IRS Should Investigate Massive Health Care Kickback Scheme, Claims Whistleblower Appeal

FORT MYERS, Fla., February 3, 2019 (Newswire.com) - ​For more than 20 years, health care cost reform crusader Roy J. Meidinger has been trying to get a judge to hear the merits of his argument: that the way insurance companies negotiate secret contracts with medical care providers to cover patients’ bills amounts to a massive kickback scheme.

Now, thanks to a January 2018 legal precedent in which another whistleblower filed an unrelated claim against a company that ultimately paid $37 million in penalties to the IRS, Meidinger believes his day in court may finally come.

That’s not because the plaintiff in that case, Kenneth William Kasper v. Commissioner of Internal Review (docket No. 22242-11W, January 2018), won any cash reward for blowing the whistle against his employer over unpaid over-time in 2009. In fact, Kasper won nothing. What’s significant about that case, however, is that the U.S. Court of Tax Appeals, which is authorized by Congress to hear IRS whistleblower claims in addition to taxpayer disputes actually agreed to review Kasper’s claim for reward, even though it was rejected by the IRS. In the past, the court had refused to override decisions by the IRS whistleblowers office, saying it didn’t have that authority.

That January 2018 decision is key to Meidinger, because he has twice appealed decisions by the IRS’s whistleblower office to reject his claims, only to have the Tax Court summarily reject them. In his first case, Meidinger v. Commissioner of Internal Revenue Service (docket No. 016513-12W, June 2012), the court granted motions from the IRS’s attorney arguing Meidinger failed to state a sufficient claim.

Meidinger feels if he can get a judge to agree to hear his case, he can then get his hands-on discovery documents from the IRS. And those might show whether its investigation into his claims were misguided, or whether there ever was any investigation at all.

“I’m an optimist,” says Meidinger, who keeps a small statue of Don Quixote on the bookshelf above his desk. “That’s why I read the comics every morning.”

Meidinger filed a Whistleblower claim in 2010 (docket No. 10- 00785). After the IRS Whistleblower Office rejected it, filed his first case in 2012, Meidinger v. CIR, docket No. 22242-11W. After the change of the IRS Whistleblower case law created by Kasper v. Cir, Meidinger filed a new claim (docket No. 2018-009332) on May 23, 2018. In his cases, he argues that the way hospitals and other medical providers hand patients bills listing their standard, exorbitant prices, but then accept much less from insurance companies that have negotiated contracts with them nothing more than a kickback scheme. Details of reference materials can be found in Meidinger's book, "The Truth About The Healthcare Industry."

The medical providers accept the lower secret prices, which average about 15 percent of the providers’ standard prices, because the insurance companies promise to refer large numbers of their beneficiaries to the providers through “on-net’ policies. Any insured patient can see the difference between the billed amount and the approved amount on the Explanation of Benefits form, which is not a bill, sent by their insurance company. The policies penalize patients who go to providers that aren’t on the insurance companies’ “networks.”

The system allows the medical providers to jack up standard prices to astronomical levels in order to make up the difference, and that shifts the burden of costs to uninsured patients who wind up paying six times more than insured patients for the same services, according to Meidinger. Meidinger says that by law, the determination of price is the actual amount collected by the provider, and when there is a different price being collected for the same services it is price discrimination and it is illegal. But for tax purposes, the amount listed on the patient's bill is recognized as income for tax purposes, not the amount actually collected.

Meidinger contends the secret prices aren’t “discounts” because discounts, under uniform commercial codes, must be given to the customer, which is the patient, not a third-party payer like an insurance company.

They are “forgiveness of debt” because, under the uniform commercial codes, the Parole Evidence Rule, as well as under the “accrual method of accounting,” which most medical providers use, the bill given to the patient represents a legal obligation to pay, and it should be counted as taxable revenue. If the patient fails to pay, the difference is a “bad debt,” not a discount, but if the insurance company fails to pay the full amount it is a cancellation of debt.

Actually, what the insurance companies and hospitals are doing amounts to “forgiveness of debt,” according to Meidinger.

Under IRS tax code, both those that forgive debts and those who are granted debt forgiveness for referring patients must pay taxes on the amounts forgiven. For example, if a home buyer defaults on a mortgage, and the lender forgives the unpaid portion of the debt, both have to file an IRS 1099 form and the borrower must pay taxes on the amount.

Medical providers, however, write-off the difference between what they charge and what they collect from insurance companies as “contractual adjustments.” Meidinger has researched Generally Accepted Accounting Practices (GAAP) and the Tax Code, neither of which recognizes the accounting term "contract adjustment." The IRS has long accepted that practice, failed to enforce our tax laws, and that is why the kickback scheme grew so large, increasing our national medical costs.

