Medicare: Thousands of Medicare Part B Providers Abuse the Federal Tax System
Published: 2007-03-20T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Under the Medicare program, the Department of Health and Human Services (HHS) and its contractors paid a reported $330 billion in Medicare benefits in calendar year 2005. Because GAO previously identified government contractors with billions of dollars in unpaid federal taxes, Congress requested that we expand our work in this area to all Medicare providers. This testimony addresses Medicare physicians, health professionals, and suppliers for services related to senior health care, who received about 20 percent of all Medicare payments. Because of limitations in HHS data, GAO was asked to determine if Medicare Part B physicians, health professionals, and suppliers have unpaid federal taxes, and if so, to (1) determine the magnitude of such debts; (2) identify examples of Medicare physicians and suppliers that have engaged in abusive, or potentially criminal activities; and (3) assess HHS efforts to prevent delinquent taxpayers from enrolling in Medicare and levy payments to pay delinquent federal taxes. To perform this work, GAO reviewed data from HHS and the Internal Revenue Service (IRS). In addition, GAO reviewed policies, procedures, and regulations related to Medicare. GAO also performed additional investigative activities. We plan to report on the results of our work related to other Medicare providers including any needed recommendations later this year.
section_title: What GAO Found
paragraphs: Over 21,000 of the physicians, health professionals, and suppliers (i.e., about 5 percent of all such providers) paid under Medicare Part B during the first 9 months of calendar year 2005 had tax debts totaling over $1 billion. This $1 billion figure is understated because some of these Medicare health care providers have understated their income and/or not filed their tax returns. We selected 40 Medicare physicians, health professionals, and suppliers with high tax debt for more in-depth investigation of the extent and nature of any related abusive or potentially criminal activity. Our investigation found abusive and potentially criminal activity, including failure to remit to IRS individual income taxes and/or payroll taxes withheld from their employees. Rather than fulfill their role as "trustees" of this money and forward it to IRS, they diverted the money for other purposes. Willful failure to remit payroll taxes is a felony under U.S. law. Further, individuals associated with some of these providers used payroll taxes withheld from employees for personal gain (e.g., to purchase a new home) or to help fund their businesses. Many of these individuals accumulated substantial wealth and assets, including million-dollar houses and luxury vehicles, while failing to pay their federal taxes. In addition, some physicians received Medicare payments even though they had serious quality-of-care issues, including license reprimands and prior suspensions from state medical boards, revocations of hospital privileges, and previous exclusions from the Medicare program. HHS has not issued Medicare regulations or policies requiring Medicare contractors to consider tax debts in making a decision about whether to enroll a physician, health professional, or supplier into Medicare. Further, HHS has not established a policy to obtain taxpayer consent to obtain tax information from IRS as part of its Medicare eligibility decision-making process. IRS can continuously levy up to 100 percent of each payment made to a federal payee--for example, a Medicare physician--until that tax debt is paid. However, HHS is not participating in the continuous levy program and thus the government has not collected unpaid taxes from Medicare payments. In the first 9 months of calendar year 2005, we estimate that the government lost opportunities to collect between $50 million and $140 million by not participating in the continuous levy program.

section_title: Letter
paragraphs: Thank you for the opportunity to discuss Medicare physicians, health  professionals, and suppliers paid under the Supplemental Medical  Insurance program, also know as Medicare Part B, who have abused the  federal tax system while doing business with the federal government. This  testimony provides the results of our most recent work related to  identifying abusers of the federal tax system. In recent hearings held by  this subcommittee, we testified that federal contractors (Department of  Defense, federal civilian, and General Services Administration  contractors) abused the federal tax system with little consequence. Due to  the significance of the issues raised during those hearings, you asked us to  provide additional information about whether Medicare providers who  were paid by the government for Medicare-related services were engaged  in similar tax abuses. Because of limitations in the data provided to us by  the Department of Health and Human Services (HHS), this testimony will  cover physicians, health professionals, and suppliers who were paid under  Medicare Part B and engaged in tax abuses. We plan to conduct a  subsequent audit and related investigations to determine whether other  Medicare providers, such as hospitals, durable medical equipment  suppliers, and skilled nursing facilities, have abused the federal tax system  while receiving Medicare payments. Any recommendations needed to  address the issues raised in this testimony will be included as part of our  planned subsequent reporting on this area.
