasons 

are. Did they give you an answer so we can get kind of a preview 

of what to expect here? 

12

Mr. KUTZ. Well, I think they are going to talk to you in the second panel about technical issues. They are going to say they are 

working with IRS and FMS, but that would be a recent event given 

the fact that they just started participating in February. 

Senator LEVIN. There is no reason that they gave you for their 

delay in participating? 

Mr. KUTZ. There is not a legitimate reason. We have heard why 

5 or 6 years have passed, and that could be over a billion dollars 

of lost collection, Senator. 

Senator LEVIN. We fully agree with that. I am just wondering 

whether there is a non-legitimate reason which has been given, I 

mean, any reason. But they have not offered you an explanation? 

Mr. KUTZ. No. 

Senator LEVIN. OK. Senator Coleman. 

Senator COLEMAN. Thank you, Mr. Chairman. 

Just following up on the Chairman’s last question, in that original recommendation in 2001, was there a discussion or a response 

from CMS that they were doing some system overhaul, some system changes? Are you familiar with that? 

Mr. KUTZ. I am not familiar with that, no. The responses I saw 

were mostly from IRS and FMS. They are doing an overhaul right 

now——

Senator COLEMAN. We received comments from the Acting Deputy in which he stressed CMS vendor payments could not be included in the continuous levy program until a new CMS-integrated 

accounting system is completed. That is 2001. 

Mr. KUTZ. And that still is underway, that system. 

Senator COLEMAN. Even for government, that is an extraordinary 

pace. 

Mr. KUTZ. Yes. 

Senator COLEMAN. You indicated in the early part of your testimony that in talking about why we are only looking at 20 percent 

of the total disbursements that you had problems getting data from 

CMS. Can you elaborate on that? 

Mr. KUTZ. Yes. The request for us to look at the Medicare was 

in 2005, actually, so we had an entrance meeting with CMS in 

2005. We worked with them to get the physician and other files 

during 2005 and 2006. I sent a letter to them in the fall of 2006 

saying we had a lot of data we hadn’t received yet. You sent a letter to them February 1, 2007 asking for the same data we hadn’t 

been able to get from them, and here we are today without the 

data. 

Now, I will say once again, since you have called this hearing, 

there has been a lot more activity. They have given us 1099 information and they have tried to give us other pieces of data. But 

again, you asked us to look at Medicare, not 20 percent of Medicare, but I think it was important to have this hearing to get the 

issue out there so that actions can start being taken to actually address the problems. 

Senator COLEMAN. I take it, then, you will continue to look at 

Medicare and go beyond just the 20 percent that we are talking 

about today? 

Mr. KUTZ. We will if we get the data, and we do not have the 

data. 

13

Senator COLEMAN. We will do everything in our power to make 

sure you have the data. 

One of the issues that I have been asked about is the nature of 

the folks involved in having tax obligations and is this something 

just the average business guy could run into. It is clear by, and I 

take it that is kind of the intent for you to focus on some of the 

luxury personal goods, the yachts, the cars, etc. We are not talking 

about struggling small business operators, are we, here? 

Mr. KUTZ. No. That is a good point. When we did the contractor 

work, some of the cases were truly businesses that appeared to be 

struggling, having cash flow problems, etc.. For the most part, 

these people—on the one hand, they are telling IRS that they are 

having financial problems and they can’t pay the bill. On the other 

hand, we see an accumulation of substantial assets. These are 

fraudsters, Senator. There is no question. 

Senator COLEMAN. I don’t know whether you can explain or perhaps I may ask the Commissioner. In one of the examples that you 

cite, you had a physician who hasn’t filed a tax return in over 30 

years. Can you explain to me how that person has avoided becoming a guest of the Federal prison system? 

Mr. KUTZ. I can’t, and that is something I think Mr. Ryan could 

probably comment to. Why there haven’t been more criminal cases 

with these 40, we don’t know. 

Senator COLEMAN. Mr. Ryan, you have done a lot of work in this 

area. Does that strike you as pretty excessive? 

Mr. RYAN. Yes, but then again, you have to ask the Department 

of Justice. I think that, overall, the agents of the IRS, the ones I 

have been talking to, are trying to do a good job. I think the letter 

that was sent to Senator Levin by the Justice Department opens 

up the door for the IRS to go in and ask the Department of Justice, 

what are you going to do and how are you going to help us bring 

these tax cheats to the table? They indicated that if the IRS brings 

the cases, they will consider them. If I was the IRS, I guess I would 

be jumping over at the Department of Justice and asking them to 

send letters out to all the districts and having the SACs of those 

districts work together with the Justice Department to bring these 

type of people to justice. 

Senator COLEMAN. Part of your testimony focused on the qualifications of the folks who are these tax cheats, technical qualifications, revoked licenses, all sorts of other tax debt, other kinds of 

criminal behavior, suspicious cash transactions. Did you have discussions with CMS in terms of this issue of standards? Is there a 

way to somehow tie this into quality medical care? I mean, the bottom line for me is are you aware of any standards that should be 

applied to these folks before they continue participating in the 

Medicare system? 

Mr. KUTZ. There are extensive standards for exclusions and 

debarments and most of them are health-related ones, and some of 

these people have been excluded during various points in time, but 

during 2005, all 40 of them received Federal payments. But it is 

difficult, and we didn’t look at the whole exclusion and debarment 

process at length. That wasn’t really our objective here. 

But it does raise questions why none of these 40 most recently 

as when we looked were being debarred at this point. It certainly 

14

seems that some of them would have met the criteria, because if 

you look—I would just read to you a couple of the examples of what 

we have here. We have substandard care, drug abuse, lack of moral 

character, embezzlement, abusive prescription writing. That doesn’t 

sound to me, Senator, like people we should have doing business 

with the Federal Government. 

Senator COLEMAN. So clearly, there is not a sufficient screening 

process here. 

Mr. KUTZ. In these particular cases. We can only speak to the 40. 

I would say there are problems with that. 

Senator COLEMAN. Thank you. Thank you, Mr. Chairman. 

Senator LEVIN. Thank you very much, Senator Coleman. 

Senator McCaskill. 

Senator MCCASKILL. Thank you, Mr. Chairman. 

I want to follow up a little bit on what Senator Coleman was 

talking about. In reading this, my conclusion is that we really don’t 

have any deterrent out there right now that would be effective in 

terms of any of these people that are systematically trying to avoid 

tax liability. Would that be a fair statement? 

Mr. KUTZ. Well, there was a lot of collection activity with respect 

to the 40 cases, but again, when you consider that they have avoided paying taxes for 10, 15, or 20 years, we would have probably expected more aggressive action by the IRS on the enforcement side 

and the criminal side to put them out of business. 

Senator MCCASKILL. I understand that the debarment, according 

to your report, doesn’t happen unless a taxpayer is actually convicted of a felony in regards to tax evasion. 

Mr. KUTZ. That is one of the possible areas, yes. There are other 

health-related felony convictions that would require a Medicare exclusion, also. 

Senator MCCASKILL. Right. But right now, if somebody had consistently—let us say one of the examples you found where they 

were changing the names of their businesses but residing at the 

same address. The discovery of that, if someone was motivated at 

CMS and decided—would that even be a basis under the law to 

say, we are not going to do business with you anymore? 

Mr. KUTZ. There is probably enough flexibility that, depending 

on how egregious the behavior, they could exclude them for various 

things like you have just described. But that is a matter of judgment and we certainly didn’t see it with the 40 cases we looked at. 

Senator MCCASKILL. Did you discover any cases where there had 

been any type of attempt to notify providers about the possibility 

of debarment if they didn’t live up to their Federal tax liabilities, 

if they didn’t——

Mr. KUTZ. No, not for tax liabilities. 

Senator MCCASKILL. None? 

Mr. KUTZ. None. One thing to keep in mind, Senator, is that 

CMS doesn’t know whether or not these people have tax liabilities. 

Section 6103 of the Internal Revenue Code would not allow IRS to 

share that information with them, necessarily. And so for them to 

get that information, they would have to have the taxpayer when 

they enroll or re-up consent to letting them check IRS’s tax records. 

So that is one impediment right now that could be dealt with procedurally, or you could deal with it legislatively. 

15

Senator MCCASKILL. That is what I was just going to ask as the 

next question. It would appear to me that if we are going to do 

business with a contractor, whether it be a doctor or a major defense contractor, that they ought to be willing to agree to allow the 

government to check to make sure they have paid their taxes if we 

are going to be giving them taxpayer money. 

Mr. KUTZ. I agree with you 100 percent, and given the vast majority of these people are honest tax-paying Americans, the vast 

majority would agree with you. The ones that wouldn’t agree are 

the ones that aren’t paying their taxes. 

Senator MCCASKILL. And did you get a sense from the people at 

HHS that they were reluctant to do that, that would have some 

kind of chilling effect on the willingness of these various providers 

to participate in this program? 

Mr. KUTZ. We haven’t gotten into that discussion with them. 

Senator MCCASKILL. I also notice that you have only looked at 

20 percent. You have not included home health care, either, is that 

correct? 

Mr. KUTZ. I believe that is correct. 

Senator MCCASKILL. That is Medicare Part A, is that right? 

Mr. KUTZ. We haven’t looked at any of Part A. We have only 

looked at about half of Part B and 20 percent of all Medicare disbursements is what was in our population. 

Senator MCCASKILL. I guess the problem I have here is that 

there is such an opportunity for deterrence and no one is availing 

themselves of it. Knowing in the criminal justice system that there 

are people you can deter and there are people you can’t, and generally, the people that are medical professionals are going to be deterred if they believe there are consequences to this activity. This 

isn’t like people who it doesn’t work if you try to—and by the way, 

I would be willing to bet that if some of these cases were brought, 

they would be highly publicized. I would think this is the kind of 

stuff that makes the papers because people are, probably it is not 

a good thing about human nature, that people are fascinated by 

people not living up to their obligations that are in positions of 

trust, and for all the right reasons the vast majority of the medical 

community has a revered place of trust in our country. 

