On November 14, 2007, the Government Accountability Office (“GAO”) published a Report to the Permanent Subcommittee on Investigations, Committee on Homeland Security and Governmental Affairs of the United States Senate, concerning unpaid federal taxes owed by Medicaid providers in California, Colorado, Florida, Maryland, New York, Pennsylvania, and Texas. The report found that more than 30,000 Medicaid providers in these seven selected states failed to pay more than $1 billion in federal taxes. Of the 25 Medicaid providers selected for an in-depth investigation, the GAO found “abusive and related criminal activity” occurred with all 25 providers. Since publication of the GAO report, the extensive amount of tax debt owed by Medicaid providers has been featured in many national and regional publications, including USA Today, U.S. News & World Report, and The Washington Post.
The GAO report revealed that although the vast majority of Medicaid providers pay their federal taxes, a significant minority of providers fail to promptly pay federal taxes despite continuing to receive Medicaid payments. The GAO report and the publicity the report has received suggests that the federal government, and in particular the Internal Revenue Service (“IRS”) and the Centers for Medicare & Medicaid Services (“CMS”), may increase the scrutiny applied to Medicaid providers and other recipients of federal funds. Unpaid federal taxes can result in significant interest and penalties that are subject to standard recovery efforts. The IRS has the authority to place a federal tax lien against a Medicaid provider’s assets or levy assets held by a third-party, such as a bank or financial institution.
The November 14th GAO report comes on the heels of a July 2007 GAO report that examined the unpaid federal taxes of charitable organizations, including health care providers. Both reports focused on identifying the breadth and scope of federal tax debt owed by organizations that benefit from federal programs. The July 2007 report found that “nearly 55,000 exempt organizations had almost $1 billion in unpaid federal taxes as of September 30, 2006.” In response to these reports, Senator Carl Levin, Chair of the Senate subcommittee, stated that “it is long past time to find a way to withhold Medicaid payments from those providers who are shortchanging the very taxpayers who are supplying their paychecks.”