The specific objectives of this audit and investigation were to determine,  to the extent possible, if physicians, health professionals, and suppliers  who receive Medicare Part B payments have unpaid federal taxes, and if  so, to (1) determine the magnitude of tax debts owed; (2) identify  examples of physicians, health professionals, and suppliers involved in  abusive or potentially criminal activities; and (3) assess HHS efforts to  prevent delinquent taxpayers from enrolling in Medicare and levy  Medicare payments to pay delinquent federal taxes.
To identify the magnitude of physicians, health professionals, and  suppliers with unpaid federal taxes, we obtained and analyzed Internal  Revenue Service (IRS) tax debt data as of September 30, 2005, and  obtained and analyzed the HHS database of Medicare Part B-approved  claims paid to physicians, health professionals, and suppliers for the first 9  months of calendar year 2005. We matched the list of Medicare  physicians, health professionals, and suppliers with IRS tax debts using  the taxpayer identification number (TIN). To illustrate examples of abuse  or potential criminal activity, based on our data mining, we selected 40  Medicare physicians and suppliers for a detailed audit and investigation of  the extent and nature of such activity. For these 40 cases, we reviewed  copies of automated tax transcripts and other tax records (for example,  revenue officer’s notes) and performed additional searches of criminal,  financial, health care, and public records. For these cases, we also updated  the tax debt amount as of September 30, 2006, to reflect any additional tax  assessments or collections that IRS recorded as of that date. To determine  whether HHS prevents physicians, health professionals, and suppliers who  owe tax debts from enrolling in Medicare or levying Medicare payments to  pay taxes, we examined the HHS regulations, policies, and procedures for  conducting determinations in the enrollment approval process. We also  interviewed officials from HHS, two large HHS Medicare contractors, IRS,  and the Department of Treasury’s Financial Management Service (FMS)  concerning any barriers for levying Medicare payments. A more detailed  description of the scope and methodology related to our audit and  investigative work supporting this testimony is provided in appendix I.
We conducted our work from June 2006 through February 2007. Our audit  work was performed in accordance with U.S. generally accepted  government auditing standards. We performed our investigative work in  accordance with standards prescribed by the President’s Council on  Integrity and Efficiency.
subsections: section_title: Magnitude of Unpaid Taxes of Medicare Part B Physicians, Health Professionals, and Suppliers
paragraphs: Our analysis of 2005 data found that over 21,000 physicians, health  professionals, and suppliers who received Medicare Part B payments  during the first 9 months of 2005 had over $1 billion in unpaid federal  taxes as of September 30, 2005. This represents about 5 percent of the  number of Medicare Part B physicians, health professionals, and suppliers  paid during the first 9 months of calendar year 2005. Because the IRS  database does not include amounts owed by taxpayers who have not filed  tax returns and for which IRS has not assessed tax amounts due, the  estimated amount of unpaid federal taxes is understated.
subsections: section_title: Characteristics of Medicare Part B Physicians, Health Professionals, and Suppliers’ Unpaid Federal Taxes
paragraphs: As shown in figure 1, about 91 percent of the over $1 billion in unpaid  taxes was comprised of federal individual income and payroll taxes. The  other 9 percent of taxes included corporate income, excise,  unemployment, and other types of taxes. Unlike our previous reports and  testimonies on contractors with tax debts, a larger percentage of taxes  owed by these physicians, health professionals, and suppliers was  comprised of federal individual income taxes, which are unpaid amounts  that individuals owe on their personal income. These taxpayers are  typically either sole proprietors or certain limited liability companies that  report income through individual income tax returns.
