Audit faults Medicare payments to tax scofflaws

WASHINGTON -- Doctors and other healthcare providers who owe the federal Treasury a total of more than $1 billion in back taxes are still receiving government checks for treating Medicare patients.

In one case, a doctor received nearly $100,000 in Medicare payments during the first nine months of 2005 despite a $600,000 overdue tax bill. The doctor owned several homes, including one overseas.

Another physician gambled millions of dollars and purchased a luxury car -- while defaulting on an installment agreement with the IRS that required monthly payments of $10,000. Medicare paid that physician about $100,000 in 2005.

In all, congressional auditors estimate that more than 21,000 physicians and other healthcare providers are abusing the federal tax system. The taxes that went unpaid for the first nine months of 2005 exceeded $1 billion, and investigators believe that estimate is a conservative one.

Lawmakers want the Health and Human Services Department to participate in a payment system that would allow the government to garnish a percentage of the Medicare reimbursements going to tax scofflaws.

"What you see are cases of folks who are really living the good life," said Senator Norm Coleman, Republican of Minnesota. "These are not folks who are scraping by."

In recent years, the Senate Committee on Homeland Security and Governmental Affairs has investigated an array of contractors who benefited from government payments even as they declined to pay federal taxes.

Now, the committee, in particular its permanent subcommittee on investigations, is focusing on the healthcare system. It asked the Government Accountability Office to determine whether physicians and other healthcare providers have unpaid federal taxes and, if so, to determine the magnitude of the problem.

"Our investigation found abusive and potentially criminal activity," the GAO's investigators are expected to tell the subcommittee today. A copy of their testimony was released yesterday afternoon.

Investigators highlighted 40 cases that they found to be the most egregious. They did not identify the doctors. However, investigators said they were referring all 40 cases to the IRS for criminal investigation.