Mr. KUTZ. We would certainly like to see some high-profile cases 

prosecuted and made examples of and well publicized. That is a deterrent, there is no question. 

Senator MCCASKILL. Were you able to determine if any of these 

kinds of cases had been brought at the Department of Justice for 

tax evasion by Medicare providers? 

Mr. KUTZ. There were a couple of the 40 that had tax evasion 

issues in their history, but they were not barred from doing business during the year we looked at, 2005. So there had been action 

on tax evasion for maybe one or two of them, but currently, none. 

Senator MCCASKILL. Do you know if any of this has ever been 

covered in a single audit as it relates to single audits are being 

done in the States when we are looking—because certainly I know 

that is something we look at in a single audit as it relates to the 

Medicare program. Are you aware of whether in any of the single 

audits across the country there has been a look at this kind of 

issue? 

16

Mr. KUTZ. I wouldn’t think they could because they wouldn’t 

have access to this information. So the public accounting firms or 

State auditors or whoever do those audits, I don’t think they would 

have access to this. We had to work through you and the Joint 

Committee on Taxation to get access to taxpayer information. 

Senator MCCASKILL. OK. I think some could, depending on the 

State, because I think we could on a limited scope in Missouri. We 

couldn’t by identifying who they were, but we could by number. 

Mr. KUTZ. OK. 

Senator MCCASKILL. Thank you. 

Senator LEVIN. Thank you, Senator McCaskill. Senator Coleman. 

Senator COLEMAN. Thank you, Mr. Chairman. I just have a series of questions for Mr. Kutz that is actually going to lay the foundation for the next panel. 

One, did you find as part of the matching of Medicare payments 

with the outstanding tax debts that CMS has the names and Taxpayer Identification Numbers of physicians who were paid in 2005? 

Do they have that information? 

Mr. KUTZ. They did. It took us a long time to get the information, 

but we got it. 

Senator COLEMAN. They don’t, however, validate the TINs, do 

they? 

Mr. KUTZ. I don’t believe so. 

Senator COLEMAN. Which is, I think, something we did with the 

Defense Department after our investigation, is actually validate the 

TINs. But they have the Taxpayer Identification Numbers. Does 

CMS obtain the name and Taxpayer Identification Number——

Mr. KUTZ. Senator, I am sorry. I understand that they do validate, is that correct? I am told they do validate. 

Senator COLEMAN. Does CMS obtain the name and Taxpayer 

Identification Number before payment is actually made? 

Mr. KUTZ. Yes. 

Senator COLEMAN. Then you would agree that CMS has all the 

information, the basic information, that is required for the Federal 

Payment Levy Program to identify payments that should be levied? 

Mr. KUTZ. Under their old system and new system, I would say, 

yes, the data is there. It would be harder to do under the old system than the new system from what I understand. 

Senator COLEMAN. Just dealing with this narrow issue of potential participation in the Federal Payment Levy Program, where all 

you need is name and Taxpayer Identification Number and then 

compare that with the IRS data, is there any reason why CMS cannot participate in the Federal Payment Levy Program? 

Mr. KUTZ. No. I think that it could be worked out. 

Senator COLEMAN. Thank you. Thank you, Mr. Chairman. 

Senator LEVIN. Why would it be harder under the old system to 

make the match if the numbers are there in both systems? 

Mr. KUTZ. I think the old system is more decentralized. I think 

the new system is going to be more centralized where ultimately 

everybody will be on one system, so you could do one file match. 

Here, you might need to do several dozen file matches. But that 

doesn’t mean it can’t be done. 

Senator LEVIN. Is this computer generated under both systems? 

Mr. KUTZ. Yes. 

17

1The prepared statement of Mr. Everson appears in the Appendix on page 79. 

Senator LEVIN. Senator McCaskill, any more questions? 

Senator MCCASKILL. No. 

Senator LEVIN. OK. Thank you very much. Thank you again for 

your good work on this and so many other projects. 

We will now call on our second panel. Let me now welcome our 

second panel of witnesses for this afternoon’s hearing. 

First, we have Mark Everson, Commissioner of the Internal Revenue Service; Kenneth Papaj, Commissioner of the Financial Management Service of the Department of Treasury; Leslie Norwalk, 

the Acting Administrator for the Centers for Medicare and Medicaid Services at the Department of Health and Human Services, 

and accompanying Ms. Norwalk this afternoon is Timothy Hill, 

Chief Financial Officer and Director of the Office of Financial Management at the Centers for Medicare and Medicaid Services. 

I would ask you at this time if you would all please rise. 

Do you swear that the testimony that you will give before this 

Subcommittee this afternoon will be the truth, the whole truth, and 

nothing but the truth, so help you, God? 

Mr. EVERSON. I do. 

Mr. PAPAJ. I do. 

Ms. NORWALK. I do. 

Mr. HILL. I do. 

Senator LEVIN. I think you heard the way the lighting system 

works. A number of you have been here before, so I won’t repeat 

that. Your written testimony will be made part of the record. We 

would ask that you attempt to limit your oral testimony to no more 

than 5 minutes. 

Mr. Everson, we will have you go first. Before you start, there 

are so many things that you do for the Nation and for this Subcommittee, and we are grateful for both. 

TESTIMONY OF HON. MARK EVERSON,1 COMMISSIONER, INTERNAL REVENUE SERVICE, U.S. DEPARTMENT OF THE 

TREASURY 

Mr. EVERSON. Thank you, sir. Good afternoon, Chairman Levin, 

Ranking Member Coleman, and Senator McCaskill. I am pleased to 

be before you today to discuss the Government’s Federal Payment 

Levy Program. I commend the Subcommittee for your continued interest in this subject. As you know, this is the fourth time we have 

met on this topic. 

The government has made demonstrable progress in going after 

tax debt owed by Federal contractors. This is an instance of Congressional oversight at its best in that I firmly believe that you get 

a lot of the credit for our increased attention to this problem. As 

you indicate, Mr. Chairman, your predecessor and his staff certainly did an awful lot in this area. 

Before taking your questions, I do want to review briefly the 

overall progress the IRS has made in recent years in restoring levies as an important enforcement tool. As the Members of the Subcommittee know, restoring the credibility of IRS enforcement programs has been a priority during my 4 years as Commissioner. 

18

1 Chart referred to appears in the Appendix on page 85. 

2 Chart referred to appears in the Appendix on page 86. 

3 Chart referred to appears in the Appendix on page 87. 

Levies are an important part of our enforcement activities. Let me 

just show you two charts which depict the recovery of levies.1

This first one shows levies issued. As you can see, the volume of 

levies now exceeds that made by the IRS before the precipitous decrease after the hearings in the 1990s and the implementation of 

RRA 1998. Most importantly for today’s subject, the chart depicts 

the Federal payment 2—this shows the growth of the Federal Payment Levy Program, this color which was nonexistent a few short 

years ago. We started talking about this back here. But you can see 

overall, the levies have recovered smartly, but now we have this 

nice increment due to the focus that we have brought that you 

have sort of obviously championed. 

Let us go to the second chart.3 This shows that the dollars, as 

well, the dollars now exceed what we were getting at the end of the 

1990s, and again, there is a nice piece here. There is a lesser 

amount here. As you are familiar, there are limitations on what we 

get through this program, the 15 percent limitation. It is not the 

same thing as we get in some of the areas, relatively more lucrative work, which is the field work, the yellow. 

Before taking your questions on our efforts to continue to improve this program, let me make one or two points about the President’s 2008 budget proposals. We enjoyed significant increases in 

our enforcement results in Fiscal Year 2006, and I am pleased to 

report that we are making continued strides in Fiscal Year 2007. 

One of the things that I am proudest of is that the IRS has ramped 

up its enforcement programs without generating a lot of noise or 

increased allegations of infringement of taxpayer rights. 

The President’s 2008 budget builds on these results. I am pleased 

that the President’s request provides additional monies for IRS systems infrastructure modernization as well as for enforcement and 

notably for increased research. There is also a modest increase for 

taxpayer services. This is the best budget that I have seen in my 

4 years on the job. 

I ask the Members of the Subcommittee, as you have done in the 

past, to support the President’s budget and to help enact an appropriation for the IRS before Fiscal Year 2008 starts. It is very important, trying to run a big operation within the agency to get the 

budget on time. These requested monies will help us generate continued progress in attacking the tax gap, but they are not the only 

things we need to do. The Administration has made 16 legislative 

proposals. I would direct your attention to four that I think are 

particularly important. 

First, reporting of credit card gross receipts. 

Second, and I think we are getting at this in the earlier testimony, making willful failure to file a tax return a felony, not a misdemeanor. That explains a great deal why DOJ is not terribly interested in pursuing a misdemeanor. 

Third, requiring basis reporting for sales of securities. 

And fourth, lowering the threshold for mandatory electronic filing for large corporations and partnerships. 

19

1The prepared statement of Mr. Papaj appears in the Appendix on page 90. 

2 Chart referred to appears in the Appendix on page 00. 

3 Chart referred to appears in the Appendix on page 00. 

I would like to mention one other proposal. Not all the tax debt, 

as you indicated, Mr. Chairman, referred to the FPLP can be immediately levied. That is because we have not completed the notice 

and review process that is legally required prior to the activation 

of the levy. Of the $114 billion in tax debt referred to the program, 

$57 billion, or approximately half, is not currently available for 

levy. We continue our efforts to accelerate the notice process so 

that the debts can be levied as soon as legally possible. 

In that regard, there is also a provision included in the President’s budget request that would permit the IRS to issue post-levy 

due process notices under certain circumstances. This change could 

significantly increase collections for employment tax liabilities prior 

to a collection due process hearing in a fashion similar to levies 

issued to collect a Federal tax liability from a State income tax refund. This gets at the issue you were talking about a few minutes 

ago. Taxpayers would have the right to a collection due process 

hearing on these liabilities within a reasonable time, but after the 

levy. 

I think these proposals are an important step and I hope that 

Congress will enact them swiftly. Thank you. 

Senator LEVIN. Thank you, Commissioner. Mr. Papaj. 