As shown in figure 1, Medicare Part B physicians, health professionals,  and suppliers, which are corporations or other kinds of businesses, owed  about $430 million in federal payroll taxes. Employers are subject to civil  and criminal penalties if they do not remit payroll taxes to the federal  government. When an employer withholds taxes from an employee’s  wages, the employer is deemed to have a fiduciary responsibility to hold  these amounts “in trust” for the federal government until the employer  makes a federal tax deposit in that amount. To the extent these withheld  amounts are not forwarded to the federal government, the employer is  liable for these amounts, as well as the employer’s matching Federal  Insurance Contribution Act contributions for Social Security and  Medicare. Individuals within the business (e.g., corporate officers) may be  held personally liable for the withheld amounts not forwarded and  assessed a civil monetary penalty known as a trust fund recovery penalty.  Willful failure to remit payroll taxes can also be a criminal felony offense  punishable by imprisonment of up to 5 years, while the failure to properly  segregate payroll taxes can be a criminal misdemeanor offense punishable  by imprisonment of up to a year. The law imposes no penalties upon an  employee for the employer’s failure to remit payroll taxes since the  employer is responsible for submitting the amounts withheld. The Social  Security and Medicare trust funds are subsidized or made whole for  unpaid payroll taxes by the federal government’s general fund. Thus,  personal income taxes, corporate income taxes, and other government  revenues not specifically designated for the trust funds are used to pay for  these shortfalls to the Social Security and Medicare trust funds.
A substantial amount of the unpaid federal taxes shown in IRS records as  owed by Medicare Part B physicians, health professionals, and suppliers  had been outstanding for several years. As reflected in figure 2, about 85  percent of the over $1 billion in unpaid taxes were for tax periods prior to  calendar year 2004, with about 41 percent of the unpaid taxes for tax  periods prior to calendar year 2000.
Our previous work has shown that as unpaid taxes age, the likelihood of  collecting all or a portion of the amount owed decreases. This is due, in  part, to the continued accrual of interest and penalties on the outstanding  tax debt which, over time, can dwarf the original tax obligation. The  amount of unpaid federal taxes we have identified does not include all tax  debts owed by physicians, health professionals, and related suppliers due  to statutory provisions that give IRS a finite period under which it can seek  to collect on unpaid taxes. Generally, there is a 10-year statutory collection  period beyond which IRS is prohibited from attempting to collect tax  debt. Consequently, if these physicians, health professionals, and  suppliers owe federal taxes beyond the 10-year statutory collection period,  the older tax debt may have been removed from IRS’s records. We were  unable to determine the amount of tax debt that had been removed.
section_title: Unpaid Federal Taxes of Medicare Part B Physicians, Health Professionals, and Suppliers Is Understated
paragraphs: Although over $1 billion in unpaid federal taxes owed by Medicare Part B  physicians, health professionals, and suppliers as of September 30, 2005, is  a significant amount, it understates the full extent of unpaid taxes owed by  these or other businesses and individuals. The IRS tax database reflects  only the amount of unpaid federal taxes either reported by the individual  or business on a tax return or assessed by IRS through its various  enforcement programs. The IRS database does not reflect amounts owed  by businesses and individuals that have not filed tax returns and for which  IRS has not assessed tax amounts due. For example, during our audit, we  identified instances from our case studies in which Medicare Part B  physicians, health professionals, and suppliers failed to file tax returns for  a particular tax period and IRS had not assessed taxes for these tax  periods. Consequently, while these physicians, health professionals, and  suppliers had unpaid federal taxes, they were listed in IRS records as  having no unpaid taxes for that period. Further, our analysis did not  attempt to account for businesses or individuals that purposely  underreported income and were not specifically identified by IRS as owing  the additional federal taxes. According to IRS, underreporting of income  accounted for more than 80 percent of the estimated $345 billion annual  gross tax gap. Consequently, the full extent of unpaid federal taxes for  Medicare Part B physicians, health professionals, and suppliers is not  known.
