Doctors owe more than $1 billion in back taxes

Americans who have done battle with the IRS may not be happy to hear what thousands of doctors are getting away with. A government investigation finds that doctors and other medical providers who owe more than $1 billion in back taxes nevertheless are still collecting money from Medicare.

Jennifer Reich, a single mother who owns a Pilates studio, was notified two years ago that she owed $35,000 in back taxes.

"I was anxious and I was scared," Reich says. "Because every morning I woke up, I didn't know what our future was going to be."

She says the government made her life miserable until she borrowed money to pay the taxes. However, it appears that some doctors delinquent on their taxes get very different treatment. A new report by government watchdogs finds that in 2005, 21,000 doctors and health care providers who owed $1.3 billion in payroll and income taxes continued to collect big money from Medicare.

Investigators also told Congress Tuesday that some doctors had been sanctioned for substandard care, financial misconduct, even criminal activity.

How bad does the behavior of Medicare providers need to be for them to be barred from doing business with the federal government? One doctor owed almost $1 million in taxes and had lost hospital privileges. Another, convicted of money laundering, owed more than $600,000 in taxes. Yet both collected about $100,000 from Medicare.

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How can this happen? Because unlike most federal agencies, Medicare does not check outgoing government payments against tax debts and withhold money for back taxes.  

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"I think the average taxpayer has a right to be angry," Sen. Norm Coleman, R-Minn., says.

A Medicare official said Tuesday the agency is working hard to correct this problem and expects to screen all payments to doctors — by the year 2011.