TESTIMONY OF KENNETH R. PAPAJ,1 COMMISSIONER, FINANCIAL MANAGEMENT SERVICE, U.S. DEPARTMENT OF THE 

TREASURY 

Mr. PAPAJ. Good afternoon. Chairman Levin, Ranking Member 

Coleman, and Subcommittee Members, thank you for inviting me 

here to testify today. I would like to take this opportunity to thank 

the Members of the Subcommittee and the staff for your ongoing 

support of efforts to improve and strengthen the Federal Payment 

Levy Program and your continued interest in ensuring that Federal 

contractors meet their tax obligations. 

I am pleased to report that as a result of your vigilance and initiative, our combined efforts are paying off. Collections of delinquent taxes through the levy program have increased dramatically 

over the last several years. As the first chart illustrates, the total 

amount of levy collections has more than tripled, from $89 million 

in Fiscal Year 2003 to $303 million in Fiscal Year 2006.2 More importantly, there has been continued growth in collections from 

every type of payment that is part of the levy program. 

With regard to levy collections from Federal contractors, as 

Chart 2 illustrates, collections have increased from $7 million in 

Fiscal Year 2003 to $60 million in Fiscal Year 2006.3 Through future initiatives and by working closely with IRS and other agencies, we fully anticipate that increases in levy collections will continue. In fact, FMS is on track this year to exceed last year’s record 

tax levy collections and we are approaching the billion-dollar mark 

for collections since the inception of the program. 

A major factor in the increase in levy collections is in the increase in the number of tax debts that IRS has made part of the 

levy program. As of December 31, 2006, FMS’s systems had $111.9 

20

billion in delinquent taxes that were eligible for matching against 

Federal payments. This represents an increase of $53.2 billion in 

tax debt since the end of 2003. Of the eligible amount, IRS had activated $55.1 billion, or 49 percent, for collection by levy. We continue to work closely with IRS so that they can activate even more 

debts for levy. 

As Commissioner Everson said, there is an Administration proposal that would permit IRS to conduct past-due levy processes 

under certain circumstances and we fully support that initiative. In 

the meantime, systems have been put in place to identify Federal 

contractors who owe taxes, which enables the IRS to accelerate the 

collection due process in those cases. 

Another significant factor increasing levy collections has been an 

increase in the types of payments that are being matched and levied against delinquent tax debts. The first major expansion of the 

program took place in January 2002 with the addition of Social Security benefit payments. By April 2005, all DOD vendor pay systems were incorporated into the program. In February 2003, salary 

payments issued by the Postal Service were added, and in April 

2004, DOD salary payments were made available for levy. This 

June, FMS plans to add to the tax levy program vendor payments 

of the U.S. Army Corps of Engineers and the U.S. Postal Service. 

Additionally, FMS has been working to ensure that our various 

systems for making payments to vendors—Type A, Automated 

Clearing House-Corporate Trade Exchange, and Fedwire—are included in the levy program. All Type A payments were included in 

the levy program last June, and I am pleased to report that CTX 

and Fedwire payments are on schedule to be brought into the program by the end of December 2007. 

FMS, along with GSA and the IRS, is also in the process of implementing a task force recommendation that will prevent contractors who owe delinquent debt from being paid for contracts with 

the use of a purchase card. This will be accomplished by identifying 

and flagging in the CCR system those contractors that have debts 

and then using payment methods that are subject to levy. FMS’s 

programming to implement this recommendation will be completed 

in the next month, and once necessary changes to the Federal Acquisition Regulations are finalized, use of the debt flag by contracting officers will begin. 

With regard to Medicare payments by CMS, as GAO acknowledged, due to CMS’s decentralized payment process, there are significant operational complexities with levying these payments. Additional complexities arise because of the role CMS’s fiscal intermediaries play in the payment process. However, as CMS moves to 

consolidate its processes, it is now feasible to address the issue of 

levying CMS payments. 

Working under the direction of the Federal Contractor Tax Compliance Task Force, a subgroup consisting of FMS, IRS, and CMS 

has been formed to determine how best to deal with tax-delinquent 

Medicare providers. I join my colleagues from the IRS and CMS in 

supporting the work of the task force in examining various options 

to ensure that payments to Medicare providers are levied in the 

most efficient and effective manner. 

21

1The prepared statement of Ms. Norwalk appears in the Appendix on page 100. 

Some options that should be evaluated are improving the paper 

levy process already in place, establishing a matching program between CMS’s fiscal intermediaries and either IRS or FMS to facilitate levies through the fiscal intermediaries, and having FMS disburse Medicare payments on behalf of CMS so that levies can be 

conducted using the existing program. Each of these options, however, presents logistical, operational, and technical issues that 

must be worked out. The task force will issue a report by the end 

of the year setting forth various options and making recommendations for levying payments to Medicare providers. 

While it is our view that we do not currently have the legal authority to offset Medicare payments to collect non-tax debt, concurrent with examining solutions to the complexities associated with 

levying Medicare payments we will also examine offset options in 

consultation with HHS. 

Mr. Chairman, I appreciate the invitation to discuss the role 

FMS has played and will continue to play in improving the Federal 

Payment Levy Program and helping to close the tax gap. FMS is 

proud of its accomplishments in debt collection, which in Fiscal 

Year 2006 resulted in record collections of over $3.3 billion, and 

since the inception of the program has yielded collections of more 

than $29.5 billion in delinquent tax and non-tax debt owed to Federal agencies and States that otherwise would not have been collected. 

This concludes my remarks. I would be happy to take any questions. 

Senator LEVIN. Thank you, Mr. Papaj. Ms. Norwalk. 

TESTIMONY OF LESLIE V. NORWALK,1 ACTING ADMINISTRATOR, CENTERS FOR MEDICARE AND MEDICAID SERVICES, ACCOMPANIED BY TIMOTHY B. HILL, CHIEF FINANCIAL OFFICER AND DIRECTOR, OFFICE OF FINANCIAL MANAGEMENT, CENTERS FOR MEDICARE AND MEDICAID SERVICES, U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES 

Ms. NORWALK. Good afternoon, Chairman Levin, Senator Coleman, distinguished Members of the Subcommittee. I appreciate the 

opportunity to appear before you today to discuss the Centers for 

Medicare and Medicaid Services’ efforts to recoup unpaid tax liabilities of Medicare physicians and Part B suppliers. 

CMS is the largest purchaser of health care in the world, providing coverage to nearly one in three Americans. Medicare alone 

insures over 43 million lives. In Fiscal Year 2008, spending on 

Medicare benefits will exceed $454 billion. With such enormous 

benefit expenditures, CMS is firmly committed to ensuring the 

highest measure of accountability within the Medicare program. 

Our stewardship of taxpayer dollars requires partnership with 

other Federal agencies, including the Department of the Treasury, 

the Department of Justice, and the Office of Inspector General in 

the Department of HHS. 

I am outraged that there are Medicare providers out there right 

now harming our beneficiaries. The GAO has identified 40 of them, 

and perhaps more, in their statement but won’t share the informaVerDate 0ct 09 2002 11:15 Jul 11, 2007 Jkt 036076 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 C:\DOCS\36076.TXT SAFFAIRS PsN: PAT
22

tion with us. Why? Because they are not legally permitted to do so. 

I am committed to solving this problem, but we need Congress to 

give IRS the authority to share this critical information with CMS 

so we might take appropriate action. 

CMS does not take the loss of taxpayer dollars lightly. Consequently, as recommended by the GAO last year, we take a riskbased approach to fiduciary responsibility, allocating scarce resources to the highest risk/highest vulnerability areas. 

I also understand from the GAO’s testimony today between approximately $50 and $160 million per year over the past 12 years 

is reported in unpaid tax debt of Medicare providers, particularly 

under Part B. Let me assure you that during this same time period, CMS focused its scarce resources to reduce improper payments to providers. These efforts avoided $10.1 billion in improper 

payments over the last 10 years. That is over $1 billion a year. 

That is not enough. 

For the past 2 years, CMS has been looking at innovative ways 

to go after those who defraud Medicare and Medicaid. Each year, 

unscrupulous providers fraudulently bill Medicare for billions of 

dollars in health care claims. However, successfully prosecuting 

these criminals for health care fraud requires more significant resources, so CMS has reached out to unconventional partners to 

help catch them for tax evasion, and once convicted, exclude them 

from the Medicare program. 

For example, CMS and the District Attorney of Los Angeles, 

have been working on a unique pilot program to try and more effectively go after health care fraud through the prosecution of health 

care providers, both those who don’t report at all and those who are 

under-reporters for State income tax evasion, and the L.A. project 

works. As of February of this year, three individuals have been 

convicted of tax fraud, resulting in prison sentences and restitution. Another two physicians have been arrested on suspected tax 

and health insurance fraud, and roughly 300 cases are under development by the tax project. 

For 50 of these cases against Medicare providers, the project estimates there are over $100 million in State and local taxes that 

were not reported. Moreover, the project estimates that these same 

50 providers may have defrauded the Medicare program for an additional $100 million in last year alone. The direct result to the 

Medicare program for this Al Capone approach to health care fraud 

is that bad providers are identified, prosecuted, and convicted of 

felony charges. These felony convictions may be used by Medicare 

and Medicaid programs to revoke the billing privileges of the Medicare provider and ultimately exclude them from the Medicare program. In addition, when restitution is ordered and collected from 

the provider, Medicare receives remuneration. 

Because of the success of the L.A. County project, CMS is working with the California Franchise Tax Board and the State of California to implement the project statewide. In addition, we have 

begun to explore similar projects with New York tax authorities 

and prosecutors. Earlier this year, CMS initiated discussions with 

the Internal Revenue Service to explore the possibility of expanding 

this project nationally to focus on Federal tax debt. 

23

We have been working steadily and successfully to meet the commitments we made to Congress in 2001 to address the issue of payments to delinquent taxpayers. Our integrated accounting system 

is on schedule. We are currently processing 50 percent of our financial transactions through this system. This system is without question the cornerstone of any effort to levy Medicare payments to delinquent taxpayers. 