In addition to the IRS tax database not reflecting all assessed tax amounts  due, our past audits have also indicated that the IRS tax database contains  coding errors that adversely affect IRS’s collection activities. IRS’s  collection process is heavily dependent upon its automated computer  system and the information that resides within this system. In particular,  the codes in each taxpayer’s account in IRS’s tax database are critical to  IRS in tracking the collection actions it has taken against a tax debtor and  in determining what, if any, additional collection actions should be  pursued. For example, IRS uses these codes to identify cases it should  exclude from the continuous levy program, which is an automated  method of collecting tax debt by offsetting certain federal payments made  to individuals and businesses, as well as from other collection actions.
While we did not evaluate the appropriateness of IRS’s exclusions for this  testimony, the exclusions are only as good as the codes IRS has entered  into its systems. In our previous work, we found that inaccurate coding at  times prevented IRS collection action, including referral to the continuous  levy program. Specifically, in November 2006, we estimated that about  $2.4 billion in tax debt was erroneously excluded from the continuous levy  program as of September 30, 2005. IRS did not identify and correct the  coding errors we found because it did not sufficiently monitor the timely  updating of the status and transaction codes or the effect of computer  programming changes. In addition, we found that the design of IRS’s  policies for monitoring the status of financial hardship cases was not  sufficient to ensure the ongoing accuracy of such designations.  Therefore, effective management of these codes is critical because if these  codes are not accurately or appropriately updated to reflect changing  circumstances, cases may be needlessly excluded from collection action,  including the continuous levy program.
section_title: Examples of Medicare Part B Physicians, Health Professionals, and Suppliers Involved in Abusive and Potentially Criminal Activity Related to the Federal Tax System
paragraphs: For all 40 cases involving Medicare Part B physicians, health professionals,  and suppliers with outstanding tax debt that we audited and investigated,  we found abusive and/or potentially criminal activity related to the federal  tax system. Of these cases, 25 involved physicians, health professionals,  and suppliers that had unpaid payroll taxes dating as far back as the early  1990s. Rather than fulfill their role as “trustees” of this money and forward  it to IRS as required by law, these physicians, health professionals, and  suppliers diverted the money for other purposes. IRS had trust fund  recovery penalties in effect for 16 of the 25 business cases at the time of  our review. In addition, as discussed previously, willful failure to remit  payroll taxes can be a criminal felony offense punishable by imprisonment  up to 5 years, while the failure to properly segregate payroll taxes can be  a criminal misdemeanor offense punishable by imprisonment of up to a  year. The other 15 cases involved individuals who had unpaid individual  income taxes dating as far back as the 1970s.
Our review of selected Medicare Part B physicians, health professionals,  and suppliers revealed significant challenges that IRS faces in its  enforcement of tax laws, a continuing high-risk area for IRS. Although the  nation’s tax system is built upon voluntary compliance, when businesses  and individuals fail to pay voluntarily, IRS has a number of enforcement  tools, including the use of levies, to compel compliance or elicit payment.  Our review of the 40 physicians, health professionals, and suppliers found  that IRS attempts to work with the businesses and individuals to achieve  voluntary compliance, pursuing enforcement actions later rather than  earlier in the collection process. Our review of IRS records with respect to  our 40 cases showed that IRS did not issue paper levies to the Medicare  contractors to levy the payments of physicians, health professionals, and  suppliers for 28 of our 40 cases. As a result, most of the physicians, health  professionals, and suppliers in our case studies continued to receive  Medicare Part B payments while owing their federal taxes.
Our investigations revealed that, despite owing substantial amounts of  federal taxes to the IRS, some physicians, health professionals, and  suppliers had substantial personal assets—including multimillion dollar  homes and luxury cars. For example, one physician purchased a house for  over $1 million while his business owed over $1 million in federal taxes.  Another physician purchased a luxury vehicle, paid for partly with cash,  and gambled millions of dollars while owing over $400,000 in taxes.
