In some cases, they used the money to buy luxury cars, million-dollar homes and other personal items, congressional auditors say.
A report by the Government Accountability Office, obtained Thursday by The Associated Press, examined roughly 436,000 providers who received government payments in 2006 for treating Medicare patients. It found that more than 27,000, or about 6 percent, owed the federal Treasury back taxes.
Nearly half those taxes -- $896 million -- was money the health care providers withheld from their employee's paychecks for Social Security and Medicare programs.
Instead of paying those payroll taxes to the government, the owners of hospitals and nursing homes diverted it into personal accounts, the GAO said.
Some nursing homes also had health and safety violations or lacked the required licensing, in one case losing track of a patient who has yet to be found and in other cases not taking appropriate action to prevent a patient's suicide, investigators said.
"Medicare is a health care program that is designed to serve our nation's seniors, yet this investigation reveals that at all levels from hospitals to nursing homes to doctors -- some health care providers are subverting the tax system to line their pockets," said Sen. Norm Coleman, R-Minn., the top Republican on the Senate Homeland Security subcommittee on investigations, which requested the GAO report.
"Employees who work hard each day shouldn't have to worry whether their paychecks are being used by their employers to live lavishly," he added, calling for greater oversight of health care practitioners who serve "the nation's most vulnerable communities."
The GAO report urges the Centers for Medicare and Medicaid Services and its contractors to better screen prospective Medicare providers, such as requiring them to disclose tax debts.
Under federal law, the Internal Revenue Service cannot disclose taxpayers' information, even to CMS, without their permission first.
It also calls for CMS to participate fully in an IRS program established in 1997 that would seize up to 15 percent of federal payments, such as Medicare reimbursements, until a tax debt is paid.
GAO urged CMS to join the program as early as 2001 and has since put out follow-up reports on Medicare tax abuse. CMS has hedged, citing in part technical difficulties.