We have also been working with the IRS and FMS on the Federal Contractor Tax Compliance Joint Task Force, or task force, for 

short, to identify the most efficient methods to levy payments in 

the interim. In 2006, our relationship with Treasury included sending more than $110 billion in Medicare Parts C and D payments 

through the Treasury Continuous Levy Program designed to catch 

delinquent tax payments. In that year alone, over $4.5 million in 

unpaid tax debts were collected. 

CMS is also collaborating with the task force to determine how 

best to address other Medicare providers delinquent in their tax obligations. CMS supports the work of the task force to examine, assess, and ultimately implement policies to ensure that payments to 

providers are levied in the most effective and appropriate manner. 

We are committed to exploring a deeper partnership with the 

IRS and FMS, building on current successes in applying tax levies 

and our participation in the task force. Although Medicare payments made to physicians currently are not disbursed through 

FMS, CMS does process paper levies received from the IRS. Since 

its inception, the Medicare program has used private contractors to 

process health care claims. Right now, we are in the process of reducing the number of those contractors and working to streamline 

the paper levy process. 

However, the most efficient way to address the issue of Medicare 

providers who are delinquent in their tax debts would be for Congress to change the statute to allow the IRS to share data with 

CMS so that we may levy their payments and write the IRS a 

check, much like we do in the paper levy process. This is something 

that our new accounting system could accommodate and that our 

old accounting system could accommodate today as well as our new 

system, and it would not jeopardize the timeliness or the accuracy 

of payments to a million law-abiding, tax-paying providers for a billion health care claims worth nearly half-a-trillion dollars. 

Thank you. I would be happy to answer any questions you might 

have. 

Senator LEVIN. Thank you, Ms. Norwalk. Mr. Hill is accompanying you, so thank you so much. 

Ms. Norwalk, recently, as I understand it, you have joined the 

Federal Payment Levy Program, is that correct? 

Ms. NORWALK. Well, for a long time we have worked under Medicare Part C, which is now the Medicare Advantage Program. It has 

always been involved in the continuous levy program, and our new 

prescription drug benefit program also goes through the continuous 

levy program. So, we have done that for both those programs for 

quite some time, or at least for the drug benefit since its inception 

and the Medicare Advantage Program for quite some time. I am 

not sure of the first year of that. 

24

We have also been working with the IRS and FMS around the 

paper levy process so that as they would like us to offset or levy 

debts and pay them a check, we do that, as well. 

Senator LEVIN. What parts of the program have you not been involved in? 

Ms. NORWALK. Medicare A and B are the more traditional—the 

original Medicare program——

Senator LEVIN. What are the reasons you haven’t participated in 

that? 

Ms. NORWALK. Well, as I alluded to in my statement, in 2001, 

we started changing our systems for payment to go into a general 

accounting system, and similarly, in 2003, after the Medicare Modernization Act, we began to reduce the number of Medicare contractors we have and streamline that process across the board. And it 

is that streamlining that will be critically important, to have a single point of entry that will make it easier for this process to go 

through one place within CMS. 

Now, I appreciate that this is critically important from an IRS 

perspective and don’t want to do anything to diminish that. But 

from being the acting administrator of CMS, our top priority has 

to be to pay these million providers a half-a-trillion dollars a year 

as appropriately as possible and do that in a way that does not 

threaten access that Medicare beneficiaries have to needed care. So 

we have taken this accounting system change—I appreciate, Senator Coleman, that you think this is slow. I want to be prudent and 

be sure that we are in no way interrupting those payments to lawabiding citizens. 

Senator LEVIN. Without this change being fully implemented, are 

you saying you could not technically have joined that system with 

Parts A and B? Is that what your answer is? 

Mr. HILL. I think, if I might jump in, technically, to join the system, I think there are two ways to think about joining the system, 

as we heard from FMS. One way would be to, in effect, have the 

Financial Management Service make our payments for us, which 

right now, I think, would be technically possible although a Herculean effort to do the systems changes that we would need to make 

a billion dollars of payments a day out of the FMS. 

The other way we could do it in the existing systems we have, 

or within the new system, would be to do the match that Ms. Norwalk discussed and was one of the options that we heard from the 

FMS. 

Senator LEVIN. And you decided not to make that match under 

the current system? 

Ms. NORWALK. Whatever it is that we can do to facilitate 

that——

Senator LEVIN. But you haven’t until now decided to make that 

match under the current system? 

Ms. NORWALK. Provided whatever ways it is that we have to do 

that. I think part of the issue has been that the IRS can’t share 

data with us. Consequently, it makes it far more difficult for our 

contractors to process those claims and make those levies. 

Senator LEVIN. It has been impossible for you to make the match 

because you haven’t received the TIN numbers from the IRS, is 

that what you are saying? 

25

Ms. NORWALK. That is my understanding. 

Senator LEVIN. Is that correct, Mr. Hill? 

Mr. HILL. Right. 

Senator LEVIN. Mr. Everson, is that correct? 

Mr. EVERSON. Yes. There is this limitation we discussed. As you 

know and I think I covered in my written testimony, one of the 

issues here is, with the Committee’s prodding, we have done other 

things with other contractors where they are now going to be doing 

a certification as to tax compliance over the last 3 years and in the 

contract, the Federal Contract Registry (FCR), you have to sign on 

and basically waive that right, I guess, to get onto the registry. 

There are some things you can do without changing the statute 

that perhaps could be considered here. 

Senator LEVIN. And that would be to have anyone who is getting 

a contract payment to agree that the TIN number be supplied to 

the IRS. 

Mr. EVERSON. That is the way we have been going, as you know, 

in other areas. I think that is a possibility. 

Senator LEVIN. So now, Ms. Norwalk, any reason why you should 

not have that as a condition of making a payment, that the people 

receiving the payment agree that their TIN number be supplied to 

the IRS? 

Ms. NORWALK. Well, there are a couple——

Senator LEVIN. From the IRS? Is there any reason——

Ms. NORWALK. Yes, there are a couple of things I would like to 

point out. The first is the way that the system works is that they 

aren’t contractors. They are not considered government contractors. 

They don’t actually sign up every year for a contract. It is a threepart system: You have the government, you have the beneficiary, 

and you have the provider. Now, the 645,000 Part B suppliers and 

providers don’t sign up every year. It is not an annual process. 

Senator LEVIN. Can they not be notified when they receive payments that by cashing these checks, receiving these payments, that 

they are going to thereby be authorizing the IRS to supply that 

TIN number to you? Is there any reason why that can’t be added? 

Ms. NORWALK. As long as it is legally permissible. 

Senator LEVIN. Have you checked whether it is legally permissible? 

Ms. NORWALK. No, I haven’t. I would have to ask our General 

Counsel’s Office. But the second point that I would make——

Senator LEVIN. Well, before you get to the second point, it has 

been years that this has been going on. Why should that not be 

asked or have been asked before now? 

Ms. NORWALK. Someone may have asked that question. I did not 

know of it going on until recently, so I personally haven’t asked the 

question. 

Senator LEVIN. OK. Will you let the Subcommittee know what 

the answer to that question is? 

Ms. NORWALK. Absolutely. The second point that I would make 

is this year, for 2008, physicians are scheduled to take a 10 percent 

payment cut, and I am concerned that the number of providers 

that continue to serve Medicare beneficiaries in the future may decline simply because of that impact. 

Senator LEVIN. Yes. 

26

Ms. NORWALK. To do anything in addition, particularly for those 

who are law abiding, to get at those few, those 5 percent or 3.2 percent of providers who are not law abiding and possibly jeopardizing 

those rural areas of the country, whether it is the Upper Peninsula 

or elsewhere in Minnesota, for example, that may only have one or 

two providers, if they say, ‘‘Enough is enough, I am tired of the 

Medicare program,’’ I think we also need to be cognizant of the policy change that we are suggesting here. 

Senator LEVIN. Yes, we should be cognizant of that and we 

should be cognizant of the proposed cut, because the 10 percent cut 

will have a far bigger impact than just simply notifying people by 

cashing a check that you are thereby agreeing that a TIN number 

will be supplied to HHS. In any event, check it out and let us 

know. 

Ms. NORWALK. Will do. 

Senator LEVIN. But it seems to me it is kind of a stretch, it 

seems to me, to be suggesting that by notifying people that when 

you accept the taxpayers’ money that you are then going to be allowing a TIN number to be supplied by IRS to your agency, that 

somehow or other is going to be a major addition to the problem 

which is being created by a 10 percent cut. I think it is a little bit 

disingenuous myself, but so be it. Let us have the legal opinion 

when you get it. 

Did you join the interagency task force before this year? 

Ms. NORWALK. Well, we found out about it on February 8. We 

went to the first——

Senator LEVIN. Of what year? 

Ms. NORWALK. This year, and we went——

Senator LEVIN. That is the first time you knew about it? 

Ms. NORWALK. That is the first time that we had heard about it 

at CMS as far as I am aware. Now, they may have been talking 

to our colleagues at the Department. It is quite possible that——

Senator LEVIN. All right. That seems to be——

Ms. NORWALK. The first time that we were aware at CMS, 5 days 

later, we attended our first meeting. 

Senator LEVIN. That is quite a gap. I mean, that is quite a crack, 

it seems to me, that exists. Mr. Everson, the task force, should not 

CMS have been notified before February 2007? 

Mr. EVERSON. Well, I think, as the Administrator is indicating, 

that there were conversations at the Department level, at the HHS 

level, and apparently those—within the Department, the right connections were not made. 

Senator LEVIN. You mean within the Department, there wasn’t 

notice given? 

Mr. EVERSON. That is my impression. I don’t know, but I am informed, sir, that there were some conversations at the Department 

level——

Senator LEVIN. Let me just ask, do you know whether that is 

true, Ms. Norwalk? 

Ms. NORWALK. My understanding is that there may well have 

been conversations at the Department earlier than even 2006, 

maybe 2005 and so forth, but I wasn’t aware of them at the time. 

Senator LEVIN. But they never filtered down to your level? 