In addition to failure to pay taxes, our investigations also revealed that  several physicians associated with our case studies received Medicare Part  B payments even though they had significant problems related to the  practice of medicine. Six physicians had been previously excluded from  the Medicare program for such things as professional incompetence,  financial misconduct involving a government-operated program, and  failure to pay health education loans. Further, 13 physicians in our cases  had also been sanctioned by their state medical boards for such things as  substandard care of their patients, drug abuse, abusive prescription  writing, unprofessional conduct, lack of moral character, income tax  evasion, embezzlement, aiding and abetting unlicensed practice, and  illegible patient records.
Table 1 highlights 15 of the 40 cases of Medicare physicians, health  professionals, and suppliers with unpaid taxes. Appendix II provides  details on the other 25 cases we examined. We are referring all 40 cases  we examined to IRS for further collection activity and criminal  investigation, if warranted.
The following provides detailed information on three of the cases we  examined.
Case 1: Although in 2 recent years, the physician’s business reported a net  income of over $300,000 and $100,000, respectively, the physician has not  made any federal tax payments to IRS. In addition, the physician has been  delinquent in child support during this time. As a result, the physician’s  spouse had to sell the residence because the spouse could not afford the  house. A hospital revoked the physician’s hospital privileges for  substandard care and the state medical board also investigated the  physician. The physician received over $100,000 in Medicare Part B  payments for the first 9 months of calendar year 2005.
Case 2: A physician was convicted of money laundering through offshore  accounts. In addition to owing over $600,000 in federal individual income  taxes, the physician owes tens of thousands of dollars in delinquent child  support and also owns a related business that owes over $300,000 in  federal taxes. Even though owing significant debts, the physician owns  several residential properties, including an overseas house. HHS paid the  physician nearly $100,000 in Medicare Part B payments during the first 9  months of calendar year 2005.
Case 4: An ambulance business owner paid employees in cash and did not  report this income to IRS. The ambulance business owner was convicted  and incarcerated for defrauding the U.S. government. While the owner was  in prison, a business officer used company funds to purchase property for  the business officer instead of paying the federal payroll taxes to IRS. In  2004, the business negotiated and is paying on a repayment agreement of  about $3,000 per month.  These monthly payments are substantially less  than the interest that would accrue on the debt. HHS paid the ambulance  company over $100,000 in Medicare Part B payments during the first 9  months of calendar year 2005.
section_title: Physicians, Health Professionals, and Suppliers with Unpaid Taxes Are Not Prohibited from Enrolling or Receiving Payments from Medicare
paragraphs: HHS does not prevent physicians, health professionals, and suppliers with  tax debts from enrolling in or receiving payments from the Medicare  program. HHS has not developed Medicare regulations or HHS  implementing policy to require HHS or their contractors to (1) screen  physicians, health professionals, and suppliers for unpaid taxes and (2)  require contractors to obtain consent for IRS disclosure of federal tax  debts.  However, because HHS has not participated in the continuous levy  program, no tax debts owed by these physicians, health professionals and  suppliers are being collected through the program. As a result, the federal  government lost opportunities to collect between $50 million and $140  million in unpaid taxes in the first 9 months of calendar year 2005.
HHS Medicare contractors are responsible for screening physicians, health  professionals, and suppliers prior to enrollment into the Medicare  program. However, as part of the screening process, neither HHS policies  nor HHS regulations require Medicare contractors to consider tax debts or  tax-related abuses of prospective physicians, health professionals, and  suppliers.  Medicare contractors are also not required to conduct any  criminal background checks on these individuals. Medicare contractors  are required to review the HHS Office of Inspector General (OIG)  exclusion list and the General Services Administration (GSA) debarment  lists; however, these lists do not include all individuals or businesses who  have abused the federal tax system. The basis of exclusion of certain  individuals and entities from participation in Medicare programs is made  by statute. The statute provides for both mandatory and permissive  exclusions. Mandatory exclusions are confined to health-related criminal  offenses while permissive exclusions concern primarily non-health-related  offenses. The Federal Acquisition Regulation cites conviction of tax  evasion as one of the causes for debarment; indictment on tax evasion  charges is cited as a cause for suspension. Consequently, the deliberate  failure to remit taxes, in particular payroll taxes, while a felony offense,  will likely not result in an individual or business being debarred or  suspended unless there is an indictment or conviction of the crime.  Moreover, while a felony offense, the deliberate failure to remit taxes, in  particular payroll taxes, will likely not result in an individual or entity  being placed on the Medicare exclusion or GSA debarment lists unless the  taxpayer is convicted.
