The provision requires the IRS to withhold 3 percent of payments to any federal, state or local government contractor, including Medicare contractors. Medicaid is exempt from the provision because it provides services based on patient need, according to the report.
The 3 percent cuts would be in addition to any cuts brought on by the Medicare physician payment formula and are expected to generate $7 billion in 10 years.
The provision came about, in part, because a significant portion of government contractors continue to be paid for services rendered under contracts despite owing back taxes to the federal government. Approximately 5 percent of healthcare providers who billed for Medicare Part B services received payments despite having outstanding tax liabilities, according to a March 2007 GAO report.
The IRS plans to apply the withholdings to providers’ taxes for the year, and any withholding beyond their tax obligations would be refunded after tax returns are filed. However, the money would be held by the government, interest free, until refunds are issued, which could negatively impact provider cash flow, according to the report.
Michael D. Maves, MD, MBA, CEO of the American Medical Association warned in a letter to the IRS that additional cuts could threaten access to care for Medicare beneficiaries as more physicians opt out of the program due to increased cuts.
The House passed a repeal of the provision earlier this year, but the Senate disagreed with the move and instead agreed to push the provision’s effective date from Jan. 2011 to Jan. 2012.
Those who oppose the provision argue that while most government contractors can increase their bids to make up for the withholdings, Medicare providers are not able to alter their fees.
In response, the Medical Group Management Association, the Federation of American Hospitals and America’s Health Insurance Plans have joined the Government Withholding Relief Coalition, a group formed solely to oppose the tax provision.
Read the American Medical News’ report on the IRS withholding provision.
To receive the orthopedic and spine news and feature stories from Becker’s Orthopedic & Spine Review, sign-up for the free Becker’s Orthopedic & Spine Review E-weekly by clicking here.
