Medical suppliers, home-care providers, and hospitals that are delinquent on their taxes could face changes in Medicaid reimbursement, thanks to a U.S. government study that showed widespread tax evasion by health-care providers in three states.
A U.S. Government Accountability Office (GAO) report to Congress last month revealed that 7,000 Medicaid providers in Florida, New York, and Texas, which received more than $6 billion in reimbursements under the American Recovery and Reinvestment Act, failed to pay almost $800 million on their federal taxes from before 2009. (The act, which was created in 2009 to promote business growth, gave states almost $90 billion in federal funds for Medicaid.)
To crack down on delinquent Medicaid providers, the GAO recommended that the Internal Revenue Service explore new ways to collect unpaid taxes from them. In particular, the report discussed using a series of tax levies on, or seizures of, health-care providers’ Medicaid payments. That would mark a dramatic change from the current way of collecting unpaid taxes, a change that would require an act of Congress. The IRS maintains that since Medicaid reimbursements do not, as of now, qualify as federal payments, it could not impose a levy on them.
Still, the current way of collecting unpaid taxes from Medicaid providers needs to be changed, says Richard Hillman, managing director of the Forensics Audits and Investigative Service at the GAO and author of the report. His study, which took an additional in-depth look at 40 Medicaid business and individual providers, wasn’t representative of the whole population, he says, but “it was a pretty significant result.”
The GAO estimates that as much as $330 million could have been collected from Medicaid providers in the three states if the IRS had a more stringent collection policy in place. The IRS, for its part, agrees with the GAO findings that alternative collection measures need to be taken and plans to discuss the topic with the Treasury’s Office of Tax Policy. It cautions, however, that any potential legislation related to the collection of outstanding tax debts from Medicaid providers could affect the basic structure of the Medicaid program. (Medicaid is funded by the federal government but payments fall under state jurisdiction due to the way they are disbursed.)
Operationally, it would be very simple to make the changes necessary and have better collection policy, according to Jeff Leston, CEO of Castlestone Advisors, a health-care antifraud technology solutions provider that works with the federal Medicaid and Medicare offices. But “the IRS has many restrictions on what [it] can do with [its] data [on Medicaid providers],” he says.
Any change related to tax collection from Medicaid providers would have to go through Congress. Senators Max Baucus (D-Mont.), Tom Coburn (R-Okla.), Carl Levin (D-Mich.), Charles Grassley (R-Iowa), and Orrin Hatch (R-Utah) requested the GAO report, but they admit they have more work to do. In a statement following the release of the report, Senator Coburn said the “GAO’s findings raise serious questions about steps that need to be taken to improve the integrity of the Medicaid program.”
A review of Medicaid providers in other states could add fuel to the fire. The GAO noted in its study that “given that we found over $6 billion of payments made to tax-delinquent Medicaid providers in just three states, a more rigorous review of the potential costs and financial benefits of implementing enhanced continuous and other levies of Medicaid payments is warranted.”
Further study could begin with California. The GAO had to exclude the state from its report because California did not comply with requests for Medicaid payment data over eight months. “There was a material difference between the actual detailed data we got and the information they had reported publicly,” says the GAO’s Hillman.
Regardless of which states may come under the microscope next, the GAO doesn’t plan on sitting on the sidelines. “We are very interested in ensuring our recommendations are effectively implemented,” says Hillman. “We will be following up on a periodic basis with the IRS on the status of their efforts.”