Even if an individual or entity is convicted of tax evasion or other tax- related crime, the individual or business still may not be placed on the  Medicare exclusion or GSA debarment lists. To be placed on these lists,  federal agencies must identify those individuals and businesses and  provide them with due process. As part of the due process, the agency  must make a determination as to whether the exclusion or debarment is in  the government’s interest. None of the 40 cases that we investigated,  including those involving a conviction for tax-related crimes, are currently  on the Medicare exclusion or GSA debarment lists.
Further complicating HHS decision making on the consideration of tax  debts for Medicare, federal law does not permit IRS to disclose taxpayer  information, including tax debts, to HHS or Medicare contractor officials  unless the taxpayer consents. HHS has not established a policy to obtain  Medicare applicants’ consent to obtain tax information from IRS to  consider in its Medicare eligibility decision making process. Thus, certain  tax debt information can only be discovered from public records if IRS  files a federal tax lien against the property of a tax debtor or a record of  conviction for tax offense is publicly available. Consequently, HHS  officials and their contractors do not have ready access to information on  unpaid tax debts to consider in making decisions on physicians, health  professionals and suppliers.
Further, HHS has not established policy to participate in the  IRS  continuous levy program, thus preventing IRS from capturing at least a  portion of the Medicare payments made to physicians, health  professionals, and suppliers that owe tax debts. As stated earlier, federal  law allows IRS to continuously levy federal vendor payments up to 100  percent until the tax debt is paid. IRS has implemented this authority by  creating a continuous levy program that utilizes FMS’s Treasury Offset  Program system. In July 2001, we reported that HHS did not have plans to  participate in the continuous levy program and we recommended that the  Commissioners of IRS and FMS work with HHS to develop plans to  include Medicare payments in the continuous levy program. In July 2006,  IRS began to pursue HHS participation in the continuous levy program  through the Federal Contractor Tax Compliance (FCTC) Task Force, a  multiagency group dedicated to improving the continuous levy process.  In response to IRS’s request, HHS began to participate in the FCTC Task  Force meetings in February 2007.
If HHS had previously worked with IRS to levy Medicare Part B payments,  we estimate, using the conservative 15 percent rate that FMS uses to levy  civilian contractors, the federal government could have collected about  $50 million in unpaid federal taxes for the first 9 months of calendar year  2005. Using the 100 percent rate authorized by law, the federal government  could have collected approximately $140 million. These estimates were  based on debt information IRS has reported to TOP as of September 30,  2005.
section_title: Concluding Comments
paragraphs: Thousands of Medicare Part B physicians, health professionals, and  suppliers have failed in their responsibility to pay federal taxes they owe  as individuals and businesses residing and conducting business in this  nation. Further our case studies demonstrate that physicians and other  medical service providers with federal tax debts can receive Medicare Part  B payments while engaging in abusive and potentially criminal activity. In  addition, our case studies determined that some physicians who abused  the federal tax system are also not providing quality care to all of their  patients. Additionally, because HHS has failed to participate in the  continuous levy process since its authorization in 1997, the federal  government has missed the opportunity to collect hundreds of millions of  dollars in unpaid taxes from Medicare Part B physicians, health  professionals, and suppliers. The federal government cannot afford to  leave millions of dollars in taxes uncollected each year in the current  environment of federal deficits, nor can it continue to permit physicians,  health professionals, and suppliers that have abused the federal tax system  from participating in the Medicare program.