27

Ms. NORWALK. Well, not as far as I am aware, and as soon as 

I became aware, we started on the task force 5 days later. 

Senator LEVIN. I hope you would tell the higher-ups in your Department that it is unacceptable that they be given notice which 

relates to your agency and collection of money which is owed the 

government that does not filter down to the right level. 

Ms. NORWALK. Absolutely. 

Senator LEVIN. Can you let them know on behalf of the Subcommittee? 

Ms. NORWALK. Will do. 

Senator LEVIN. Thank you. Senator Coleman. 

Senator COLEMAN. Thank you, Mr. Chairman. 

Just to have a little follow-up on the last panel, there was some 

concern about getting data from Ms. Norwalk. The Chairman and 

I sent a letter on February 1 to supply the GAO with the remaining 3 months of Medicare data for 2005. GAO, I think, has indicated they still haven’t received that information. Would you explain to me why not and tell me what is being done to get them 

that data? 

Ms. NORWALK. A couple of points. The first is the GAO Health 

Branch has continuous access to information on claims data for 

Part A and B, so I think that is really where they got their first 

9 months of data. For some reason, the Health Branch wasn’t able 

to provide them with what they needed for the rest of 2005. 

We have asked them to sign a data use agreement. To my understanding, they have not signed one, but as soon as they do, we are 

more than happy to provide them with that information. I am sure 

you can appreciate that the confidentiality of Medicare information, 

both on beneficiaries and providers, is of our utmost importance, 

particularly given all that we have been hearing from the VA and 

other insurers who have lost provider data, and want to be sure 

that they appreciate the concerns that we have around data use. 

Senator COLEMAN. So as I understand, going back to 2001 when 

the GAO recommended IRS and FMS work with the CMS to bring 

CMS into the Federal Payment Levy Program, now it has been 6 

years. If you can walk me through a little bit. You just got involved, I think it was in February, with the task force. 

Ms. NORWALK. Right. 

Senator COLEMAN. Was CMS—was this something you were 

aware of and aware you weren’t participating? Were there technical 

difficulties, problems, or was it something that you were not aware 

of? Help me understand the difficulty in moving forward. 

Ms. NORWALK. I personally was not aware of it. I suspect that 

our CFO was, in fact, quite aware of what goes on more specifically. In looking at the 2001 report from the GAO, we did say actually during that report that we didn’t anticipate actually being able 

to participate until our integrated accounting system went into 

place 5 years at the earliest. I think as it says, these payments 

could be included within 5 years. So, we are about at the time 

frame that we initially projected in 2001. 

Mr. Hill, I don’t know if you want to mention more specifics as 

to what you have known. 

Mr. HILL. I think it is a fair assessment that anybody in the financial community understands the issues that are going on with 

28

the levy and the need to have more payments going through. I 

mean, to the specifics of the task force and our involvement, I think 

as we have noted here, there may have been communications, but 

our direct involvement wasn’t—or, I should say, lack of involvement wasn’t for a lack of understanding or caring. I think it was 

a notion of being ready to participate in a meaningful way once the 

system was up and ready. 

Senator COLEMAN. So as we sit here today, are there any legal 

reasons why you couldn’t participate, any legal barriers? 

Ms. NORWALK. I am not aware of any legal barriers for participating. In fact, as I said, we do so on a paper process already and 

I think making it more automatic makes a whole lot of sense. 

Senator COLEMAN. How many paper levies were sent out last 

year? 

Ms. NORWALK. Well, one of the things that we need to do is have 

a centralized process. I don’t know the answer to that question because sometimes they will send the levies to our contractors. Sometimes they send it to us centrally. I think we could make this a far 

better process, and, in fact, starting through this hearing we will 

be doing just that, making the process——

Senator COLEMAN. Mr. Hill, could you tell me how many were 

sent out last year——

Mr. HILL. No, sir——

Senator COLEMAN [continuing]. And approximately what percent 

of them were successfully collected? 

Mr. HILL. No. As I said, the information goes out to the contractors. It is decentralized on our end. It is decentralized on the IRS 

end, and that is one thing that we need to resolve on the paper 

side. 

Senator COLEMAN. And do you know how many of these were for 

Medicare Part B participating physicians, paper levies? 

Mr. HILL. No. 

Senator COLEMAN. Would it be fair to say a relatively small number compared to the 21,000 tax delinquents that GAO has identified? 

Mr. HILL. Smaller than the 21,000? Yes, I would imagine so. 

Senator COLEMAN. My concern is that the paper levy is a bandaid solution. You have a system in place that the rest of the government uses. It is a pretty effective system, and with all the technical challenges that have been laid out, and there were a number 

of them, FMS has managed to work through the technical challenge. 

Mr. Papaj, are you aware of any technical problems that are insurmountable in terms of CMS’s participation? 

Mr. PAPAJ. Well, I think, clearly, with the number of financial 

intermediaries they have, 34 currently, and just the fact that their 

systems don’t have this information in one system, an integrated 

system, makes it much more difficult because there would be a voluminous change of data between the financial intermediaries and 

FMS to do the matching. 

Having said that, we stand ready to work through those issues. 

I don’t think it is something that can be resolved fairly quickly, but 

we have dealt with these issues before, but it is, I think, a complex 

issue, and I think that the more that CMS can do to centralize both 

29

their payments operation, perhaps, as well as the information coming to FMS, I mean, we would prefer a single stream of information 

to be able to levy those payments. A single stream of the payments, 

if they were to continue to make those payments, as opposed to 

having to deal with 34 different systems with all the reconciliation 

issues, if there are amounts that are levied incorrectly, we would 

have to do reversals, it just makes it more complex dealing with 

those 34 entities. 

Senator COLEMAN. If I may, Mr. Chairman, just two other areas 

of inquiry. One, Mr. Papaj, you talked about not having legal authority to offset non-tax debt in your testimony, non-tax debt. What 

we are talking about here is tax debt. That non-tax debt is child 

support. So there is no legal bar to FMS levying tax debt, is that 

correct? 

Mr. PAPAJ. No. 

Senator COLEMAN. The non-tax is a separate issue. 

Mr. PAPAJ. Right. 

Senator COLEMAN. I just want to say this to Ms. Norwalk. I appreciate your outrage, but I have to tell you, as I sit here, I get a 

sense that CMS is this very complicated system, there is no question about that. You have all these fraud issues. They are huge 

issues. But I get a sense that this issue has, for whatever reason, 

the outrage doesn’t filter down, that perhaps there is a greater concern, and I understand the concern, that somehow getting involved 

with tax issues may scare people off from being involved if they 

have to supply data, have to supply information. I just don’t sense 

a real resolve to say, watch the pennies because the dollars take 

care of themselves. My sense on this is that you see this as pennies 

and that it is not on the radar screen to the degree that it should 

be. 

Ms. NORWALK. Well, any penny overpaid on the Medicare program or not paid in taxes is a penny too much. So, without question, we are committed to making sure that the pennies are right. 

Senator COLEMAN. And these pennies are in the tens of millions. 

Ms. NORWALK. Correct. I mean, I appreciate that the GAO last 

year suggested to us to put our resources to going after those that 

have the highest return on investment, and given the amount of 

fraud in the Medicare program and the fact that we are dealing 

with organized crime and all sorts of things, that what we do on 

a day-to-day basis in terms of going after fraud is significantly 

greater than the dollars that we are discussing here today. But, 

that is not to diminish the importance of millions of dollars in payments in any way. 

The concern that I have, and perhaps the hesitancy that you are hearing, is the thought of putting the $454 billion of Medicare payments through FMS in a fairly short period of time which may 

jeopardize the access to health care by the 43 million beneficiaries 

that we serve and wanting to figure out a solution to this problem 

that takes into account that we have a very different payment system historically that happens to work fairly well. 

Considering the number of fraudulent providers that we have, 

those who are abusing the tax system, and also, I might add, are 

likely abusing the Medicare program at the same time, we would 

very much like to go after them. But to do so, I think we need to 

30

do it in partnership in a way that CMS can have access to data 

that we currently don’t have access to so that we don’t jeopardize 

our regular payment systems on the one hand but yet can go after 

this tax fraud. 

And again, as I said, I do think it is something that we could do 

today under our current programs if we could do the match and 

then pay the taxes, and rather than being through FMS’s continuous levy program, we could do it on an automated basis if we 

could have access to that information. 

Moreover, the 40 providers that the GAO mentioned, we would 

like to know who they are and go after them, too. 

Senator COLEMAN. Mr. Chairman, my time is up. I would like to 

get back perhaps in a second round of questions. 

Senator LEVIN. Thank you. Senator McCaskill. 

Senator MCCASKILL. Well, this is incredibly discouraging. I have 

heard that HHS didn’t tell CMS about a task force whose primary 

purpose was to have an impact on how well you do your job of paying out taxpayer money. I have heard that you are afraid to give 

data to GAO and that the reason that you can’t do a better job is 

because IRS won’t give you data, but the reason that they won’t 

give you data is because you are afraid to ask people that are providing the services for that permission to get those numbers because you are afraid if you ask for permission that they will quit 

the program. And you came to a hearing on how to collect unpaid 

taxes and you don’t even know how many levies you have collected. 

I think that is pretty much in the category of the dog ate my 

homework. I don’t understand, and it seems that you are diminishing—I agree with Senator Coleman. I have just listened, and it 

seems to me you are diminishing the enormity of this problem by 

saying, we pay so much money and this is just a small amount. 

What I would like to hone in on, and I will give you a chance 

to respond to all that, is the example you used as to the great job 

you are doing. And the irony in the example you used is an example of a local law enforcement official in the United States, not a 

Federal official, no one that gets a check from the Federal Government, decided they were going to do something about this problem 

and they went out and at the local level decided that they would 

focus in on this issue, and then you come to the hearing in the Federal Government and say, this is such a great program that the 

local people have done. We want to talk to people on the Federal 

level about doing it. 

