Thousands of Medicaid Providers Fail to Pay Taxes, GAO Finds

Health-care providers who fail to pay their federal taxes continue to receive millions of dollars of payments from Medicaid, the government health-care program for the poor, according to a report by congressional investigators.

The government has an automated system to withhold a portion of federal payments to contractors who owe unpaid taxes, but Medicaid providers fall between the cracks, the Government Accountability Office found.

Thousands of Medicaid providers "abused the federal tax system with little or no consequence," the GAO said.

The GAO studied providers in seven states and found that 30,000 of them, about 5 percent of those who received Medicaid payments from those states in the 2006 fiscal year, owed more than $1 billion in unpaid federal taxes. Most of that money involved payroll taxes they withheld from employees' wages but never remitted to the government.

If an effective system were in place to dock their Medicaid payments, the government would have recouped $70 million to $160 million in the 2006 fiscal year, the GAO estimated.

The study stems from a four-year Senate investigation of defense contractors and other businesses that receive money from the government while failing to pay taxes.

"These doctors are supposed to be serving the most needy, instead they are cheating taxpayers in order to line their pockets," said a statement by Sen. Norm Coleman of Minnesota, ranking Republican on the Governmental Affairs Committee's permanent subcommittee on investigations.

Coleman and Sen. Carl M. Levin (D-Mich.), chairman of the subcommittee, requested the study by the GAO, which is an investigative arm of Congress. The subcommittee plans to address the report at a hearing today.

"It is long past time to tell the Medicaid tax-dodgers that it is not okay for them to shortchange the very taxpayers who are supplying their payment," Levin said in a statement.

The small minority of Medicaid providers described in the report are part of a much larger problem. The Internal Revenue Service's most recent estimate is that, for tax year 2001, there was a $345 billion gap between the amount taxpayers paid on time and the amount they should have paid.

The federal agency that oversees Medicaid, the Centers for Medicare and Medicaid Services (CMS), does not prevent medical providers with federal tax debts from participating in Medicaid, and federal law generally prohibits the disclosure of those debts to the CMS, the report said.

CMS officials told the GAO that screening Medicaid providers for tax debts could interfere with the delivery of health care to the poor.