Mr. Chairman and Members of the Subcommittee, this concludes our  statement. We would be pleased to answer any questions that you or other  members of the committee may have at this time.
section_title: GAO Contacts
paragraphs: For further information about this testimony, please contact Gregory Kutz  at (202) 512-7455 or kutzg@gao.gov or Steve Sebastian at (202) 512-3406 or  sebastians@gao.gov. Contacts points for our Offices of Congressional  Relations and Public Affairs may be found on the last page of this  testimony.
section_title: Appendix I: Scope and Methodology
paragraphs: To identify the magnitude of unpaid taxes owed by Medicare Part B  physicians, health professionals and suppliers, we requested from  Department of Health and Human Services (HHS) the related Medicare  Part B claims data for calendar year 2005. HHS was only able to provide  us these data for the first 9 months of calendar year 2005 by the end of our  review. We also obtained and analyzed the Internal Revenue Service (IRS)  unpaid assessment data as of September 30, 2005. We matched the  Medicare claim data to the IRS unpaid assessment data using the taxpayer  identification number (TIN) field. To avoid overestimating the amount  owed by Medicare Part B physicians, health professionals, and suppliers  with unpaid tax debts and to capture only significant tax debts, we  excluded from our analysis tax debts and paid claims meeting specific  criteria to establish a minimum threshold in the amount of tax debt and in  the amount of paid claims to be considered when determining whether a  tax debt is significant. The criteria we used to exclude tax debts are as  follows:  tax debts that IRS classified as compliance assessments or memo accounts  for financial reporting,  tax debts from calendar year 2005 tax periods, and    Medicare Part B physicians, health professionals, and suppliers with total  unpaid taxes and Medicare Part B paid claims of less than $100.
The criteria above were used to exclude tax debts that might be under  dispute or generally duplicative or invalid, and tax debts that are recently  incurred. Specifically, compliance assessments or memo accounts were  excluded because these taxes have neither been agreed to by the  taxpayers nor affirmed by the court, or these taxes could be invalid or  duplicative of other taxes already reported. We excluded tax debts from  calendar year 2005 tax periods to eliminate tax debt that may involve  matters that are routinely resolved between the taxpayer and IRS, with the  taxes paid or abated within the current year. We further excluded tax  debts and Medicare Part B paid claims of less than $100 because they are  insignificant for the purpose of determining the extent of taxes owed.
To identify examples of abuse or potentially criminal activity, we selected  40 Medicare Part B physicians, health professionals, and suppliers with  federal tax debts for detailed audit and investigation. The 40 cases were  chosen using a nonrepresentative selection approach based on our  judgment, data mining, and a number of other criteria. Specifically, we  narrowed the 40 cases with unpaid taxes based on the amount of unpaid  taxes, number of unpaid tax periods, amount of payments reported by  Medicare Part B, and indications that owner(s) might be involved in  multiple companies with tax debts.
We obtained copies of automated tax transcripts and other tax records  (for example, revenue officer’s notes and certain individual tax returns)  from IRS, and reviewed these records to exclude physicians and suppliers  that had recently paid off their unpaid tax balances and considered other  factors before reducing our number of case studies to 40. We performed  additional searches of criminal, financial, and public records. In cases  where record searches and IRS tax transcripts indicate that the owners or  officers of a business are involved in other related entities that have  unpaid federal taxes, we also reviewed records of the related entities and  the owner(s) or officer(s), in addition to the original business we  identified. For each related entity, we determined whether that entity had  Medicare Part B payments for the first 9 months of calendar year 2005 and  had unpaid federal taxes as of September 30, 2005. We updated the tax  debt amount as of September 30, 2006, to reflect any additional tax  assessments or collections that have occurred. In instances where we  identified related parties that had both Medicare Part B payments and tax  debts, our case studies included those related entities, combining unpaid  taxes and combined Medicare Part B payments for the original  individual/business as well as all related entities.