Why is this having to come up from the bottom? Why is a local 

prosecutor in L.A. County having to come up with a—he has gotten 

people to share information. He has been able to get this information shared across agencies. But yet I have heard today in several 

different ways that you can’t share information across agencies. It 

is stunning. 

Ms. NORWALK. In terms of the L.A. office, actually, that was an 

idea that was generated along with CMS and we actually have an 

L.A. office that does solely fraud work. 

Senator MCCASKILL. And so where have you started it anywhere 

else? 

Ms. NORWALK. We have moved to New York. We are actually 

looking from a State perspective. I noted in my testimony that we 

31

have been working with the IRS to figure out how it is that we can 

implement this nationally. From a State perspective, we are looking at States where there are high instances of fraud where they 

pay State taxes, where we can submit—we actually give information on people that we think are likely to be defrauding the Medicare program and consequently also not paying taxes. So it is our 

information sharing that has enabled this to occur. 

So in Texas, for example, last week, there were three convictions 

that involved 70 nursing homes, 6,000 patient beds, and they have 

been withholding taxes from about 4,500 employees. So this is 

something that is pervasive and the GAO mentioned in their testimony that the under-reporting and non-reporting issue is a big 

deal. I think it is absolutely a big deal, and we very much would 

like to work with the IRS and partners, State, local, wherever it 

is that we can get them to go after tax—not just people who defraud the tax program, but also those who are defrauding the 

Medicare program. And, if we can get them both and get them off 

the Medicare rolls, I think it is terrific and it is something that we 

thought about and, in fact, had been working with in concert with 

the folks in Texas, with the folks in California, different provider 

types, and we should continue that. 

Senator MCCASKILL. How long ago did the program in California 

begin? 

Ms. NORWALK. Two years. 

Senator MCCASKILL. And how many letters have been written to 

local prosecutors or States Attorney Generals about the program by 

CMS since that program began 2 years ago? 

Ms. NORWALK. We typically have been doing a lot of things 

through conferences, so I will have to get back to you as to the specifics of how else we have been reaching out, but I am delighted 

to have the opportunity hopefully for the law enforcement community here so that we can spread the word and do as much as possible. 

Senator MCCASKILL. I think you understand what I am saying. 

Ms. NORWALK. Absolutely. 

Senator MCCASKILL [continuing]. In terms of prioritization of this 

issue. I mean, the example that is brought to us is one that is a 

local example. Let me just briefly, because I know my time is about 

to run out, I am especially interested in you saying that the GAO 

hasn’t signed a data sharing agreement. 

Ms. NORWALK. That is correct. 

Senator MCCASKILL. I have been frustrated, I can’t tell you how 

many times as an auditor in government, when an agency that 

wanted to circle the wagons and hold on to either power or information wanted us to sign an agreement to get what we were entitled to get under the law. Do you believe GAO has the legal authority to get the data they have requested? 

Ms. NORWALK. Well, the Health Care Branch——

Senator MCCASKILL. That is a yes or no question. 

Ms. NORWALK. The GAO Health Care Branch has automatic access to this data today. They have had automatic access to this 

data. That is how they got the first 9 months of this data. So, the 

GAO does have access to this data in their Health Care Branch. 

32

Senator MCCASKILL. So you are saying they can get the data, 

they just haven’t gotten it, all the Part A data——

Ms. NORWALK. The Health Care Branch has continuous access to 

tape Medicare Part A and Part D data. 

Senator MCCASKILL. What about all of Part B? 

Ms. NORWALK. Part A and B. Both A and B data. 

Senator MCCASKILL. OK. So you are saying, then, your testimony 

is that they have no problem getting this data and the fact they 

haven’t been able to get this data and we have had to write letters 

did not occur? 

Ms. NORWALK. No, the GAO—I don’t know if the GAO Health 

Care Branch talks to the GAO, the Tax Branch, whoever wrote this 

particular report, but the Health Care Branch, who we deal with 

on a regular basis, has continuous taps to Medicare Part A and B 

claims. 

Senator MCCASKILL. OK. So you originally said they couldn’t get 

the data because they hadn’t signed a data sharing agreement. 

Now you say they can get the data, they are just not asking the 

right people? 

Ms. NORWALK. No, the GAO Health Care Branch has signed a 

data use agreement and consequently has a continuous tap on any 

data they want to see for Medicare Part A and B claims. They look 

at it all the time. They use it on a regular basis. 

Senator MCCASKILL. Do you believe——

Ms. NORWALK. That is, in fact, how the Tax Branch got the information for the first 9 months of 2005. 

Senator MCCASKILL. I am confused, Mr. Chairman. 

Senator LEVIN. Well, take an extra minute and let us see if we 

can straighten it out. 

Senator MCCASKILL. Go ahead. 

Mr. HILL. Let me try and clear it up. I think that the issue here, 

as best as we can understand from talking to the GAO, is that the 

tax folks have not now been able to get the data from within their 

own confines for whatever reason and have come to us directly, 

making a separate request for data. As I am sure you can appreciate, any time we are going to release disks and disks filled with 

beneficiary confidential information, we need to have the assurances in place that the data is going to be used the same way, just 

as we have those assurances in place with the other side of GAO. 

Now, if the Tax Branch wants to go back to the Health Care 

Branch and get the data that way, that is perfectly fine, but as we 

understand the request that is on the table now, they have asked 

for the data separately in a separate request, and concurrent with 

the rules that we have in place, they have to sign a data sharing 

agreement. I understand that you believe that we may be circling 

the wagons, but given all that is going on lately with the release 

of personally identifiable data, we think prudent rules to have assurances in place about how that data is going to be used if they 

are going to get it separately. 

Senator MCCASKILL. Do you believe that GAO is entitled to this 

data under the law? 

Mr. HILL. Absolutely. 

33

Senator MCCASKILL. And do you believe that they are required 

to sign any kind of agreement in order to get data that they are 

legally entitled to? 

Mr. HILL. I believe that we have an obligation to get an assertion 

about how the data is going to be treated once they take it out of 

CMS, yes, I do. 

Senator MCCASKILL. So you believe that you have a legal basis 

on which to deny GAO data? 

Mr. HILL. Well, I would characterize it that the process that we 

give the data to GAO is not unlike the process we use to give the 

data to VA, to OMB, to OPM, to any Federal agency. We don’t 

think it is onerous. We don’t particularly think it is unneeded. 

Senator MCCASKILL. Having gotten a lot of CMS data at the 

State level for audits, we didn’t sign those agreements. It was our 

job under the law to look at that data and do our job, and the idea 

that—and it is particularly frustrating that the answer to the question is, well, they can get the data if they go through another part 

of their agency because that part of the agency signed an agreement, but this part of the agency didn’t sign the agreement. Meanwhile, Senator Coleman is having to write a letter to try to get the 

data so that we can get to the bottom of it. 

Senator COLEMAN. Will my colleague yield? I am missing something here, too. GAO had the data for the first 9 months. 

Senator MCCASKILL. They got it——

Senator COLEMAN. So they had the data for the purpose intended. They are asking now for the same kind of data for 3 more 

months. What additional assurances are you requesting that you 

didn’t have for the data for the first 9 months? 

Mr. HILL. They didn’t get the first 9 months’ worth of data directly from us. I understand this sounds like a hypertechnical distinction here, but the first 9 months of data that they got, they got 

through the data use agreement that we have with what we are 

characterizing as the Health Division, the health part of the GAO. 

My understanding is they could not get the last quarter’s worth of 

data that they were looking for through that Health Division of 

GAO so they came in to us separately. The forensic auditors came 

in to us separately asking for that last quarter of data. 

Senator COLEMAN. So it was not sufficient to go to the health 

folks and say, we have already given them data for 9 months, they 

need the other 3 months? 

Mr. HILL. I don’t know why they couldn’t get the data from the 

health folks. You would need to ask the GAO that. 

Senator LEVIN. Is anyone here from the GAO that could answer 

that question? Is it your own Health Division that denied you access to the last 3 months? Could you come to the microphone, 

please? Let us see if we can straighten this out right now. 

Mr. KUTZ. We have been working directly with CMS after we had 

the first piece of data that we have had, and so we have had difficulty since then being able to get the data. Keep in mind, unlike 

our health team, we can’t actually use this data on their system. 

We have to get downloads on it loaded into our main frame and 

matched against IRS information because it is taxpayer records. So 

we can’t take taxpayer records to their database. 

34

Senator LEVIN. But Senator Coleman’s question is, if you were 

able to do it for the first 9 months, what stopped you for the last 

3 months? 

Mr. KUTZ. Well, there is a whole series of stories here about requests from our health team to them, that the programs have 

crashed, the data hasn’t come, etc. So the requests have been—the 

format has been the same. We have actually reduced our request 

to fewer data fields because the first one was such a large file to 

get. So we have reduced our request and, I think, sharpened it and 

we still don’t have the data. We are not signing another agreement. 

GAO has an agreement, as they said, that is already in place and 

we are living within that agreement. It is a matter of getting the 

data that we have asked for. 

Senator LEVIN. It is a matter of getting the data from whom specifically? 

Mr. KUTZ. Them. We are working directly with them. 

Senator LEVIN. ‘‘Them’’ being? 

Mr. KUTZ. My team is working directly with CMS right now. I 

sent a letter last fall asking them to work directly with us to get 

the data because we had trouble getting it the other way. I heard 

nothing back about that. You sent the letter February 1, asking the 

same thing I asked them back last fall and we still don’t have the 

data. 

Senator COLEMAN. It is clear, though, GAO has an agreement 

with CMS in terms of use of data, isn’t that correct? 

Mr. KUTZ. Yes, and we have lived with that agreement. 

Ms. NORWALK. A sub-branch of the GAO does, or a division or 

whatever they go by. 

Senator COLEMAN. But GAO is GAO, aren’t they? 

Senator LEVIN. What is the relevance of a sub-branch? 

Ms. NORWALK. It depends on who signed the agreement and 

whether or not they have the authority for the entire GAO to——

Senator LEVIN. Did you tell them that they didn’t have authority? 