That doesn’t make it legal, however, according to Meidinger. He argues there is no law or rule in any state or federal statute that authorizes businesses to write-off the difference between prices charged to all medical customers and the vastly lower amounts collected from some customers who have insurance.

Meidinger contends the secret prices negotiated by insurance companies are “kickbacks” because, in exchange, they deliver large numbers of patients to their on-network medical providers. Federal and state anti-kickback laws prohibit medical providers from paying anything in exchange for patient referrals.

In Meidinger’s 2012 case, the IRS Whistleblower Office concluded he didn’t state a case in which he could collect a reward for turning in a tax evader. That’s despite the fact Meidinger had gone to great lengths to provide, literally, more than 1 million names of medical providers who had signed contracts with insurance companies to accept their secret prices.

Meidinger, again appealed his last dismissal to the tax court. The IRS moved to have the case dismissed. The Chief Tax Court Judge, who was a signatory on the Kasper v. CIR case, then assigned a special judge to dismiss the IRS motion, but the special judge dismissed his case saying the court lacked jurisdiction to dictate to the IRS how to conduct its investigation.

On Nov. 5, Tax Court Special Judge Peter J. Panuthos flatly dismissed Meidinger’s case on a motion from the IRS arguing it failed “to state a claim for which relief can be granted.”

Meidinger filed a request to reconsider the case based on the court’s own rule of procedure, number 161, which authorizes the court to reconsider cases if a judge based a decision on outdated case law. Meidinger cites the Kasper case as the new precedent.

Panuthos, however, revised Meidinger’s request to be pursuant to rule 162, which allows cases to be reconsidered if new evidence emerges. Since the request mentioned no new evidence, Panuthos declined to reconsider his dismissal.

Meidinger said, consulting an attorney, he drafted an appeal, which was introduced yesterday, in the U.S. 11th District Court of Appeals in Atlanta, Meidinger v. Commissioner, case No. 18-15066-CC.

The appeal argues the tax court judge “abused his discretion” by not fully reviewing Meidinger’s facts, the new case law and considering whether the IRS should investigate them further.

Meidinger points out the price commercial codes of our Antitrust and Consumer Protection Laws prohibit secret prices and kickbacks because they result in price discrimination and raise the cost of health care.

The health care industry began to engage in secret price negotiations after Congress modified its Medicare and Medicaid reimbursement system in 1982. That law authorized medical providers to write-off the difference between their standard prices and the amounts Medicare and Medicaid paid as contract adjustments, but that method was intended only for the government programs, because the government was dictating the amounts it was going to pay for its public beneficiaries, according to Meidinger.

Before long, private insurance companies began using the same method for getting discounts off the bills of their private-pay beneficiaries. And they encountered little, if any, opposition from the IRS.

The result was a health-care cost spiral that has rendered the U.S. unable to compete, especially in such global markets as manufacturing. Meidinger, in a 2015 e-book he authored titled, “The Truth About the Healthcare Industry,” points out health care in the U.S. costs three or four times as much as in other leading industrialized countries. Most of the other industrial countries have single-payer, universal health care.

Meidinger points out the difference between the amount billed and the amount collected by medical providers would provide $1.5 trillion per year in tax revenue. If taxes had been paid on those forgiven debts since the system started in 1982, the IRS would have collected enough to pay off our national debt, he says.

“It was like a rubber stamp,” says Meidinger of IRS’s response to the medical billing system. “Once the IRS stopped enforcing the tax code, the system just went crazy and started to grow.”

Meidinger, a retired AT&T systems analyst, first became aware of the problem in 1995 after reading an article about a lawsuit over the billing practice at a Florida hospital. He then reviewed his parents’ health care bills and concluded the system “just isn’t right.”

Since then, he’s filed several whistleblower claims over how the system inflates reimbursement rates for Medicare and Medicaid. Those claims were rejected.

He’s written dozens of letters and articles and sent them to hundreds of government bureaucrats and politicians. They sparked little action.

He points out, a few years ago, the government recalculated the Consumer Price Index and Cost of Living Index to account for false inflation in the medical care field. He believes that was a response to an article he wrote that was published in a Commerce Department newsletter.

He also points out that health care was the most important issue in the November congressional elections, according to numerous pollsters. He takes some of the credit for that, too, citing that he wrote several letters to the Democratic National Congressional Committee urging that focus.

And now, he’s hoping the appellate court, the third branch of our government  will finally consider the facts of his case, and overrule the executive branch.

Meidinger is also hoping to spread awareness of the health care billing scheme, because he knows it will take peoples' political will to reform it.

“We need the support of the people,” he says.

Source: Roy J. Meidinger