To determine the extent to which HHS officials and their contractors are  required to consider tax debts or other criminal activities in the enrollment  of physicians, health professionals, and suppliers into Medicare, we  examined Medicare regulations and HHS policies and procedures for  enrollment. We also discussed policies and procedures used to enroll  physicians, health professionals, and suppliers into Medicare with officials  from two Medicare contractors. As part of these discussions, we inquired  whether HHS and their contractors specifically consider tax debts or  perform background investigations to determine whether prospective  physicians, health professionals, and suppliers are qualified before their  enrollment to Medicare is granted.
To determine the extent to which HHS levies Medicare Part B payments to  physicians, health professionals, and suppliers owing tax debts, we  examined the statutory and regulatory authorities that govern the  continuous levy program to determine whether any legal barriers exist. We  also interviewed officials from HHS, two Medicare contractors, IRS, and  Department of Treasury’s Financial Management Service (FMS) officials  as to any operational impediments for the continuous levy of provider  payments to pay federal tax debts.
To determine the potential levy collections on the first 9 months of  calendar year 2005, we used 15 percent and 100 percent of the total paid  claim or total tax debt amount reported to TOP per IRS records,  whichever is less. To be conservative, we used the 15 percent rate that  FMS uses to levy civilian contractors. A gap will exist between what could  be collected and the maximum levy amount calculated because (1) tax  debts in TOP may not be eligible for immediate levy because IRS has not  completed due process notifications, and (2) IRS may remove tax debts  from the levy program because the taxpayer filed for bankruptcy,  negotiated an installment agreement, or some other action which made the  taxpayer ineligible for the levy program.
subsections: section_title: Data Reliability Assessment
paragraphs: To determine the reliability of the IRS unpaid assessments data, we relied  on the work we performed during our annual audits of IRS’s financial  statements. While our financial statement audits have identified some data  reliability problems associated with the coding of some of the fields in  IRS’s tax records, including errors and delays in recording taxpayer  information and payments, we determined that the data were sufficiently  reliable to address this report’s objectives. Our financial audit procedures,  including the reconciliation of the value of unpaid taxes recorded in IRS’s  masterfile to IRS’s general ledger, identified no material differences.
For HHS’s Medicare claims history and FMS’s TOP databases, we  interviewed HHS and FMS officials responsible for their respective  databases. In addition, we performed electronic testing of specific data  elements in the databases that we used to perform our work.
Based on our discussions with agency officials, review of agency  documents, and our own testing, we concluded that the data elements  used for this testimony were sufficiently reliable for our purposes.
We conducted our audit work from June 2006 through February 2007 in  accordance with U.S. generally accepted government auditing standards,  and we performed our investigative work in accordance with standards  prescribed by the President’s Council on Integrity and Efficiency.
section_title: Appendix II: Medicare Physicians, Health Professionals, and Suppliers with Unpaid Taxes
paragraphs: This appendix presents summary information on the abusive or potentially  criminal activity associated with 25 of our 40 case studies. Table 2  summarizes the abuse or potentially criminal activity related to the federal  tax system for these 25 physicians, health professionals, and suppliers that  also received Medicare Part B payments in 2005. The cases involving  businesses primarily involved unpaid payroll taxes.
section_title: Appendix III: Medicare Physicians, Health Professionals, and Suppliers With Federal and State Tax Liens
paragraphs: This appendix summarizes the extent to which Medicare physicians,  health professionals, and suppliers have federal or state liens filed against  their property. As discussed previously, certain tax debt information can  only be discovered from public records, such as credit reports, if IRS files  a federal tax lien against the property of a tax debtor. Of the 40 cases, 31  had federal tax liens filed by the Internal Revenue Service and 23 had tax  liens filed by the states. Table 3 provides a summary of the federal or state  tax liens filed for all 40 cases.