Ms. NORWALK. Well, when the GAO—actually, I am not sure who 

he sent the letter to, but it never actually came up to the Office 

of the Administrator as far as I am aware. We became aware of 

this issue when the Subcommittee raised it to our attention. 

Senator LEVIN. You have problems, folks. You have things that 

aren’t coming up to your level. You have things that aren’t coming 

down to your level, both. 

Ms. NORWALK. Yes. 

Senator LEVIN. I mean, that is a problem inside your agency. 

Ms. NORWALK. I am happy to resolve this issue now and I will 

go back. If it turns out that the GAO at large has signed this data 

request, more than happy to give it to them. If not, I am going to 

presume that he would be willing to sign it so that we can move 

on. 

Senator LEVIN. It is such a technicality——

Ms. NORWALK. It is a technicality that I am not going to take 

lightly, sir. 

Senator LEVIN. I am not suggesting you do anything except respond to folks when you get a request and say, hey, you have got 

the wrong signature. Give me a different signature. But don’t just 

35

let it languish, sit, or tell us you never got it because it didn’t come 

up to you or down to you. That is what is unacceptable. 

Ms. NORWALK. I appreciate——

Senator LEVIN. If you have to follow a technical rule——

Ms. NORWALK. Absolutely. 

Senator LEVIN [continuing]. Follow the technical rule, but don’t 

just ignore it. 

Ms. NORWALK. I think we have been working with them to ask 

to get them to sign the second data use agreement, so I don’t think 

it is something that has been ignored. 

Senator LEVIN. All right. Senator McCaskill, I guess you are——

Senator MCCASKILL. I was out of time. 

Senator LEVIN. Yes, you are out of time, so I will go back and 

we will start a second round. 

As I understand the problem, FMS’s issue is that you would prefer a single stream of information in order to match the TINs, but 

that at least it is possible for FMS to do the match with 30 different streams of information. Your computers could do it. It is 

more work. 

Mr. PAPAJ. While technologically possible—it is certainly theoretically possible. I mean, the concern we have is that we have a 

very narrow processing time frame. When agencies submit their information to update our debtor database, we have a very narrow 

window to update that to make sure the database is accurate and 

current before we then turn it over to our payments processing 

where they actually do the matching against the payments, and we 

really can’t allow any more time for the debt process because then 

we will be shorting the time to get the payments out. We make Social Security payments, tax refund payments, veterans payments, 

and we really need that time to get those payments out on a daily 

basis. Now, having said that, we will work with them to try to 

work through those issues. 

Senator LEVIN. All right. If you can do that, if you can work and 

let this Subcommittee know what the outcome of your discussions 

are, would you do that? 

Mr. PAPAJ. Sure. Yes, sir. 

Senator LEVIN. As to working through this issue of trying to get 

the data in one form or from one source or as few sources as possible so you can do that turnaround that is necessary for the match 

to be done. You, then, can do the matching, is that correct? 

Mr. PAPAJ. Correct. 

Senator LEVIN. You do the matching already, do you not, for 

other agencies? 

Mr. PAPAJ. Yes, we do. 

Senator LEVIN. So, Ms. Norwalk, you don’t need to get IRS permission or get the IRS data. FMS will do it for you if you can work 

out that process where you have got one stream or a few streams 

of information, because FMS is already doing that match for other 

agencies and they are willing to do it for you if you can work out 

the system. 

Mr. HILL. Absolutely. I mean, if FMS is willing to make the payments. I guess the only—and this gets to the deliberations of the 

task force, which is to say what that would mean is we would send 

a billion dollars a day, because that is——

36

Senator LEVIN. It is on a computer. I am not sure, frankly, once 

you got it done, I am not sure that it makes a difference whether 

it is a billion a day or half-a-billion a day or a hundred million a 

day. You are making matches for other agencies, are you not? 

Mr. PAPAJ. Yes, sir. 

Senator LEVIN. Including the Defense Department? 

Mr. PAPAJ. Correct. 

Senator LEVIN. How many billions are involved in that one? 

Mr. PAPAJ. I don’t have the exact number, but we have about 26 

million debts in our database. 

Senator LEVIN. I mean, could it be billions a week for the DOD? 

Mr. PAPAJ. In terms of——

Senator LEVIN. Of that match that you are making of people——

Mr. PAPAJ. I don’t think it would be billions——

Senator LEVIN. Hundreds of millions? 

Mr. PAPAJ. Hundreds of millions, I would think. 

Senator LEVIN. All right. So the amount of money really isn’t the 

issue, it is the number of streams of information——

Mr. PAPAJ. Right. 

Senator LEVIN [continuing]. That you have to consolidate into 

fewer streams or figure out a system so that you can make these 

matches quickly enough——

Mr. PAPAJ. Right. 

Senator LEVIN [continuing]. So that you can turn this around 

and not slow up the whole system, is that basically it? 

Mr. PAPAJ. Yes. And just to point to Mr. Hill’s statement, and 

that is not if FMS makes the payments. If we make the payment, 

it would be more efficient because we would be able to make the 

match and take the levy right at the same time. 

Senator LEVIN. Which is what you are doing for other agencies? 

Mr. PAPAJ. For some other agencies, but for DOD under vendor 

payments, we would be using the same process with the 34 intermediaries where we take the match, send information to them, 

they actually do the levy, send information to us. So the match 

could be done even with CMS continuing to make the payments. 

Senator LEVIN. OK. Would it be a fair request to let us know 

within 30 days what you are going to be doing in this area? Can 

we get that commitment? 

Mr. PAPAJ. I am not——

Senator LEVIN. I am not saying, implement the system. I am saying if you can reach an agreement or give us a status of your negotiations. 

Mr. PAPAJ. Sure. We can give you a status report. 

Senator LEVIN. Would you do that. Ms. Norwalk, you are committed to do that? 

Ms. NORWALK. Absolutely. 

Senator LEVIN. OK. Let me, Mr. Everson, ask you just a question 

and then I will turn it back over to Senator Coleman and to Senator McCaskill. 

Much of the tax debt that is assessed against taxpayers is not 

collected because it hasn’t been designated, or I guess you use the 

term ‘‘turned on,’’ or the term is used ‘‘turned on’’ for collection by 

levy. So we have about $67 billion in assessed but uncollected tax 

debt that was not subject to an actual levy. I think you have given 

37

a number of reasons to us before. We understand that there are a 

number of reasons that is true, including that a number of notices 

have to be sent to the taxpayers, there is an appeal of an IRS notice of levy, there is payment going on an installment plan, fair 

enough, the taxpayer has an offer in compromise which is pending, 

the taxpayer is in bankruptcy. There are a lot of reasons, legitimately. 

Mr. EVERSON. Yes, sir, there are. 

Senator LEVIN. That is not going to happen. But one of the issues 

has to do with the number of notices that I want to ask you about. 

Mr. EVERSON. Yes. 

Senator LEVIN. Part of the reason that the tax debt or part of it 

isn’t ready for levy is that you have to send three notices. 

Mr. EVERSON. I think it is actually four——

Senator LEVIN. Four computer-generated notices to a taxpayer 

demanding payment of the tax debt before the account moves into 

the collection enforcement. So it is four computer-generated notices. 

I am going to call those demand notices. The IRS is also required 

by law when it gets to the point of a tax levy to send a special notice warning a taxpayer that a tax levy is going to be made and 

giving them a chance to request an administrative hearing and potentially a court hearing. 

Mr. EVERSON. This is what I was referring to before, the collection due process notice. 

Senator LEVIN. That is correct, and I am going to call it tax levy 

notice. 

Mr. EVERSON. I get confused——

Senator LEVIN. I will call it a due process notice. [Laughter.] 

Join the rest of us. [Laughter.] 

Now, my question is, can the due process notice be combined 

with the second demand notice? 

Mr. EVERSON. I would want to carefully look at that, sir. I don’t 

know whether that is possible or not. Certainly what we have done 

here, I think as I mentioned in my oral statement and in the written statement, what we would like to do here is get the same kind 

of rights that we have with State tax refunds to allow someone a 

collection due process hearing but still make the levy. We think 

that is the cleanest way to do this. It is comparable to what we already do, as I said, with the State tax refunds, so I think that 

would really help us in this instance. 

Senator LEVIN. What would help you? 

Mr. EVERSON. If we had the same authority where we could go 

ahead and make the levy and then the taxpayer would still have 

that right. This is limited for employment taxes. One of the larger 

numbers, as you know from the previous hearings we have had on 

this subject, one of the largest pieces here is in the employment tax 

area. We would like to work particularly there, because when companies or providers get into trouble, they keep not making the employment tax withholding, or they make the withholding but they 

don’t make the remittances they should. If we can get on this, we 

can avoid pyramiding and that would be helpful. 

Senator LEVIN. All right. Has that request been made by the 

IRS——

38

Mr. EVERSON. That is in one of 16 administration proposals that 

we have made this year with the budget. 

Senator LEVIN. Does that go to the Finance Committee on the 

Senate side? 

Mr. EVERSON. Yes, sir, it would. 

Senator LEVIN. Good. Can you look into this other question that 

I just raised——

Mr. EVERSON. I certainly will, sir. 

Senator LEVIN [continuing]. Of the second notice, and we will 

check with the Finance Committee. Thank you. 

Senator Coleman. 

Senator COLEMAN. Thank you, Mr. Chairman. 

Mr. Papaj, I just want to kind of get an understanding of the 

scope of your system, and I think the Chairman explored it in talking about DOD, but in your written testimony, you talk about the 

FMS system showed almost $112 billion in delinquent taxes that 

were eligible for matching against Federal payments, is that correct? 

Mr. PAPAJ. Correct. 

Senator COLEMAN. And in that, the activated, which is the ‘‘on’’ 

tax debt, is $55 billion, so about 49 percent that is eligible for levy. 

Mr. PAPAJ. Correct. 

Senator COLEMAN. And then the ‘‘off’’ debt is what the Chairman 

is talking about and ways to accelerate to get more of that in the 

process. We are dealing with 112 with nine zeros after that is the 

amount of debt you deal with. 

Mr. PAPAJ. Yes, just on the tax side. 

Senator COLEMAN. And in terms of when you receive or post payments from agencies with their own disbursing services, then you 

match them against outstanding debt, return the payment information to the agency making the payments with the payments to be 

levied flagged, is that the way you do it? 

Mr. PAPAJ. Yes. They send us their anticipated payments and 

then we match that against the debtor database. Where there is a 

match of the TIN and the name, we send that information back to 

the agency. They actually make the levy and then send us information on the collections. 

Senator COLEMAN. And how long does it take you to send the information? How long does it take your part of that process? 

Mr. PAPAJ. Well, normally, we try to do that within the same 

day. That is why it is compressed in a very narrow time frame. We 

update the debtor database by 10:30 in the morning. Then we 

begin the matching. We try to get those files back to the agencies 

so they can make those claims. 

Senator COLEMAN. And how many accounts are you doing this 

for? Is there any way to estimate? 

Mr. PAPAJ. Well, last year, the numbers we processed was about 

200 and—I have got a number here somewhere if I can find it. 

Bear with me. We processed about 283 million debtor transactions, 

updating our database. I mean, there is a significant volume going 

through. 

Senator COLEMAN. So you could handle the CMS volume. We can 

work out the other issues. 

39

Mr. PAPAJ. Well, again, I think that is what we are going to work 

with them, to work that out. I mean, the concern we have is that 

we can’t allow any more time for the debt update process because 

then it goes into our payments processing time frame to be able to 

get our Social Security payments and our tax refund payments out. 

Senator COLEMAN. Great. Ms. Norwalk, I would like to explore 

the issue of screening and what is possible there. There were some 

pretty outrageous cases that the GAO reported about nasty characters. Can you talk a little bit about the screening process? Are 

there additional things that you think can be done, or do you need 

any legislative help to do any of that? 

Ms. NORWALK. By screening process, are you focusing on the tax 

piece or——

Senator COLEMAN. No, I am talking about the folks participating 

in——

Ms. NORWALK. In the Medicare——

Senator COLEMAN [continuing]. The contractor folks who have 

had medical privileges revoked——

Ms. NORWALK. Absolutely. 

Senator COLEMAN [continuing]. Who have other felony convictions, a whole range of issues. 

Ms. NORWALK. Right. 

Senator COLEMAN. What do you do now and what can you do to 

make it better? 

Ms. NORWALK. There are two separate ways that providers are 

excluded from the Medicare program. There are statutory exclusions that are listed, including things that relate to health care 

fraud. The Office of the Inspector General at HHS has the authority to put out permissive exclusions, and those include fraud. That 

would be like tax evasion, for example. Permissive exclusions are 

a 3-year minimum exclusion from the Medicare program. Statutory 

exclusions are a 5-year minimum. There are other things that are 

included in that which would be if you don’t have an active medical 

license, for example, you cannot obviously participate in the Medicare program. So, a number of the things that the GAO mentioned 

in its testimony, I think would be things where the provider could 

have been excluded. 

A lot of the medical piece focuses on what the State board of 

medicine does. We leave it to them to determine what is the appropriate sanction for a provider depending on what it is they do. 

When those privileges are revoked, they also lose their ability to 

bill the Medicare program. I will note that many State board of 

medical directors, however, are often hesitant to actually revoke 

medical privileges. It is one of the reasons why we have something 

called the National Practitioner Databank, which is intended to 

share information between State medical boards so that people 

can’t cross State lines, and if they, for example, were excluded in 

Minnesota, they couldn’t move to Wisconsin and then practice in 

Wisconsin, or vice-versa. 

Senator COLEMAN. Explain how that system works. 

Ms. NORWALK. Well, it is a reporting system and it is basically 

if the State medical board is required to, although I am not sure 

that it always does, but is required to report to the National Practitioner Databank to let the databank know that someone has lost 

40

their medical license in a particular State, conceptually, what will 

happen then is that contractors will check the database to ensure 

that the individual hasn’t been excluded through the National 

Practitioner Databank or still has an existing license. 

Senator COLEMAN. Thank you, Mr. Chairman. 

Senator LEVIN. Thank you. Just a couple more questions. I want 

to talk about this issue of where there is a limited liability company which is created and so technically the tax is owing by a limited liability company, but the box has been checked so that the 

owners have said that they will individually be responsible for paying the taxes, as I understand it. This is not an issue which is in 

any way limited to the medical problems we have been discussing. 

This is an across-the-board issue with the use of these limited liability companies. I don’t know the technical name of these professional corporations. Do you have a section in the IRS Code for that? 

Mr. EVERSON. I am sure there is a section, but——

Senator LEVIN. Is this a problem? Does it create problems in 

terms of collection? 

Mr. EVERSON. Well, I would step back and answer the question 

more broadly. As you know, the tax code writes in numerous provisions and special treatment and that is not necessarily consistent 

with either Federal law or State law as to organizational structures 

or other issues and makes it very complicated, obviously, to get 

after issues like what you are talking about today, where there are 

funds flowing through one vehicle but the tax obligation might be 

with another, yes, sir. 

Senator LEVIN. Have you considered amending the regulations 

clearly so as to say that companies who check the box and choose 

to be treated as partnerships are agreeing to make those company 

assets subject to levy to pay the taxes of the individual owners of 

the company that arise out of that business? Is that something 

which is the subject of discussion? 

Mr. EVERSON. I would want to think. I am not sure. It would be 

in the same sense that nobody has to be a Medicare provider but 

people have a tax obligation, and changing our interpretation of the 

law, which I am sure was done very carefully after whichever section that is was enacted, that is not a small matter, as you know. 

Senator LEVIN. Has that been a subject of discussion? 

Mr. EVERSON. Not that I am personally familiar with, sir. 

Senator LEVIN. All right. Would you take a look at that? It is a 

much broader issue. 

Mr. EVERSON. It is a very broad issue, you are right. 

Senator LEVIN. It seems to me it does create a real dilemma. 

Mr. EVERSON. We have the issue, as you know, there were recent 

hearings I know about millions of companies that were organized 

by different States without the ownership being disclosed. There 

are lots of issues that are comparable in some ways to this. 

Senator LEVIN. This is a different issue from that, however——

Mr. EVERSON. Yes. 

Senator LEVIN [continuing]. Because here, you are really saying 

if you choose to be taxed as an individual but the question is you 

are not levied as an individual——

Mr. EVERSON. Right. 

41

Senator LEVIN [continuing]. For taxes owing, why not be levied 

as an individual if you choose to pay taxes as an individual? Why 

should we make that distinction? 

Mr. EVERSON. I will certainly ask our folks to take a look at it, 

Mr. Chairman. 

Senator LEVIN. All right. 

Senator COLEMAN. Just a final line of inquiry. One of the things 

kind of dealing with the bad actors again and something I found 

disturbing, the GAO found that there was non-tax debt of a number of these 40 bad actors, and I presume then they are just a sample of others, and one area in particular of this non-tax debt was 

child support. CMS is in its very nature is vested in children’s welfare. 

Ms. NORWALK. Absolutely. 

Senator COLEMAN. At this point, I think it is clear you are not 

obligated to do anything with child support, are you? 

Ms. NORWALK. I actually think that we are not permitted to. We 

don’t have the statutory authority to do it at all, which I think was 

the earlier line of questioning. 

Senator COLEMAN. Because CMS, I think, comes under Social Security——

Ms. NORWALK. Yes, that is correct. We are Social Security——

Senator COLEMAN. Would you support a change in the Treasury 

Department offset program to provide that you could collect unpaid 

child support? 

Ms. NORWALK. I wouldn’t know why not, but I am more than 

happy to take it back and ask. 

Senator COLEMAN. I appreciate that. Thank you. 

Senator LEVIN. Ms. Norwalk, you indicated, I think, in your 

opening testimony that your effort to get to an integrated system 

is on schedule, I believe. 

Ms. NORWALK. Correct. 

Senator LEVIN. What was the schedule for that? 

Mr. HILL. The original schedule called for us to begin implementing in 2006. We actually began implementing and 

transitioning transactions in Fiscal Year 2005. We are about halfway through our transitions now, doing this in a piecemeal way to 

mitigate our risk, and we should be done by the end of 2010. 

Senator LEVIN. Two-thousand-and-ten? 

Mr. HILL. Yes, sir. 

Senator LEVIN. Why does it take that long? 

Mr. HILL. Well, I mean, we are doing it on schedule with this 

Medicare——

Senator LEVIN. I know it is on schedule, but why does it take 

that long? 

Mr. HILL. When I say on schedule, we are doing it, I should say, 

in concert with the transition schedule that was set up under the 

MMA to get rid of the number of contractors we had, to convert 

them to Medicare administrative contractors, and so there are 

many transitions going on at one time and we are trying to match 

those up and going in lockstep. As you know, the MMA requires 

the Medicare administrative contractor phase-out to be done by 

2011, so we are trying to have this done in advance of that. 

Senator LEVIN. It is not a budget issue? 

42

Mr. HILL. Not per se, no. It is really a risk mitigation issue, I 

think. We don’t want to sort of have this big bang approach where 

we are shoving $500 billion worth of payments through this system 

and then have it break. We want to do it in little chunks. 

Senator LEVIN. Well, it is more important, then, than ever with 

this kind of a schedule that we try to work out a way of, in the 

interim, making this match at the FMS level work. 

Ms. NORWALK. I think it is very promising. 

Senator LEVIN. Thank you. Mr. Everson. 

Mr. EVERSON. Yes. As sometimes happens in these situations, I 

have been passed a note and I understand that this matter you are 

raising is actually something we are actively looking at now to be 

able to do the levy process on the LLCs, at least in some way. We 

will send you a note for the record on what we are doing. 

Senator LEVIN. You have a lot of company, because we get notes 

from our staff every 5 minutes or so. [Laughter.] 

You only got one or two today, so you lucked out. 

We thank you all. It has been a very helpful panel, very lively 

discussion, and we will stand adjourned. 

[Whereupon, at 4:30 p.m., the Subcommittee was adjourned.] 

(43)

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